Article written by:
Meghan Buxton, CPA
Assurance Manager
The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-08 in June. This guidance applies to nonprofit organizations and primarily to contributions received and made. The benefit is that these types of transactions will be accounted for and presented more consistently by all organizations. Here are the highlights:
- This new guidance explains the difference between reciprocal and non-reciprocal transactions. If reciprocal or an exchange transaction, other guidance applies. 2018-08 focuses on accounting for contributions (non-reciprocal transactions).
- Conditional contributions are recognized as liabilities if assets are transferred in advance of conditions being substantially met. The following two criteria must be met to qualify as a conditional contribution:
- The agreement includes a right of return of assets transferred or a right of release of an owner’s obligation to transfer the assets.
- There is a barrier the not-for-profit must overcome to be entitled to the resources provided (i.e. required to achieve a measurable outcome, required to overcome a barrier related to the primary purpose of the agreement or there is limited discretion to how the resources are spent).
- The final key consideration regarding recognition is donor imposed-restrictions including consideration of the purpose of the agreement or whether resources can be used only after a specific date.
The guidance is applicable for annual periods beginning after December 15, 2019. The full ASU and more detailed decisions trees can be found on the AICPA or FASB’s websites. As more information becomes available, we will keep you informed. If you have questions or for help applying this guidance within your organization, please contact us.