New Accounting Standard for Nonprofit Entities
Contributed by: Kimberly McLaughlin, CPA, Supervisor
At Leone, McDonnell & Roberts, we work closely with our nonprofit clients to help them navigate any accounting changes and updates that could directly affect their organizations. One of the most recent updates we are informing clients about is the Accounting Standards Update 2020-07, Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets.
What Do You Need to Know About Accounting Standards Update 2020-07?
Issued by the Financial Accounting Standards Board (FASB) in September 2020, this updated standard is effective for annual periods beginning after June 15, 2021, and should be applied on a retrospective basis to all periods presented in the financial statements. The updated standard will impact all nonprofit organizations that receive in-kind donations (also known as contributed nonfinancial assets), including donations of:
- Fixed assets
The Leone, McDonnell & Roberts team also works with our nonprofit clients to ensure they understand the requirements of these accounting updates. Some important factors to consider include:
- In-kind donations must be reported as a separate line item on the statement of activities (cannot be mixed in with cash donations) based on the fair value of such items at the time of donation
- Within the notes to the financial statements, there needs to be quantitative disclosure regarding the amounts of in-kind donations by category based on the type of gift (the total should agree to the amount reported on the statement of activities)
- Within the notes to the financial statements, there also needs to be qualitative disclosure regarding the following:
- Whether the in-kind donation was sold or used during the reporting period, and in what programs and activities
- The nonprofit organization’s policy, if any, for monetizing or using these assets
- Description of donor-imposed restrictions on the assets, if any
- Valuation inputs and techniques used to measure the asset’s fair value at initial recognition
- The principal market (or most advantageous market) used to measure the fair value if it is a market in which the recipient is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial asset
Do You Have Questions About Updated Accounting Standards for Your Nonprofit?
Leone, McDonnell and Roberts helps nonprofit organizations of every size. Contact our team of tax and audit professionals to learn more.