As the COVID-19 pandemic continues across the Bay Area, many nonprofit organizations have been hit especially hard. The traditional methods of fundraising, which often included in-person events, have been replaced by virtual activities and online donations. Although support in the form of cash donations is most common, many organizations also continue to receive nonfinancial donations, also known as gifts-in-kind. These often include materials and supplies such as food, clothing, toiletries, or pharmaceuticals, and other assets such as land, buildings, or equipment.
As a result of diversity in the presentation of contributed nonfinancial assets, the FASB has provided guidance to more closely align the financial statement presentation and disclosure among all nonprofit organizations. Accounting Standard Update (ASU) 2020-07, Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets, requires these contributions to be reported by category along with certain disclosures. It is anticipated the changes will improve transparency in reporting. To help clients, prospects, and others, a summary of the key details is outlined below.
The ASU requires nonprofits to present gifts-in-kind as a separate line item, making them distinct from the contributions of cash or other financial assets on the statement of activities. In addition, contributed nonfinancial assets received must be disaggregated into categories based on asset type. It is required the following disclosures be made for each category:
- Qualitative information about whether the contributed nonfinancial assets were or are intended to be monetized or utilized during the current or future reporting periods. If used, include a description of the program or other activities in which the assets were used.
- A description of the organization’s policy about how gifts-in-kind are monetized when not directly used.
- A description of any donor restrictions associated with the contribution.
- Valuation techniques and inputs used to arrive at a fair value measure, including the principal market if significant, as required by Topic 820, Fair Value Measurement.
- Information on the principal market, or most favorable market, used to arrive at a fair value measure if the organization is restricted by the donor from selling or using the asset.
These changes will be effective for annual reporting periods beginning after June 15, 2021. Early adoption is permitted.
The new reporting requirement will mean additional steps need to be taken to ensure the proper gift-in-kind information is documented and value measured for reporting purposes. For this reason, it is important to review relevant processes now to ensure compliance. If you have questions about the information outlined above or need assistance with a nonprofit tax or accounting issue, Abbott, Stringham & Lynch can help. For additional information, call us at 408-377-8700 or click here to contact us. We look forward to speaking with you soon.