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FASB clarifies guidance on accounting for contributions received and made

On June 21, 2018, the Financial Accounting Standards Board released Accounting Standards Update 2018-08, which clarified the scope and accounting guidance for contributes received and made, which will primarily apply to non-profit organizations.  The ASU is meant to assist with the present difficulties and diversity in practice by non-profits in characterizing grants with government agencies as either an exchange or non-exchange transaction (i.e. contributions).

An accounting policy change for many grants is expected as a result of the ASU.  Current practice records many grants as an exchange transaction between the grantor and the non-profit; however, ASU 2018-08 is expected to modify this reporting and require these grants to be recorded as contributions.   The key to recording an exchange transaction has always been whether the grantor/donor receives a commensurate benefit for the assets exchanged.  However, the ASU now clarifies what constitutes commensurate benefit.  General indirect public benefits do not qualify the transaction as an exchange transaction.  However, when the non-profit is acting as a vendor to the grantor, in a procurement type transaction, an exchange transaction would occur.  The guidance outlines key factors to consider when determining whether a transaction is an exchange transaction or a contribution.  This includes examination of the value received, intent, discretion of the grantor in giving the funds, penalties for failure to comply with the agreement, etc.  In addition, fulfillment of the grantor’s mission does not automatically qualify the transaction as an exchange, if a direct commensurate value is not received.

The ASU further clarifies what constitutes a conditional or unconditional contribution.  A conditional contribution includes a barrier to overcome to be entitled to the resources and a right of return if the barrier is not achieved.  A conditional contribution is recorded as a refundable advance liability until the barrier has been overcome or the funds refunded.

Once the non-profit determines whether a contribution or exchange transaction exists, accounting guidance is based on the classification.  Exchange transactions would typically follow the new revenue recognition guidance in Accounting Standards Codification (ASC) 606 – Revenue from Contracts with Customers.  Contributions follow ASC 958-605, Not-for-Profit Entities – Revenue Recognition.

The effective date for most recipient organizations is for periods beginning after December 15, 2018 and for grantors for period beginning after December 15, 2019.  Guidance should be applied on a modified prospective basis and the guidance should be applied for those agreements that are either not completed as of the effective date or entered into after the effective date.  For assistance or further discussion on ASU 2018-08 please contact Heather R. Cochran at