Update: Nonprofit Gifts-in-Kind Financial Statement Reporting Rules
We previously blogged about the rule changes coming to nonprofit gifts-in-kind financial statement reporting. Today, we’re able to offer an update on that post: on September 17, 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-07, Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets. The finalized standard confirms the information we previously provided.
The new standard, which will not change the recognition and measurement requirements for nonfinancial assets, provides clearer guidance and requirements for how nonprofits will present and disclose noncash contributions, also known as gifts-in-kind, in their financial statements. Contributions of nonfinancial assets are now required to be presented separately from gifts of financial assets in the statement of activities. The new additional disclosure requirements in the footnotes include:
- Nonfinancial contributions disaggregated by category or type, meaning donated services should be listed separately from donated clothing or food items.
- The nonprofit organization’s gift-in-kind policies related to using the gifts or converting them into cash.
- Description of donor restrictions placed upon in-kind contributions, if any.
- Description of valuation techniques and inputs used to arrive at a fair value measure, as required by Topic 820, Fair Value Measurement.
- The primary market used to arrive at a fair value measure if it restricts the nonprofit’s use or sale of the nonfinancial asset.
The new standard arrives as charities have been under heightened scrutiny by states over how gifts-in-kind are reported and used. For example, there have been concerns in California about the potential over-valuation of noncash contributions by charities, which can be used to artificially enhance financial information to make the nonprofit appear more efficient. The possibility for charities to hide inefficient use of such contributions has also been a concern.
The new standard takes effect for annual periods beginning after June 15, 2021, and interim periods within fiscal years beginning after June 15, 2022. Early adoption is permitted.
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If you have questions about the information outlined above or need assistance with a nonprofit-related tax or audit concern, Klatzkin can help. For additional information, click here to contact us. We look forward to speaking with you soon.
Angela Lawrence, Quality Control Coordinator at Klatzkin, contributed to this post.
©2020 Klatzkin & Company LLP. The above represents our best understanding and interpretation of the material covered as of this post’s date and should not be construed as accounting, tax, or financial advice. Please consult your tax advisor concerning your specific situation.