Starting soon, the financial statements of nonprofit organizations will contain lots more information about the non-financial contributions they receive, such as fixed assets, materials, supplies, intangible assets and services.
FASB ASU 2020-07 requires that:
- Contributed nonfinancial assets be presented as a separate line item in the Statement of Activities, apart from contributions of cash and other financial assets.
- Disclosures be added to the financial statements to include
- A disaggregation of the amount of nonfinancial contributions by category
- For each category in a,
- Qualitative information about whether the nonfinancial assets were monetized during the reporting period and, if they were retained and used by the organization, a description of the programs or other activities they were used in
- The organization’s policy about monetizing rather than using them
- A description of any donor-imposed restrictions associated with them
- A description of the valuation techniques and inputs used to arrive at a fair value measure at initial recognition
- The 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 them
The ASU does not change the way contributions are recognized or measured. The new requirements were added to provide additional clarity and transparency and affect presentation and disclosure only. Organizations will need to prepare and make sure they retain and organize their contribution information so that the required information is readily available.
The ASU gives a number of examples. Here is one example of the change to the face of the statement of activities:
Here is one example of the change to the disclosures:
Contributed Non-financial Assets
For the years ended December 31, contributed non-financial assets recognized within the statement of activities included:
The Organization recognized contributed nonfinancial assets within revenue, including a contributed building, vehicles, household goods, food, medical supplies, pharmaceuticals, clothing, and services. Unless otherwise noted, contributed nonfinancial assets did not have donor-imposed restrictions.
It is The Organization’s policy to sell all contributed vehicles immediately upon receipt at auction or for salvage unless the vehicle is restricted for use in a specific program by the donor. No vehicles received during the period were restricted for use. All vehicles were sold and valued according to the actual cash proceeds on their disposition.
The contributed building will be used for general and administrative activities. In valuing the contributed building, which is located in Metropolitan Area B, the Organization estimated the fair value on the basis of recent comparable sales prices in Metropolitan Area B’s real estate market.
Contributed food was utilized in the following programs: natural disaster services, domestic community development, and services to community shelters.
Contributed household goods were used in domestic community development and services to community shelters. Contributed clothing was used in specific community shelters. Contributed medical supplies were utilized in natural disaster 16 services. In valuing household goods, food, clothing, and medical supplies, the Organization estimated the fair value on the basis of estimates of wholesale values that would be received for selling similar products in the United States.
Contributed pharmaceuticals were restricted by donors to use outside the United States and were utilized in international health services and natural disaster services. In valuing contributed pharmaceuticals otherwise legally permissible for sale in the United States, the Organization used the Federal Upper Limit based on the weighted average of the most recently reported monthly Average Manufacturer Prices (AMP) that approximate wholesale prices in the United States (that is, the principal market). In valuing pharmaceuticals not legally permissible for sale in the United States (and primarily consumed in developing markets), The Organization used third party sources representing wholesale exit prices in the developing markets in which the products are approved for sale (that is, the principal markets).
Contributed services recognized comprise professional services from attorneys advising the Organization on various administrative legal matters. Contributed services are valued and are reported at the estimated fair value in the financial statements based on current rates for similar legal services.
The ASU is effective for annual periods beginning after June 15, 2021, so the first changes will be noted in financial statements of organizations with June 30, 2022 year-ends. Changes are to be made on a retrospective basis. Early adoption of the ASU is permitted.
Let our team know of any questions you might have.
Article contributed by – Donna Buzby, CPA, RMA, CGMA
