In June 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-08, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. This ASU clarifies and improves the scope and accounting guidance around contributions of cash and other assets received and made by not-for-profit organizations and business enterprises.
The ASU will help entities determine whether transactions should be recorded as a contribution (non-reciprocal transaction) or as an exchange (reciprocal transaction). Transactions covered include transfers of assets and the reduction, settlement or cancellation of liabilities. Because of diversity in accounting treatments, the ASU contains additional guidance for accounting for grants and other contracts/agreements with governmental entities. In addition, the guidance focuses on determining whether the resource provider (contributor/grantor) is receiving commensurate value in return for the assets transferred.
If a transaction is determined to be a contribution, the ASU also provides expanded guidance on determining if a contribution is conditional or unconditional, and for distinguishing between donor-imposed conditions and restrictions. This ASU requires an entity to determine whether a contribution is conditional based on whether the underlying agreement includes a “barrier” that must be overcome and either a right of return of assets transferred or a right of release of a contributor’s obligation to transfer assets. The presence of both a barrier and either a right of return or a right of release indicates that a recipient is not entitled to the contribution until it has overcome the barrier(s) in the agreement.
If a transaction is determined to be an exchange transaction, the accounting for the contract will follow the guidance in ASU 2014-09, Revenue from Contracts with Customers, which applies to NFPs, but not to contributions. The AICPA is issuing revenue recognition implementation guidance for certain industries, including NFPs.
ASU 2018-08, which is effective for most resource recipients for annual periods beginning after December 15, 2018 (calendar 2019 or fiscal 2020 year-ends), also applies to business entities that make contributions of cash and other assets, including promises to give. For transactions in which an entity is either a public company or an NFP that issued, or is a conduit bond obligor for, securities that are traded, listed or quoted on an exchange or an over-the-counter market and serves as a resource recipient, the ASU is effective for annual periods beginning after December 15, 2018, and annual periods beginning after December 15, 2019, for all other entities.
The amendments in this ASU should be applied on a modified prospective basis for agreements that are either not completed as of the effective date or entered into after the effective date. No prior period results should be restated, and there should be no cumulative-effect adjustment to the opening balance of net assets at the beginning of the adoption year. Retrospective application is permitted.
If you have questions about applying these new standards, contact your CSH not-for-profit advisor.
