New Standard will Affect How Non-profits Account for Donations of Nonfinancial Assets

In September 2020, the Financial Accounting Standards Board (FASB) issued a new standard that will enhance the presentation and disclosure requirements for non-profit organizations that receive donations other than cash and other financial assets. Accounting Standards Update (ASU) 2020-07 will affect all non-profits that receive contributed nonfinancial assets.

What are nonfinancial assets and when is the new standard effective? 

Contributed nonfinancial assets include donations of equipment, supplies, buildings and land, food, clothing, and other goods. They also include use of facilities, free utilities, certain intangible assets, and services. Contributed securities and other financial assets are not within the scope of this new standard because these types of assets are generally monetized shortly after being donated to a non-profit.

The financial statements of all non-profits organizations that receive these nonfinancial assets, if they prepare financial statements in accordance with accounting principles generally accepted in the United States (GAAP), will be affected by the new standard, which becomes effective for annual periods that begin after June 15, 2021 (early adoption permitted).

Why did the FASB issue the new standard and how does it affect non-profits?

The FASB issued this new standard to provide more transparency into the nature and amounts of contributed nonfinancial assets received and utilized by non-profits.  ASU 2020-07 was also issued to provide consistency in the presentation and disclosure among non-profits for contributed nonfinancial assets. The financial reporting rules that were in effect through ASU 2020-07 only required certain disclosures for contributed services.

Under the new standard, non-profit organizations will now be required to present contributed nonfinancial assets as a separate line on the statement of activities, segregated from contributions of cash and other financial assets. There is also a requirement to disclose within the notes to the financial statements a disaggregation of the amount of nonfinancial assets reported on the statement of activities. Other disclosure requirements include:

·       Information about whether the nonfinancial asset was sold versus retained and used in programs,

·       The organization’s policy regarding monetizing versus retaining and using, disclosures about restrictions, and

·       A description of valuation techniques to determine fair value, as well as the market used to determine that fair
        value measurement.

What should non-profits do to prepare for adoption?

To prepare for adoption, a non-profit organization should ensure they have systems in place to provide their auditors with the disaggregated information related to all contributed nonfinancial assets.

Non-profit boards and senior management should discuss and implement a formal policy regarding whether the organization sells (monetizes) or utilize contributed nonfinancial assets. The organization also needs to have systems in place to track and report whether contributed nonfinancial assets were either sold or utilized in accordance with the organization’s policy.

Additionally, non-profits should ensure systems are in place to determine and track any donor-imposed restrictions on contributed nonfinancial assets so that the related disclosure requirements can be met.

Another important consideration is the policy, approach, and process for determining the fair value of contributed nonfinancial assets, since there are also disclosure requirements related to determining fair value.

While the effective date for adopting ASU 2020-07 is for years that begin after June 15, 2021, the ASU must be applied retrospectively. This means that non-profits that issue comparative financial statements should ensure they are ready to also provide the required disclosures for the fiscal years that begin as early as after June 15, 2020. Certain transition disclosures are also required in the period of adoption.

Your Stone & Company team will remain a key resource for our non-profit community as organizations navigate these new presentation and disclosure requirements. Contact us for additional information and assistance or to further discuss how the new standard might impact your organization.

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Bob Page, CPA, contributed to this article. - Stone & Company, LLC, Lexington, Massachusetts - www.stonecpas.com