FASB issues ASU 2019-03—Not-for-Profit Entities: Updating the Definition of Collections

FASB has issued ASU 2019-03 which aligns its definition of “collections” with the definition used in the American Alliance of Museums’ Code of Ethics for Museums.

Accounting Standards Update No. 2019-03, Not-for-Profit Entities (Topic 958): Updating the Definition of Collections, applies to all entities, including business entities, that maintain collections. But FASB states that accounting for collections is primarily an issue for certain nonprofits.

Under the new standard, collections are defined in FASB’s Master Glossary as works of art, historical treasures, or similar assets that meet all of the following criteria:

• They are held for public exhibition, education, or research in furtherance of public service rather than financial gain
• They are protected, kept unencumbered, cared for, and preserved
• They are subject to an organizational policy that requires the use of proceeds from items that are sold to be for the acquisitions of new collection items, the direct care of existing collections, or both

The first two criteria remain unchanged under the new definition, but the third criterion is altered. The new definition is designed to better align with the definition that many entities use for accreditation purposes. Also, using proceeds from deaccessioned (removed) collection items toward direct care may help entities maintain their collections.

Permitting proceeds to be used for the care of existing collections is consistent with the basis for conclusions in FASB Statement 116 about the care and preservation of collections.

The standard also requires a collection-holding entity to disclose its policy for the use of proceeds from when collection items are removed from a collection. Under the standard, if an entity has a policy that allows proceeds from items that are deaccessioned, it is required to disclose its definition of direct care.

Requiring a collection-holding entity to disclose its policy for the use of proceeds from deaccessioned collection items will inform financial statement users on how the entity defines collections for the purposes of noncapitalization.

The standard takes effect for annual financial statements issued for fiscal years beginning after Dec. 15, 2019, and for interim periods within fiscal years beginning after Dec. 15, 2020. Early application is permitted, and the amendments should be applied on a prospective basis.