Many nonprofit organizations rely on contributions that come in any and all methods and amounts. Some of those contributions may be given as nonfinancial gifts rather than receiving a physical check or a promise to give that is received over several years. A variety of different terms that are used to describe various forms of nonfinancial gifts include, but are not limited to:
Gifts-in-kind can include supplies such as food, clothing, office items or larger items such as property and equipment, vehicles or land. Gifts-in-kind can even come in the form of contributed services.
Presentation and Disclosures for Gifts-in-Kind
The Financial Accounting Standards Board (FASB ) has issued Accounting Standards Update (ASU) 2020-07, Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets, which addresses the presentation and disclosures of these types of contributions. The issue on the table was that stakeholders had concerns regarding the lack of transparency surrounding contributed nonfinancial assets, and this ASU is aiming to expand on those disclosures in nonprofit financial statements, thus increasing transparency.
Under current U.S. Generally Accepted Accounting Principles (GAAP), the guidance specifies requirements for the recognition and initial measurement of contributions and disclosure requirements for contributed services. However, current U.S. GAAP is silent as to disclosure requirements regarding other types of contributed nonfinancial assets.
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New Accounting Standards Update for Nonfinancial Assets
In summary, ASU 2020-07 expands those disclosure requirements. Under the new standard, contributed nonfinancial assets (gifts-in-kind) will be required to be presented separately from other cash contributions on the statement of activities. In addition, there are additional disclosures to be included.
Disclosures of contribution types by category. First, to increase the transparency of these types of nonfinancial gifts, nonprofits will be required to disclose the types of contributed nonfinancial assets that have been recognized during the reporting period by category, such as donated services, in-kind goods or supplies, or in-kind property and equipment as examples. Additionally, expanded disclosure is required by the types of contributed nonfinancial assets. This would be a further breakdown of what types of donated services were provided, such as legal, accounting, or other types of services. If contributed assets are received, the type of asset should be included, such as land, building, vehicles, or inventory. For the contributed nonfinancial assets that include a donor-imposed restriction, a description of those restrictions should be included in the disclosure.
Disclosures of how contributions were used. Second, the standard aims at disclosing how the nonprofit utilized these types of contributions. There are times when contributed nonfinancial assets are liquified to cash upon receipt. For example, if a nonprofit receives a donation of stock but does not maintain an investment portfolio outside of money market funds, the nonprofit may have a policy to convert the stock to cash requiring less maintenance for the organization. Meanwhile, other types of contributed assets are used directly in program activities or to support the organization, such as contributed medical supplies, clothing, or accounting services. For those nonfinancial gifts that are being used during the reporting period, the disclosure should identify the programs or activities that used the nonfinancial contributed assets. If the nonprofit has developed a policy related to monetizing assets upon receipt, i.e., selling and converting to a liquid asset, the policy is to be disclosed in the financial statements.
Contributions recorded at fair value. Lastly, contributed nonfinancial assets are required to be recorded at fair value when received and initially recorded in the financial statements. The valuation techniques that were used by the nonprofit upon initial valuation of the contributed assets will be required to be disclosed under the new standard. When determining the market to be used in valuing such assets there could be restrictions that are donor-imposed that could impact why a certain market was chosen. For example, if a nonprofit received pharmaceutical supplies that were restricted by a donor to use outside the United States, the market used to determine the fair value would need to be tailored for those donor-imposed restrictions to get to the most accurate fair value price.
The accounting standards requirements in ASU 2020-07 should be applied on a retrospective basis. The effective date is for annual periods beginning after June 15, 2021, and interim periods with annual periods beginning after June 15, 2022. In addition, early adoption of the new standard is permitted.
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