The FASB issued Accounting Standards Update (ASU) 2020-07 in September of 2020. The purpose of the update is to provide further transparency to the use, value, and presentation of gifts-in-kind contributions received by nonprofit organizations. The update includes new presentation and disclosure requirements about gift-in-kind accounting for nonprofits but does not change the existing recognition and measurement requirements.
What are Gift-in-Kind Transactions?
The term gift-in-kind is used to describe contributed nonfinancial assets, or contributions to an organization that are tangible goods or services, not money. Gift-in-kind donations can be made to benefit the organization by their direct use or to be used at a special event or auction. Some examples of gift-in-kind contributions include:
- Fixed assets – land, buildings, equipment, vehicle
- Goods – Office supplies, computers, furniture, materials, food and water, clothing, medicine
- The use of fixed assets or utilities
- Services – mailing services, administrative support, legal services, advisory services, marketing, IT services
- Cash equivalents – stocks, bonds, mutual funds
Issues and Challenges with Gift-in-Kind Transactions
The initial measurement and recognition of contributions are addressed in FASB Subtopic 958-605, Not-for-Profit Entities – Revenue Recognition. The disclosure and reporting requirements for nonprofits receiving gift-in-kind contributions are also covered in Subtopic 958-605.
The principal did not provide clear direction about the presentation and disclosure requirements. Specific presentation requirements were not given for contributed nonfinancial assets or gifts-in-kind. Organizations were also left to self-interpret the disclosure requirements for gifts-in-kind other than services.
ASU 2020-07 responded to concerns expressed by stakeholders about the way nonprofit organizations were representing gifts-in-kind on financial statements. There was a lack of consistency in the transparency for contributed nonfinancial assets received and used by the organizations.
Topic 820, Fair Value Measurement provided guidance to nonprofits regarding the valuation of gifts-in-kind but was unclear on some of the specifications given. ASU 2020-07 was issued to provide clarity on those valuations, as well as reporting guidance regarding the amounts of contributions used in the nonprofit’s programs and other activities.
ASU 2020-07 issued amendments to Subtopic 958-605 to provide more transparency for reporting contributions and gifts-in-kind for nonprofits. The update makes the biggest impact on the presentation and disclosure of the gifts-in-kind.
The amendments require more prominent presentation and enhanced disclosure about the values of nonfinancial contributions. The issued updates don’t change the previously stated recognition and measurement requirements but provide further clarity on their presentation.
ASU 2020-07 provides updated guidance to the presentation of contributed nonfinancial assets. According to the new update, gifts-in-kind contributions are required to be presented as their own line item in the statement of activities. The contributed nonfinancial assets are required, per the new update, to be separated from the cash contributions and other financial assets.
The disclosure updates portion of ASU 2020-07 had a large impact on financial reporting standards for nonprofits. Prior to the update, nonprofit organizations were required to disclose contributed services, with a description of the programs and activities for which the services were used. The nature and extent of contributed services and any amounts recognized as revenue were also disclosed.
These requirements were not changed with ASU 2020-07 but were addressed in the update. The update expanded the required disclosures for recognized contributed services and added new disclosure requirements for other gifts-in-kind, besides services. The amendment broadened the scope of the nonfinancial assets already in Subtopic 958-605.
ASU 2020-07 gives guidance on the disclosure of all nonfinancial assets received by nonprofit organizations. The update requires that the type of gifts-in-kind be separated by category and added to the notes of the financial statements. Each category of nonfinancial asset requires additional disclosures per the update.
The additionally required disclosures include:
- Details about any policy written or upheld by the organization regarding monetizing contributed nonfinancial assets.
- Information that measures whether the gifts-in-kind were monetized or utilized. If the contributions were used during the reporting period, not monetized, the programs or activities that benefited must be described in the disclosure.
- Disclosure of and description of any donor restrictions given with contributed services or other non-financial assets.
In addition to the disclosures listed above, information about the valuation methods and inputs used to calculate the fair value measurements as required by Topic 820, Fair Value Measurement. When disclosing details about the fair market value figure, the principal market or the most advantageous market must be disclosed if it is a market where the receiving nonprofit is prohibited from selling or using the contributed nonfinancial assets.
A nonprofit entity may be prohibited from using or selling the asset due to a restriction put on the asset by the donor or granting agency.
ASU 2020-07 was provided to make the reporting of gifts-in-kind contributions more transparent and useful to interested parties. Nonprofit organizations rely on a variety of revenue sources, and many are dependent on the contributions of nonfinancial assets. Navigating the update and applying the changes to the processes and reporting procedures within your organization may require a consultation with an expert.
Reach out to JFW Accounting Services today to assess how your organization can proactively comply with ASU 2020-07.