In September 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-07 on Topic 958, Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets. The ASU should be applied on a retrospective basis and is effective for periods beginning after June 15, 2021. The goal of the update is to improve financial statement disclosures for nonfinancial donated assets, both on the face of the Statement of Activities as well as in the notes to the financial statements. This will provide some clarity regarding the amount of in-kind donations as well as how management determined the value of the donations.
Most of the changes affect the disclosure requirements in the notes to the financial statements, but one change will be made to the Statement of Activities. Under these new rules, nonprofit organizations will have to report all in-kind donations as a separate line item in the Statement of Activities. Organizations will no longer be allowed to group cash and non-cash donations together as one line item called “contributions.”
There are several changes that will need to be made to the note disclosures. All in-kind donations must be listed by the type of asset contributed (legal services, advertising, donated food, etc.). According to the FASB, once the organization determines the various types of assets that were contributed, it must determine if the asset was “monetized or utilized” during the period the organization is reporting. If the organization utilizes the asset, management will have to give a description of the program the asset was used for. If the organization monetizes the assets and has a policy for doing so, it must be disclosed.
Nonprofits will also be required to disclose any donor restrictions placed on the asset(s); an explanation of how management determined the value of the asset; and the primary market used to determine the value of the donated asset. For example, let’s say your nonprofit organization received an unrestricted in-kind donation of canned food valued at $50,000. You used this food for one of your organization’s programs that addresses emergency services and basic needs. In this situation, you would have a note disclosure called “Contributed Nonfinancial Assets.” The note would disclose several things: that your organization received donated food valued at $50,000, that there were not any donor restrictions, that support of $50,000 was recognized, and that the food was used for your Emergency Services and Basic Needs program. Finally, a description of the valuation method must be disclosed. In this example, the value of the donation was determined by a calculation of $1.67 per pound of food - the average wholesale value of groceries according to Feeding America.
This new update to nonprofit accounting standards will help assure donors, volunteers, and other supporters that the values presented in your financial statements are accurate. ASU 2020-07 requires preparers of nonprofit financial statements to “prove” their valuation of noncash assets. This enhances transparency, which is the ultimate goal of ASU 2020-07.
