In September 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-07: Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets. The purpose of this ASU is to increase the transparency of contributed nonfinancial assets through enhancements to presentation and disclosure.
This ASU applies to all nonprofits that receive contributed nonfinancial assets (also known as gifts-in-kind). A nonfinancial asset is simply an asset that is not a financial asset, and includes land, buildings, use of facilities or utilities, materials and supplies, intangible assets, or services. Some common examples of contributed nonfinancial assets are vehicles, office furniture, supplies and items used in program activities, and legal services. Donated investments are considered financial assets and therefore are scoped out of this ASU.
Under these new standards, nonprofits are required to do the following:
- Present contributed financial assets as a separate line item in the statement of activities (separate from contributions of cash and financial assets)
- Disclose the following:
- Disaggregation of the amount of contributed nonfinancial assets by category based on the type of gift received.
- For each category of contributed nonfinancial assets:
- Qualitative information about whether the contributed nonfinancial assets were either monetized or utilized during the reporting period. If utilized, the nonprofit will disclose a description of the programs or other activities in which the assets were used.
- The nonprofit’s policy (if any) about monetizing rather than utilizing contributed nonfinancial assets.
- A description of any donor-imposed restrictions associated with the contributed nonfinancial assets.
- A description of the valuation techniques and inputs used to arrive at a fair value measure, in accordance with the requirements in Topic 820, Fair Value Measurement, 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 recipient nonprofit is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial assets.
The following definitions were added to FASB’s master glossary as a result of this ASU:
- Most Advantageous Market: The market that maximizes the amount that would be received to sell the asset or minimizes the amount that would be paid to transfer the liability, after taking into account transaction costs and transportation costs.
- Principal Market: The market with the greatest volume and level of activity for the asset or liability.
ASU 2020-07 is effective for annual reporting periods beginning after June 15, 2021 and should be applied on a retrospective basis. Early adoption is permitted.
For illustrative examples of statements of activities and note disclosures that include the implementation of ASU 2020-07, please refer to pages 7-11 and pages 15-17 of FASB ASU 2020-07.