In-Kind Contributions and Upcoming Changes in Not-For-Profit Accounting
For many not-for-profit organizations, the receipt of in-kind contributions is essential to the execution of its mission and exempt purpose. These nonfinancial assets may include tangible goods such as clothing, food, materials, vehicles, and supplies, but also contributed services such as accounting, legal, or other specialized volunteer services. Over the past year, due to the operational impact of the COVID-19 pandemic, many organizations experienced a critical and dramatic increase in the amount of in-kind contributions they received.
In response to this, as well as diversity in current practice, 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 in September 2020. The intent of the ASU is to increase transparency of contributed nonfinancial assets within a not-for-profit organization’s financial statements, and also provide for consistency in reporting within the industry from one organization to the next.
The main provisions of this ASU are twofold:
- Requirement to present contributed nonfinancial assets as a separate and distinct line on the statement of activities. This will remove inconsistency in practice where currently in-kind contributions may be combined with cash and other financial contributions.
- Enhanced disclosure requirements, with the requirement for in-kind contributions to be disaggregated into categories based on the type of gift received (i.e. Food, Clothing, Specialized Services, etc.).
The ASU also requires disclosure for each disaggregated category of in-kind contributions, including:
- A description of any donor-imposed restrictions associated with the in-kind contribution.
- The organization’s policy about monetizing rather than utilizing in-kind contributions.
- Qualitative information about whether the in-kind contributions were either monetized or utilized during the reporting period. If utilized, a description of the programs or other activities in which those in-kind contributions were used is required.
- A description of the valuation techniques and inputs used to arrive at a fair value measurement.
- The principal market (or most advantageous market) used to arrive at a fair value measurement if it is a market in which the organization is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial assets.
The good news is that not-for-profit organizations have some time to prepare for these changes in their financial statements. The ASU is required to be applied to annual reporting periods beginning after June 15, 2021 (i.e. fiscal year ends June 30, 2022 and later).
The bad news is that the ASU is required to be applied retrospectively. This means that comparative information for all presented fiscal years (typically 2021 fiscal year ends) will be necessary. Organizations must now start thinking about, and accumulating the data necessary for the application of this standard. This includes the determination of the categories of disaggregation and the potential adoption of a policy to monetize or use certain in-kind contributions, among other items.
You can view ASU 2020-07 on FASB’s website. Early adoption of the ASU is permitted.
If you have any questions regarding the application of this ASU to your organization, please contact Jim Shellenberger, Partner and leader in our firm’s nonprofit services practice at jshellenberger@macpas.com.
