The Financial Accounting Standards Board (FASB) has issued a proposed Accounting Standard Update (ASU) intended to clarify and improve the scope and the accounting guidance for contributions received and made, primarily by not-for-profits. Stakeholders are asked to review and provide comment on the proposed ASU by November 1, 2017.
“Stakeholders indicated that there is difficulty and diversity in practice among not-for-profits with characterizing grants as exchanges or contributions, and in distinguishing between conditional and unconditional contributions” said FASB Chairman Russell G. Golden. “The proposed ASU provides not-for-profits with a more robust framework to evaluate and determine if a transaction should be accounted for as a contribution or an exchange.
“This will help organizations more consistently apply the guidance, and would make the accounting for contributions more operable,” added Golden.
The proposed ASU helps organizations decide if transactions should be accounted for as a contribution or an exchange. Organizations would accomplish this by using clarifying guidance to evaluate whether a resource provider is receiving value in return for the resources transferred.
The proposed ASU also helps organizations evaluate such arrangements by using an improved framework to determine whether a contribution is conditional or unconditional, and better distinguish a donor-imposed condition from a donor-imposed restriction
Accounting for contributions is an issue primarily for not-for-profit organizations because contributions are a significant source of revenue. However, the amendments in this proposed ASU would apply to all organizations that receive or make contributions of cash and other assets, including business enterprises.
The proposed amendments would not apply to transfers of assets from the government to businesses. The guidance would apply to both a recipient of contributions received and a resource provider of contributions made.
The proposed standard follows the same effective dates as the Revenue Recognition standard:
- A public company or a not-for-profit organization that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market would apply the new standard to annual reporting periods beginning after December 15, 2017, including interim periods within that annual period.
- Other organizations would apply the standard to annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019.
Early adoption of the amendments in this proposed ASU would be permitted irrespective of the early adoption of the amendments in the Revenue Recognition standard.
More details can be found within the proposed ASU and FASB in Focus, which are available at www.fasb.org. The FASB also will host a webcast in the coming months on the proposed ASU.