FASB Issues Guidance on Contributions Received and Contributions Made

On June 21, 2018, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU 2018-08) intended to clarify and improve the scope and the accounting guidance for contributions received and made, primarily by not-for-profit organizations.

The ASU improves financial reporting by reducing diversity in practice among not-for-profits and other businesses and organizations that make or receive contributions, particularly for grants and similar contracts received by not-for-profits from governments.

Additionally, the ASU improves current guidance about whether a transfer of assets is a contribution or an exchange transaction.  It also 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.

The ASU also provides guidance 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.

FASB believes these provisions will be an improvement to current guidance.  These amendments should be applied on a modified prospective basis.  They are effective for public entities or a NFP that has issued, or is a conduit bond obligor for securities that are traded on an exchange, for annual periods beginning after June 15, 2018.  All other entities should apply the amendments for transactions in annual periods beginning after December 15, 2018.