February 15, 2021

Arts and Culture: What Does the Collections Accounting Standard Model Mean for Your Organization?

By Matt Huffner, Partner, Assurance Services

Arts and Culture: What Does the Collections Accounting Standard Model Mean for Your Organization? Nonprofit & Social Sector

The global pandemic has brought a lot of changes to our partners and clients in all sectors. Many tough choices have clearly been faced by nonprofits, but in some cases, there has been a silver lining in the storm cloud. Some organizations have been able to allocate resources to review and strengthen technology, security, and other “back of the house” operations. Cultural institutions, in particular, have made sweeping changes in how they operate and engage with their audiences, to counter the precipitous drop in in–person attendance. Through the past year or so, a number of arts organizations have looked at implementing structural and policy changes to weather the storm and ensure sustainability. For the arts, one of these change areas has been the adoption of new collection management practice, which, in some cases, has sparked controversy.

Accessioning and Deaccessioning

In 2019, about a year before the pandemic took hold in the U.S., the FASB (Financial Accounting Standards Board) issued accounting standards update (ASU) No. 2019-03, “Updating the Definition of Collections.” Some interpreted the update as a loosening of these policy rules following similar changes by arts industry groups and trade associations, which help museums stay accredited and promulgate best practices and sector standards. As the accountants reading this know, the financial statements of any museum always include a section in the note disclosures discussing the institution’s accessioning and deaccessioning policies. The FASB ASU included a new term in the definition of art collection, namely “direct care,” which enables organizations to implement a policy permitting proceeds from deaccessioning activities to be used towards the care of existing collections. Previously, the common practice had been to spend deaccessioning proceeds only on new accessions.

This change in the art world has been seen positively by a number of boards and other stakeholders as a way to ensure sustainability and fiduciary responsibility into the future. But this has not necessarily been a universal response, particularly among the general public, which entrusts museums to ensure that priceless artifacts remain accessible to all. Last year, the Baltimore Museum of Art had planned to sell a handful of works from its collection (including a Warhol piece) but decided to halt the sale at the last minute due to stakeholder response. However, we also saw the Everson Museum of Art sell a Jackson Pollock to ensure the direct care of existing collections, among other reasons. The San Francisco Art Institute was also recently examining the potential sale of a Diego Rivera Mural. We saw the Brooklyn Museum make public plans to sell art in order to shore up its endowment. And now even The Met is looking at sales of collection items.

Of course, not all deaccessioning in the last year has been the direct result of the pandemic – and in many cases museums were already looking closely at their collections to present a diversity of artists and viewpoints to the public.

One benefit that has resulted from all this is museums taking a fresh look at their collection management policies. Engaging stakeholders in financial matters has always been a tall task for any nonprofit organization. But whether it be direct care, preservation, or the acquisition of new works of art, a transparent, accessible and “fresh” collections management policy is an indispensable part of navigating the financial realities arts organizations face today.

If you need assistance with the new accounting standards update, please don’t hesitate to reach out to Matt Huffner at 202-227-4049 or matt.huffner@marcumllp.com.

For additional guidance, click here to access the on-demand recording of Marcum’s recent webinar, Museums and Cultural Institutions: Framing the Impact of COVID-19 Relief.

Marcum’s Nonprofit & Social Sector group has deep experience assisting museums and other cultural institutions – let us help during this challenging time.