Contributed Nonfinancial Assets: New Presentation and Disclosure Requirements for Nonprofits

Concerns have recently been raised about nonprofit organizations’ financial statements and how nonprofits report gifts in kind, specifically contributed nonfinancial assets. These assets primarily consist of fixed assets (such as land buildings and equipment); use of fixed assets or utilities; materials and supplies; intangible assets; services; and unconditional pledges to give nonfinancial assets. Users of nonprofits’ financial statements cited a lack of transparency around contributed nonfinancial assets, specifically the amounts received and used in the organization’s programs and activities. Other concerns included clarity around fair value measurements and related sources and basis of valuation for contributed nonfinancial assets.   

Currently FASB 958-605 requires nonprofits to recognize and measure contributions and issue disclosures for contributed services. However, it does not include any specific guidelines for presenting these requirements or disclosures.

On February 10, 2020, the FASB Board issued a proposed Accounting Standards Update, Not-for-Profit Entities (Topic 958); Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets. The Board specifically did not include contributed financial assets within the scope of this amendment because contributed financial assets (other than cash) are typically liquidated immediately and used similarity to cash to fund nonprofit organizations’ programs and other activities.

This update does not change the timing and recognition of contributed in-kind gifts, and it is not expected to be a heavy lift for most nonprofit organizations. But organizations that do receive substantial contributed nonfinancial assets will need to create (or modify) a tracking and monitoring worksheet for contributed nonfinancial assets. The worksheet should include additional information such as assets with donor restrictions and individual respective basis of fair value determination.

This guidance only affects nonprofit organizations’ financial statements since concerns about a lack of transparency were raised by nonprofit stakeholders.

Donors, creditors, and other users of the financial statements will really benefit from the enhanced financial reporting contributions, especially those related to contributed nonfinancial assets.

Recognition under FASB ASC 958-605, Not-for-Profit – Revenue Recognition

Under the current guidance, specific disclosure requirements only apply to contributed services. Generally, for a contributed service to be recognized in the financial statements, it must either:

• Create or enhance non-financial assets, or
• Require individuals (such as accountants or lawyers) to perform special skills or services that would typically need to be purchased if they were not donated.

Provisions of Accounting Standards Update

The new guidance expands the disclosure requirements for contributed nonfinancial assets. Basically, nonprofits will be required to perform the following:

1. Present revenue from contributed nonfinancial assets in a separate line on the face of the financial statements, i.e., the statement of activities.
2. Provide disaggregated information (in the financial statement notes) about each category and type of contributed nonfinancial asset. For each category, the nonprofit must also disclose the following:
   1. Qualitative information about whether the assets were monetized or utilized during the reporting period. If utilized, the organization must describe the program or activities the assets funded.
   2. The nonprofit’s policy (if any) about monetizing, rather than utilizing, contributed nonfinancial assets.
   3. A description of any donor-imposed restrictions related to the contributed nonfinancial assets.
   4. A description of the valuation techniques and inputs used to arrive at a fair value. (This applies to the initial recognition of a contributed nonfinancial asset.)
   5. The principal market (or most advantageous market) used to arrive at the fair value, if it is a market in which donor-imposed restrictions prohibit the nonprofit from selling or using the contributed nonfinancial assets. For example, assume Charity P receives a donation of medical supplies from a medical equipment company that restricts the use of the supplies to three specific countries outside the United States. Charity P uses wholesale prices in the United States to estimate the fair value of the medical supplies. Under the new standard, that fact would be disclosed because Charity P is prohibited from using the supplies in the principal market used to estimate fair value.

Organizations are also encouraged to disclose the fair value of contributed services received but not recognized, if practicable. Organizations can describe the nature and extent of contributed services with nonmonetary information, such as the number and trends of donated hours or service outputs volunteered, or with monetary information, such as the dollar amount of contributions raised by volunteers. It’s important to note that organizations must disclose contributed services regardless of whether those services are recognized as revenue in the financial statements.

In terms of implementation guidance and illustrations, the presentation requirement of the contributed nonfinancial assets is separate from contributions of cash and other financial assets in the statement of activities. The new guidance provides examples for the three statement of activities formats.

Regardless of the format of the statement of activities, contributions of financial and nonfinancial assets are now presented in separate lines as illustrated below:

SOURCE: FASB Accounting Standards Update (ASU) No. 2020-07
Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets

In terms of footnote disclosures, the guidance illustrates the following options.

OPTION A: A table disclosing the types or category of nonfinancial financial assets recognized during the accounting period (note that the total in the table should agree with the amount reported in the face of the statement of activities) and a description of the donor-imposed restrictions, valuation techniques, and input for each category or type of contributed nonfinancial asset. The snippet below provides an example.

OPTION B: A table consisting of disclosures of both the type or category of nonfinancial assets and written disclosures of donor-imposed restrictions, valuation techniques and inputs, and utilization in programs/activities.

Option B seems to be the better disclosure format to use because it is summarized (clearer) and shorter (fewer pages) especially for nonprofit organizations with an extensive list of contributed nonfinancial assets, donor-imposed restrictions, and details about utilization for programs and valuation techniques.

Sample Option A

SOURCE: FASB Accounting Standards Update (ASU) No. 2020-07
Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets

Sample Option B

SOURCE: FASB Accounting Standards Update (ASU) No. 2020-07
Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets

When will the amendments go into effect?

The amendment of the ASU 2020-07 will be effective for annual periods beginning after June 15, 2021, and interim periods within annual periods beginning after June 15, 2022. For example, a nonprofit organization with a June 30 fiscal year-end would need to implement the new presentation and disclosure requirements in its financial statements for the year ending June 30, 2022. Calendar year-end organizations would need to implement the changes for the year ending December 31, 2022. Early adoption is permitted. To more easily compare the financial information, the FASB Board decided that this ASU 2020-07 should be applied retrospectively to all periods presented within the nonprofit’s financial statements. The Board does not expect retrospective application to result in significant costs for most nonprofit organizations, especially since it does not require a change in accounting. Nonprofits that do show fully comparative financial statements would need to recast their prior-year information to reflect the new presentation and disclosure guidance.

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