Presentation and Disclosure of Contributed Nonfinancial Assets by Not-for-Profit Entities
The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-07, Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets. The purpose of this ASU is to increase the transparency of contributed nonfinancial assets for not-for-profit (NFP) entities through improvements to the presentation and disclosure of such assets within the NFP’s financial statements.
Under existing guidance, while the measurement and recognition of contributions is addressed, it doesn’t include specific presentation requirements for contributed nonfinancial assets or specific disclosure requirements for nonfinancial assets (other than contributed services). ASU 2020-07 was issued to better address such requirements for nonfinancial assets. The recognition and measurement requirements for nonfinancial assets remain unchanged, however.
Before outlining the key provisions within ASU 2020-07, it’s important to understand what represents nonfinancial assets to determine if it applies to your NFP. Such assets are commonly referred to as ‘gifts-in-kind.’ Nonfinancial assets may include fixed assets (such as land, building and equipment), use of fixed assets or utilities, materials and supplies, intangible assets or services. If your NFP receives any of these types of contributed nonfinancial assets, this ASU will apply to your NFP.
The two key provisions of ASU 2020-07 are presentation and disclosures, as outlined below:
Under ASU 2020-07, contributed nonfinancial assets are now required to be presented as a separate line item in the NFP’s statement of activities, segregated from contributions of cash and other financial assets.
Under ASU 2020-07, NFPs also will be required to disclose the following for contributed nonfinancial assets:
- Contributed nonfinancial assets recognized within the statement of activities disaggregated by category (e.g. buildings and legal services).
- Qualitative information about whether the contributed nonfinancial assets were either monetized or utilized during the reporting period. If utilized, a description of the programs or other activities in which those were used must be disclosed.
- The NFP’s policy (if any) about monetizing rather than utilizing contributed nonfinancial assets.
- A description of any donor-imposed restrictions associated with the contributed nonfinancial assets.
- The valuation techniques and inputs used to arrive at a fair value measurement, in accordance with the requirements in Topic 820, Fair Value Measurement, as well as the principal market (or most advantageous market) used to estimate fair value if it is a market in which the NFP is prohibited by donor-imposed restrictions from selling or using the contributed nonfinancial assets.
The amendments in ASU 2020-07 are effective for annual periods beginning after June 15, 2021, and interim periods within annual periods beginning after June 15, 2022. The amendments should be applied on a retrospective basis and early adoption is permitted.
If you have any questions regarding ASU 2020-07, please contact Tiffany Cavanaugh or your BNN advisor at 800.244.7444.
Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.