On September 17, the Financial Accounting Standards Board (FASB) issued an accounting rule that will provide more detailed information about noncash contributions charities and other not-for-profit organizations receive known as “gifts in kind.” Here are the details.
Need for change
Gifts in kind can play an important role in ensuring a charity functions effectively. They may include various goods, services and time. Examples of contributed nonfinancial assets include:
Increased scrutiny by state charity officials and legislators over how charities use and report gifts in kind prompted the FASB to beef up the disclosure requirements. Specifically, some state legislators have been concerned about the potential for charities to overvalue gifts in kind and use the figures to prop up financial information to appear more efficient than they really are. Other worries include the potential for a nonprofit to hide wasteful use of its resources.
Accounting Standards Update (ASU) 2020-07, Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets, aims to give donors better information without causing nonprofits too much cost to provide the information.
The updated standard will provide more prominent presentation of gifts in kind by requiring nonprofits to show contributed nonfinancial assets as a separate line item in the statement of activities, apart from contributions of cash and other financial assets. It also calls for enhanced disclosures about the valuation of those contributions and their use in programs and other activities.
Specifically, nonprofits will be required to split out the amount of contributed nonfinancial assets it receives by category and in footnotes to financial statements. For each category, the nonprofit will be required to disclose the following:
The new rule won’t change the recognition and measurement requirements for those assets, however.
ASU 2020-07 takes effect for annual periods after June 15, 2021, and interim periods within fiscal years after June 15, 2022. Retrospective application is required, and early application is permitted. Contact us for more information.
If your business received a PPP loan, you may be eligible to have that loan forgiven. Our team can help you ensure that your loan forgiveness application is filed correctly and timely. Complete our five-question form, and we can provide a quote for your application by the next business day.Request a Quote