Updated Guidance for Contributions Received and Made
By Kimberly Jessup Ripberger, Partner, CPA
On June 21, 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. This new guidance applies to all entities, including business entities that receive or make contributions, except for government procurement/vendor arrangements.
ASU 2018-08 simplifies the definition of an exchange transaction, resulting in not-for-profit entities accounting for most federal grants as donor-restricted conditional contributions rather than the existing common practice of treating these as exchange transactions. A “simultaneous release” option is provided and if elected, would allow contributions received and used within the same period to be recognized in net assets without donor restrictions – consistent with current practice.
The update also defines criteria for evaluating whether other contributions received are unconditional and recognized immediately in income or conditional and income recognition is deferred. The contribution is conditional if (1) the recipient must overcome a “barrier or hurdle” to be entitled to the resources, and (2) if the barrier or hurdle is not achieved then the donor is released from its obligation to transfer resources or demand their return if advanced. New disclosures are not required.
Donors will use the same criteria as recipients to determine whether gifts or grants are conditional or unconditional. Expense recognition is deferred for conditional gifts or grants and is immediate for unconditional gifts or grants. New disclosures are not required.
Public business entities and not-for-profit entities that have issued securities that are traded on an exchange would apply ASU 2018-08 for transactions in which the entity serves as a resource recipient to annual reporting periods beginning after June 15, 2018, including interim periods within that annual period. For all other entities, the guidance is effective for reporting periods beginning after December 15, 2018.
Alternatively, public business entities and not-for-profit entities that have issued securities that are traded on an exchange would apply ASU 2018-08 for transactions in which the entity serves as a resource provider to annual reporting periods beginning after December 15, 2018, including interim periods within that annual period. For all other entities, the guidance is effective for reporting periods beginning after December 15, 2019.
ASU 2018-08 requires modified prospective transition. In the period of adoption, the changes will apply to new gifts or grants executed after the effective date, as well as the remaining portions of any prior year agreements that have not been completed as of the effective date. However, full retrospective application can be elected, if desired.
Please consult a CPA to determine the effect, if any, this update will have on your entity’s financial statements to allow ample time to prepare for the changes.
Kimberly Jessup Ripberger Partner, Assurance Practice Area Leader, CPA
Kimberly is an assurance partner at our firm with over 16 years in public accounting. Her previous experience included working in Industry in process improvement and project management. She works primarily with clients involved in the governmental, non-profit and affordable housing industries, including tax credit properties, U.S. Department of Housing and Urban Development, and […]