What Nonprofits Need to Know About New Accounting Standards

February 3, 2021 | Article

Nonprofits need to maintain an awareness of what’s new , what’s effective now, and what’s on the horizon to ensure their accounting and financial statements continue to comply with GAAP.

Here are recent ASUs impacting nonprofits, including those issued in 2020, those effective for years ending December 31, 2020, and more.

As a note, FASB sets effective dates by segregating public business entities (PBE) from all other entities. Occasionally, FASB will additionally segregate smaller reporting companies (SRCs), not-for-profit entities (NFPs) that have issued or are conduit bond obligors for securities that are traded, listed or quoted on an exchange or an over-the-counter market, or employee benefit plans that file or furnish financial statements with or to the SEC. The effective dates included below are the dates applicable to both PBE and non-PBE entities. However, the non-PBE effective dates are used in determining which subject line heading they appear in.

Unsure which accounting standards are impacting your nonprofit?

What’s New for Nonprofit Organizations in 2020?
One 2020 ASU is likely to have the most significant impact on nonprofit entity financial statements. FASB issued ASU 2020-07, Not-for-Profit Entities (Topic 958): Presentation and Disclosure by Not-for-Profit Entities for Contributed Nonfinancial Assets, which adds additional presentation and disclosure requirements for certain contributions received by NFPs. The ASU is effective for fiscal years beginning after June 15, 2021. Although the ASU isn’t effective immediately, NFPS should understand the impact of the standard prior to its effective date as it requires the updates to be applied retrospectively to all periods presented. Considering the effects of the changes will allow NFPs to begin accumulating the information needed to restate prior periods.

Here are other 2020 ASUs that will affect nonprofits:

2020-07—Not-for-Profit Entities (Topic 958): Presentation and Disclosure by Not-for-Profit Entities for Contributed Nonfinancial Assets
Summary: GAAP has historically required certain disclosures related to contributed services but has not required specific disclosures for other in-kind contributions. This ASU updates the presentation and disclosure of nonfinancial assets. The effect of the ASU will be a significant increase in disclosures for not-for-profit entities that receive contributions of nonfinancial assets such as fixed assets, use of fixed assets or utilities, materials and supplies, services, or unconditional promises of those assets.

Update disclosure requirements include the following:
  1. Present contributed nonfinancial assets as a separate line item in the statement of activities. This separate line will not include contributions of cash or other financial assets.
  2. Present the disaggregated detail of the amount included as contributed nonfinancial assets in the statement of activities by category that depicts the type of contributed nonfinancial assets.
  3. For each category in (2) above, the NFP is required to disclose:
    1. Qualitative information about if the contributed nonfinancial assets were monetized or utilized during the reporting period and if utilized, a description of the programs or other activities those assets were used for;
    2. Policy (if any) for monetizing rather than utilizing;
    3. Description of any donor-imposed restriction;
    4. Description of the valuation techniques and inputs used to arrive at the initial fair value;
    5. The principle or most advantageous market used to arrive at fair value if it is a market in which the NFP is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial assets.

The amendments included in the ASU shall be applied retrospectively to all periods presented.

Effective date for all others Fiscal years beginning after June 15, 2021 (interim periods within fiscal years beginning after June 15, 2022)
Early adoption Permitted
2020-05—Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities
Summary: FASB issued this ASU as a direct result of the effects of COVID-19 on organizations. The ASU allows for the deferral of the effective date for Topic 606, Revenue from Contracts with Customers, for all private entities that have not yet adopted the guidance. The ASU additionally clarifies that the deferral of Topic 842, Leases, is available for any nonprofit entity that has not yet issued its GAAP compliant financial statements or made those financials statements available for issuance, including those that have published financial information that reflects adoption of Topic 842 (for example, quarterly financial statements filed on EMMA).
Effective date for all entities Option to defer is effective immediately
2020-04—Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
Summary: The LIBOR reference rate is being phased out which will require entities to update their contracts to a new reference rate. FASB issued this ASU to ease the transition to new reference rates by allowing several optional expedients which will reduce the cost and complexity of accounting for the change. The ASU affects all entities that have contracts, hedging relationships, or other transactions that reference LIBOR or another reference rate that is expected to be discontinued due to reference rate reform.
Effective date for all entities From March 12, 2020 through December 31, 2022 (There are limited transactions which may extend beyond 2022)
2020-01—Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force)
Summary: The ASU is a consensus of the Emerging Issues Task Force and it clarifies certain items related to ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU (1) clarifies that when an entity is either applying the equity method or upon discontinuing the equity method it should consider observable price changes in orderly transactions for the identical or a similar investment with the same issuer for valuing basis of the investment and (2) clarifies that when determining the accounting for certain forward contracts and purchased options an entity should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option.
Effective date for PBEs Fiscal years beginning after December 15, 2020
Effective date for all others Fiscal years beginning after December 15, 2021
Early adoption Permitted

What’s Effective for nonprofit December 31, 2020 Financial Statements?

Do you know which standards updates you need to consider as you go through the 2020 financial close process and begin preparing your financial statements? The following ASUs are effective for all December 31, 2020 financial statements (applicable to all entities, unless otherwise noted).

2019-03—Not-for-Profit Entities (Topic 958): Updating the Definition of Collections
Summary: This ASU modifies the definition of the term collections and requires that a collection-holding entity disclose its policy for the use of proceeds from when collection items are deaccessioned (that is removed from a collection). If a collection-holding entity has a policy that allows proceeds from deaccessioned collection items to be used for direct care, it should disclose its definition of direct care.
Effective date for all entities Fiscal years beginning after December 15, 2019
Early adoption Permitted
2018-13—Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
Summary: This ASU includes significant disclosure changes for Level 3 investments. Other changes relate to disclosures for transfers between Level 1 and Level 2 investments and investments in certain entities that calculate net asset value.
Effective date for all entities Fiscal years beginning after December 15, 2019
Early adoption Permitted
2018-08—Not-For-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made
Summary: This ASU provided a more robust framework for accounting for contributions for resource recipients and resource providers. While contribution accounting is more significant to not-for-profit entities, the ASU is applicable to all entities, including business organizations, that receive or make contributions of cash or other assets.
Effective date for PBEs – (resource recipient/contributions received) For transactions in which an entity is either a public business entity or an NFP that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market and serves as a resource recipient, the amendments are effective for contributions received for annual periods beginning after June 15, 2018, including interim periods within those annual periods.
Effective date for all others – (resource recipient/contributions received) All other entities should apply the amendments for transactions in which the entity serves as the resource recipient to annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019 and interim periods within annual periods beginning after December 15, 2019.
Effective date for PBEs – (resource provider/contributions made) For transactions in which an entity is either a public business entity or an NFP that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market and serves as a resource provider, the amendments are effective for contributions made to annual periods beginning after December 15, 2018, including interim periods within those annual periods.
Effective date for all others – (resource provider/contributions made) All other entities should apply the amendments for transactions in which the entity serves as the resource provider to annual periods beginning after December 15, 2019, and interim periods within annual periods beginning after December 15, 2020.
Early adoption Permitted
2016-02—Leases (Topic 842) (the following are updates related to Leases)

2020-05—Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities; 2019-10—Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates; 2019-01—Leases (Topic 842): Codification Improvements; 2018-20—Leases (Topic 842): Narrow-Scope Improvements for Lessors; 2018-11—Leases (Topic 842): Targeted Improvements; 2018-10—Codification Improvements to Topic 842, Leases; 2018-01—Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842
Summary: This ASU is a comprehensive change to the accounting for leases. The ASU results in two types of leases, financing and operating. Financing leases accounting will be similar to capital leases under prior guidance. Entities will see a significant change related to operating lease accounting since under prior guidance operating leases were “off-balance sheet”. Under the new guidance entities will record a right-to-use (ROU) asset on the balance sheet.
Effective date for PBEs Fiscal years beginning after December 15, 2018
Effective date for conduit debt NFPs Fiscal years beginning after December 15, 2019 (if they have not yet issued financial statements, or made available for issuance, reflecting the adoption of Leases)
Effective date for all others Fiscal years beginning after December 15, 2021
Early adoption Permitted

What’s on the horizon for 2021 and beyond for your non-public entity? We recently broke down accounting standards that could affect you.

Stay current on your favorite topics

SUBSCRIBE

Learn More

See what more we can bring to organizations just like yours.

Nonprofit