Contributions and the New Standards
The Financial Accounting Standards Board (FASB) is always keeping things hopping and upgraded. They are at it again.
On June 21, 2018, the FASB issued Accounting Standards Update (ASU) No. 2018-08, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. This standard answers questions regarding FASB ASU No.2014-09, Revenue from Contracts with Customers. Grants and contracts of nonprofit organizations are the focus.
This standard considers whether a nonprofit grant fits the definition of a contract with a customer and if the new revenue rules apply. Or, are grants a contribution -- which excludes them from the scope of ASU 2014-09. In this case, you would consider them as a contribution and handle them as such.
To find the details about whether your funds are grants or contributions, you must dig into the ASU 2014-09 and scrutinize the grants and contributions individually.
ASU 2014-09 applies to fund providers and fund recipients. To begin looking into whether your funds are grants or contributions, determine if each party receives equal value or an exchange for the funds. In this case, the donor would adhere to ASC 958-720, Not-for-Profit Entities, Other Expenses; and, the recipient would follow ASU 2014-09.
If the transaction is not reciprocal and is a contribution, follow the contribution guidelines. ASU 2018-08 states that even if the funds are for the provider’s charitable cause it may not equal commensurate reciprocal value. In agreement with current GAAP rulings, if the transfer of assets is a payment from a third-party (e.g., an educational institute) on an existing transaction between the recipient and an identified customer (e.g., between a college and a student eligible for financial aid), other rulings apply.
For nonreciprocal transactions or contributions, both parties need to determine if the funds have restrictions. Any restrictive conditions affect the timing of distributions of funds, and when the recipient and provider agree to the timing.
Conditional contributions must meet the following requirements:
The contributor retains a right of return to the resources provided or a right of release of promisor from the obligation to transfer resources.
The nonprofit organization must overcome a barrier to receive the funds.
FASB provides the following details to help identify if a barrier may exist.
The non profit...
is required to reach a specific measurable result (assist a certain number of children, provide clothing for a specific number of homeless people, train a defined number of service dogs).
is required to pass a barrier tied to the primary reason of the agreement, excluding administrative restrictions.
has limited input on how to spend the funds, such as rules for creating expenses.
The IRS defines conditional contributions as liabilities if the provider transferred the funds earlier. The IRS does not acknowledge contributions until the contributions have been met or waived by the donor. It then recognizes the contribution as unconditional and labels the net assets as not having donor restrictions.
The IRS immediately recognizes unconditional contributions and considers them net assets with or without donor restrictions. You need to identify if the funds have conditions and if there are donor-imposed restrictions.
When you encounter a transaction that a public business or a nonprofit has issued,
or come upon a bond obligor for listed, traded, or quoted on an exchange securities that acts as a resource recipient, the entity needs to use ASU 2018-08 on contributions received in annual periods after June 15, 2018. Be sure to include interim times during those annual timeframes.
Other entities should implement the transaction updates where the entity acts as the money recipient during periods starting after December 15, 2018, and interim periods beginning December 15, 2019.
For transactions issued with a public business or a nonprofit organization.
The new standards allow you to adopt these changes at an earlier time. To learn the details of the updates to the standard, visit ASU and visit the full range of changes and improvements, and practice going through the decision process.
To learn more about nonprofit grants and contracts, keep in touch with our blog. We have ideas to share and solutions to management and organizational questions. If you have questions about any other not-for-profit industry topics, contact our not-for-profit team leader at trent@tbfosteraccounting.com.
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