New Requirements for Reporting Contributed Non-financial Assets

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The Financial Accounting Standards Board (FASB) recently released a new accounting standard requiring additional disclosure information when reporting contributed nonfinancial assets on financial statements.  Accounting Standards Update (ASU) 2020-07, Not-for-Profit Entities (Topic 958): Presentation and Disclosure by Not-for-Profit Entities for Contributed Nonfinancial Assets updates the requirements and guidance on proper disclosure and presentation of contributed nonfinancial assets.

What are contributed nonfinancial assets?

Contributed nonfinancial assets, also referred to as gifts in-kind, include fixed assets such as land, buildings and equipment, the use of fixed assets or utilities, materials and supplies, such as food or clothing, intangible assets and recognized contributed services. 

What is the current guidance in place?

According to FASB, the primary reason for the release of ASU 2020-07 is to increase the transparency of contributed nonfinancial assets by enhancing the presentation and disclosure requirements for the assets.  Requests had been made to FASB for an increase in the transparency of how assets are being used within a nonprofit’s programs and activities as well as clarity on the valuation of the assets.  The current guidance in place only provides specific requirements for the initial measurement and recognition of contributions and disclosure requirements for contributed services.  There are no specific requirements for presentation of contributed nonfinancial assets or disclosure of contributed nonfinancial assets other than contributed services.      

What are the new requirements?

The new standard requires the presentation of contributed nonfinancial assets as a separate line item in the statement of activities, apart from cash and other financial asset contributions.  The disclosure must break down the contributed nonfinancial assets into categories by type. 

Within each category of contributed nonfinancial assets recognized in the financial statements the following must be disclosed:

  • Qualitative information on the monetizing and utilizing of the asset during the reporting period.  If the assets were utilized then a description of the activities in which the asset was used must be included in the disclosure.
  • Organization’s policy for monetizing a contributed nonfinancial asset versus utilizing the asset, if such a policy exists.
  • Details of any donor-imposed restrictions on the contributed nonfinancial assets.
  • Valuation methods used to arrive at fair-value measure in accordance with FASB ASC Topic 820 Fair Value Measurement, at the initial recognition.
  • Principal market or most advantageous market used to arrive at a fair value measure if it is a market in which the organization is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial asset.  The principal market is defined as the market with the greatest volume and level of activity for the asset.  The most advantageous market is the market that would most maximize the amount that would be received with the sale of an asset, after accounting for transaction and transportation costs.

When is the standard effective?

This new guidance is effective for not-for-profit entities for annual periods beginning after June 15, 2021.  Early adoption of the new standard is allowed.  The standard must be applied retrospectively to all periods presented in the financial statements and the transition to the new standard must be disclosed.