In September 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-07 Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets with the goal of increasing transparency in a not-for-profit’s financial statements. Fortunately, because of this update, there are no changes in the requirements for recognition and measurement of contributed nonfinancial assets. FASB felt that transparency could be improved simply by changing financial statement presentation and disclosure requirements for contributed nonfinancial assets. Examples of nonfinancial assets include fixed assets, services, and intangible assets.
In terms of presentation, the financial statement reader will notice a change on the statement of activities. Instead of reporting all contributions on one line item, the statement will now reflect two separate lines: 1) contributions of cash and other financial assets and 2) contributions of nonfinancial assets.
Many changes will occur in the notes to the financial statements. These changes include the following:
- Expanded detail of the total amount reported as contributed nonfinancial assets on the statement of activities. The not-for-profit entity will be required to disclose each type of contributed nonfinancial asset received as well as the amount recognized as revenue.
- For each type of contributed nonfinancial asset noted in the footnote disclosures, the following information will be required to be disclosed:
- The not-for-profit’s policy, as applicable, for selling or using the contributed nonfinancial asset. For example, did the not-for-profit sell a contributed nonfinancial asset immediately upon receipt or was the contributed nonfinancial asset used instead?
- If a not-for-profit decided to use a contributed nonfinancial asset, the not-for-profit will need to further identify the program or other activities (i.e., general and administrative) for which the asset was used.
- Donor-imposed restrictions, as applicable, on the contributed nonfinancial assets. For example, was there a donor-imposed restriction/requirement for the contributed nonfinancial assets to be used for a particular program?
- Method for determining fair value for each contributed nonfinancial asset at the date of initial revenue recognition. For example, valuing legal services based on current rates for comparable legal services.
- If there were donor-imposed restrictions, the principal or most advantageous market used for fair value measurement must be identified.
This update is required to be implemented on a retrospective basis and is effective for annual periods beginning after June 15, 2021. Early adoption of this update is permitted.
If your not-for-profit receives contributed nonfinancial assets and has questions in relation to this new standard, please feel free to reach out to YHB.