Gifts-in-Kind: What Nonprofits Need to Know About New Reporting Requirements

The Financial Accounting Standards Board (FASB) issued an accounting rule on September 17, 2020 that provides transparency about noncash contributions charities and other not-for-profit organizations receive, known as “gifts-in-kind.”

Overview of gifts-in-kind

main street lending programGifts-in-kind play an important role in ensuring a nonprofit operates effectively. They may include various goods, services and time. Contributed nonfinancial assets include:

  • Fixed assets, such as land, buildings and equipment
  • The use of fixed assets or utilities
  • Materials and supplies, such as food, clothing or pharmaceuticals
  • Intangible assets
  • Recognized contributed services

State charity officials and legislators have increased scrutiny over how nonprofits use and report gifts-in-kind, prompting the FASB to strengthen the disclosure requirements. Some state legislators have been concerned about charities potentially overvaluing gifts-in-kind and using the figures to bolster financial information to appear more efficient than they really are. There is also the concern that a nonprofit may use it to hide wasteful use of its resources.

Updated accounting standards

Accounting Standards Update (ASU) 2020-07, Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets, gives donors better information without causing nonprofits to incur too much cost to provide the information.

The updated standard will provide more prominent presentation of gifts-in-kind by requiring nonprofits to show contributed nonfinancial assets as a separate line item in the statement of activities, apart from contributions of cash and other financial assets. It also calls for enhanced disclosures about the valuation of those contributions and their use in programs and other activities.

Nonprofits will be required to split out the amount of contributed nonfinancial assets it receives by category and in footnotes to financial statements. For each category, the nonprofit will be required to disclose:

  • Qualitative information about whether contributed nonfinancial assets were either monetized or used during the reporting period and, if used, a description of the programs or other activities in which those assets were used
  • The nonprofit’s policy (if any) for monetizing rather than using contributed nonfinancial assets
  • A description of any associated donor restrictions
  • 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 measurement if it is a market in which the recipient nonprofit is prohibited by donor restrictions from selling or using the contributed nonfinancial asset

The new rule won’t change the recognition and measurement requirements for those assets, though.

Effective date

ASU 2020-07 takes effect for annual periods after June 15, 2021, and interim periods within fiscal years after June 15, 2022. Retrospective application is required, and early application is permitted.

Questions?

If you have questions about gifts-in-kind for your nonprofit, contact us today.

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