In September 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-07, Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets. The standard is intended to provide additional information about how a not-for-profit (NFP) organization values donated nonfinancial assets, often referred to as “gifts-in-kind,” and how the NFP uses gifts-in-kind received in its programs and other activities. Contributed nonfinancial assets include donated services, donated goods (clothing, inventory, supplies, food, etc.), donated fixed assets (land, buildings, equipment, etc.), use of fixed assets or utilities (free rent), intangible assets (advertising, patents, copyrights, royalties, etc.), and unconditional promises to give such items.
Contribution of Services
ASU No. 2020-07 does not change the existing criteria used to determine whether or not to record the amount of donated services in the financial statements. Contributions of services are recorded if the services received meet any of the following criteria:
- They create or enhance nonfinancial assets.
- They require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. Services requiring specialized skills are provided by accountants, architects, carpenters, doctors, electricians, lawyers, nurses, plumbers, teachers, and other professionals and craftsmen.
Separate Reporting and Expanded Disclosures
ASU No. 2020-07 does require NFPs to separately show the gifts-in-kind in the financial statements (specifically, the statement of activities), apart from cash contributions and other contributed financial assets, such as investments.
In addition, NFPs were already required to disclose donated services received. However, ASU No. 2020-07 does expand these disclosures to cover other types of noncash contributions. The NFP is required to show the various types of in-kind contributions in the footnotes to the financial statements, including the amount they are valued at, and discuss whether the gifts-in-kind were sold or utilized. The NFP would further describe which programs and activities used the gifts-in-kind. Other footnote disclosures include the NFP’s policy for selling in-kind contributions (if they do so), a description of any restrictions on in-kind contributions by the donor, and a description of how the NFP valued the gifts-in-kind. Lastly, if a donor restricts the market where the gifts-in-kind may be used or sold, the NFP must disclose what market was used to value the gifts-in-kind.
Implementing ASU No. 2020-07
ASU No. 2020-07 includes example statements of activities that show the new breakout between contributed financial and nonfinancial assets. It also includes an illustration of all of the new disclosures required under the standard.
The ASU should be applied retrospectively to all periods presented within a NFP’s financial statements, starting with annual periods beginning after June 15, 2021. Early adoption is allowed.
Prepare Your Not-for-Profit Organization
To prepare, an NFP may need to evaluate its ability to accumulate the required information for footnote disclosure. For instance, new general ledger accounts may need to be set up to track sales of gifts-in-kind, as well as expense accounts to track the programs or activities where the gifts-in-kind are utilized. The footnotes will require a description of the different valuation techniques an NFP uses to value the gifts-in-kind received. If there are not formal policies and procedures for valuing gifts-in-kind, establishing those may help an NFP prepare to implement this standard.
The adoption of ASU No. 2020-07 allows for some flexibility in the way an NFP presents the information, and the NFP may consider grouping its types of in-kind contributions in the footnote disclosures in ways that are meaningful to the organization. For support in understanding and implementing the standard updates, please contact our not-for-profit team.