FASB clarifies and improves guidance for not-for-profit grant and contribution accounting

FASB has issued an Accounting Standards Update (ASU) that clarifies and improves the scope and accounting guidance around contributions of cash and other assets received and made by not-for-profit organizations and business enterprises.

“The new ASU clarifies whether certain transactions should be characterized as contributions or exchanges,” stated FASB Chairman Russell G. Golden. “It will improve financial reporting by reducing diversity in practice among not-for-profits and other businesses and organizations that make or receive contributions of cash or other assets - most notably in accounting for grants and similar contracts received by not-for-profits from governments.”

The ASU clarifies and improves current guidance about whether a transfer of assets - or the reduction, settlement, or cancellation of liabilities - is a contribution or an exchange transaction. It provides criteria for determining whether the resource provider is receiving commensurate value in return for the resources transferred which, depending on the outcome, determines whether the organization follows contribution guidance or exchange transaction guidance in the revenue recognition and other applicable standards.

It also provides a more robust framework for determining whether a contribution is conditional or unconditional and for distinguishing a donor-imposed condition from a donor-imposed restriction. This is important because such classification affects the timing of contribution revenue and expense recognition.

The new ASU does not apply to transfers of assets from governments to businesses.

On Sept. 14, FASB will host a CPE webinar on the new ASU. Registration and other information about the webinar will be announced on the FASB website in the coming months.

Complete information about effective dates is available in the ASU. The ASU, as well as a FASB in Focus overview and an educational video, are available at www.fasb.org.