Nonprofits are just coming out of the fog after implementing the new revenue recognition standards. But clear skies aren’t on the radar just yet. In September 2020, The Financial Accounting Standards Board (FASB) issued an accounting standards update (ASU) on TOPIC 958: Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets. And the effective date for the new rules on recording and reporting gifts-in-kind is swiftly approaching.
What are gifts-in-kind?
Gifts-in-kind can be an essential source of nonprofit revenue. They are nonfinancial donations of tangible and intangible assets that a nonprofit would need to purchase in its normal course of business. Gifts-in-kind must be donated unconditionally and be of value so that the organization can sell or use the gift to support its mission, operations, or programming.
Tangible gifts-in-kind include fixed assets, such as land or office furniture; donations for auction at a charitable event; and gifts for programming, such as food or medical supplies. Intangible gifts-in-kind include items like patents, royalties, and copyrights; professional expertise, such as legal or accounting services; and specialized volunteer services, such as an RN’s time volunteering for a healthcare organization.
What is the intention of the new Gifts-in-Kind reporting rules?
The purpose of the new rule is to allow anyone who reads a financial statement to be able to understand the value of the organization’s non-cash gifts. According to FASB Board Member Sue Cosper, the ASU intends to address the concerns of nonprofit stakeholders “by requiring more prominent presentation of contributed nonfinancial assets and enhanced disclosures about the valuation of those contributions and their use in programs and other activities, including any donor-imposed restrictions on such use.”
Nonprofit organizations that prepare GAAP-based financial statements are required to comply with this ASU. Gifts-in-kind must be presented as a separate line item on your statement of activities instead of remaining grouped with contributions of cash or other financial assets. Gifts-in-kind must be disaggregated into categories based on gift type, and the following disclosures must be made for each category:
- qualitative information about the sale of gifts-in-kind or their use in your programs or other activities during the reporting period;
- your policy on selling rather than using gifts-in-kind, if applicable;
- any donor-imposed restrictions associated with the gifts-in-kind;
- a description of the valuation techniques/inputs used to arrive at a fair value measure at initial recognition; and
- the principal/most advantageous market used to arrive at a fair value measure if the market prohibits the recipient by a donor-imposed restriction from selling or using the gifts-in-kind.
How much time do we have to prepare?
The amendments in the ASU affect annual reporting periods beginning after June 15, 2021. The ASU is effective for fiscal years ending June 30, 2022, or calendar years ending December 31, 2022. Nonprofits are required to apply the ASU retrospectively, and early adoption is permitted.
How can nonprofit organizations prepare?
If you present comparative financial statements, you will need to prepare to provide the required disclosures for the prior period presented. In this case, your financial statement disclosures should also include:
- the nature and reason for the change in accounting principle;
- the method used to apply the change in accounting principle;
- a description of the retrospectively adjusted prior-period information; and
- the effect of the changes on other relevant financial statement items.
Consider forming an interdepartmental team, including accounting, fundraising, operations, and major gifts, to ensure you are prepared to implement the new standards.
Your organization can also revise or draft new policies on the sale or use of gifts-in-kind and review your reporting procedures to ensure you get the most out of these contributions.
Contact Smith, Sullivan & Brown
Smith, Sullivan & Brown has an experienced nonprofit audit team focused exclusively on nonprofit services. We work with our nonprofit clients year-round, providing accounting, auditing, tax preparation, and other compliance services. If you need help understanding and complying with your organization’s reporting requirements, we’re here to help. Contact us today.
Sandra Brown, CPA is a Partner at Smith, Sullivan & Brown. Sandy graduated from the University of Oklahoma and began her career in public accounting at Price Waterhouse. She is licensed in Oklahoma and Massachusetts. Sandy co-supervises the nonprofit accounting, auditing, and tax engagements.
Elizabeth Sheridan, CPA, CFE is an Audit Manager at Smith, Sullivan & Brown. She is a Certified Public Accountant and a Certified Fraud Examiner. Elizabeth has ten years of experience providing specialized accounting and auditing services to nonprofit organizations.