The Financial Accounting Standards Board (FASB) periodically issues accounting standards updates (ASU) that improve the standardization of accounting issues. ASUs for the nonprofit industry are typically with the purpose to improve transparency and accountability of nonprofits’ financial reporting. The most recent industry-specific accounting guidance update is addressing the presentation and disclosures of contributed nonfinancial assets, commonly referred to as gifts-in-kind. This update (ASU No. 2020-07) is effective for nonprofits with annual periods beginning after June 15, 2021. In other words, nonprofits will need to implement this update in their financial statements for years ending June 30, 2022 or later.
Gifts-in-kind include fixed assets (such as land, buildings, and equipment), use of fixed assets or utilities, materials and supplies, intangible assets, services, and unconditional promises of those assets. While gifts-in-kind do not come in the form of cash, they are an essential part of public support that contributes to the success of many organizations in the industry. For some nonprofits, reporting of gifts-in-kind has often been overlooked due to the difficulties in tracking and determining the fair value of the contributed assets or services. ASU No. 2020-07 aims to level the playing field by requiring all nonprofits to follow the same standards when it comes to reporting gifts-in-kind.
Specifically, ASU No. 2020-07 requires nonprofits to disclose a disaggregation of the amount of gifts-in-kind recognized within the statement of activities by category that depicts the type of contributed nonfinancial assets.
For each category of gifts-in-kind, a nonprofit also must disclose the following:
- Qualitative information about whether gifts-in-kind were either monetized or utilized during the reporting period. If utilized, a description of the programs or other activities in which those assets were used shall be disclosed.
- The nonprofit’s policy (if any) about monetizing rather than utilizing contributed nonfinancial assets.
- A description of any donor-imposed restrictions associated with the gifts-in-kind.
- A description of the valuation techniques and inputs used to arrive at a fair value measure at initial recognition.
- The principal market (or most advantageous market) used to arrive at a fair value measure if it is a market in which the recipient nonprofit is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial assets.
The nonprofits that receive contributed services must describe the programs or activities for which those services were used, including the nature and extent of contributed services received for the period and the amount recognized as revenues for the period. Nonprofits are encouraged to disclose the fair value of contributed services received but not recognized as revenues if that is practicable. The nature and extent of contributed services received can be described by nonmonetary information, such as the number and trends of donated hours received or service outputs provided by volunteer efforts, or other monetary information, such as the dollar amount of contributions raised by volunteers. Disclosure of contributed services is required regardless of whether the services received are recognized as revenue in the financial statements.
If a nonprofit doesn’t already have a formal policy to address the tracking and reporting of gifts-in-kind, now is a good time to start working on adopting such a policy. We will inquire about this policy when we work with our nonprofit clients’ year-end reporting in 2022. In the meantime, if you have any question about how this new ASU will affect you, please send an email to your trusted advisors at DBM!