By Lee Klumpp, CPA, CGMA
The Financial Accounting Standards Board (FASB) met in February 2018 to re-deliberate on the proposed Accounting Standards Update (ASU), Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made, which relates to revenue recognition of grants and contracts by not-for-profit (NFP) entities.
The FASB issued an exposure draft on Aug. 3, 2017, with an invitation for comment ending Nov. 11, 2017, receiving 56 comment letters. The proposed ASU clarifies the guidance on how nonprofits determine whether a transfer of assets is a contribution or an exchange transaction and how they distinguish between conditional and unconditional contributions. See the article entitled, “FASB Issues Exposure Draft on Accounting for Contributions Received and Contributions Made,” that outlines the proposed ASU in the Fall 2017 issue of the Nonprofit Standard.
The purpose of the proposed ASU is to address feedback that the FASB received from stakeholders related to the diversity in practice and the difficulties in determining whether grants and similar contracts are exchange transactions or contributions. That distinction is important because it determines whether an entity should follow the guidance for contributions received in Accounting Standards Codification (ASC) 958-605, Not-for-Profit Entities-Revenue.
Additionally, the proposed ASU would help organizations evaluate whether a contribution is conditional or unconditional, which affects the timing of revenue recognition. An unconditional contribution is recognized when received, while a conditional contribution is recognized when the barriers to entitlement are met.
Although the accounting for contributions primarily affects NFP entities, the proposed ASU would apply to all entities (including business entities) that receive or make contributions, including promises to give that are accounted for under ASC 958-605 and contributions made that are accounted for under ASC 720-25, Other Expenses-Contributions Made. The proposal would clarify that all entities should consider the guidance in ASC 958-605 when determining whether a transaction is a contribution or a transaction in the scope of ASC 606, Revenue From Contracts With Customers. However, the proposal would not apply to a business entity’s accounting for transfers of assets from government entities.
In its recent meeting, the FASB made the following decisions:
Conditional Contributions—Indicators to Describe a Barrier
The Board decided to clarify and refine the indicators to describe a barrier, including removing the additional actions indicator in the proposed Update.
Contributions Made by a Resource Provider
The Board affirmed that the guidance for distinguishing between conditional contributions and unconditional contributions should be similar for both a recipient and a resource provider.
Recurring Disclosures by Recipients about Conditional Promises to Give
The Board affirmed the existing disclosure requirements about conditional promises to give.
Simultaneous Release of a Condition and a Restriction
The Board decided that the simultaneous release accounting option for restricted contributions could be elected for conditional restricted contributions separately from unconditional restricted contributions.
Transition
The Board affirmed that the final amendments should be applied on a modified prospective basis following the effective date to agreements that are either (1) incomplete as of the effective date or (2) entered into after the effective date.
Effective Date
The Board affirmed that for recipients, the effective date of the amendments will align with Topic 606, Revenue from Contracts with Customers. The Board decided that for resource providers, the effective date will be delayed by one year.
Early Adoption
The Board affirmed that early adoption will be permitted.
Stay tuned for the final issuance of the ASU which is projected to be in the second quarter of 2018.
This article originally appeared in BDO USA, LLP’s “Nonprofit Standard” newsletter (Spring 2018). Copyright © 2018 BDO USA, LLP. All rights reserved. www.bdo.com