Proposed amendment being planned for not-for-profit revenue guidance

The FASB is preparing to issue a proposed amendment to U.S. GAAP’s guidance for not-for-profit organizations that it believes will simplify the organizations’ reporting of some types of gifts and donations.

The proposed amendment will apply to gifts that require a charity, foundation or group that receives the funds to satisfy certain conditions, the accounting board agreed on April 19, 2017. The board clarified its interpretation of the word “condition” when it applies to a donation or grant to a not-for-profit group and said it would be used for donations covered by agreements that state that the organization will not receive the money or have to return it if it fails to satisfy the agreement. A conditional grant also means that the donor keeps the right to have the funds returned if the group fails to fulfill the agreement’s terms.

“The condition has to be written down, has to be substantive, and you have to meet it,” FASB Chairman Russell Golden said. “If you meet it, you keep the cash, or you get the cash. It’s as simple as that.”

The board also agreed that its proposed clarification of “conditional” would apply to the accounting for both the recipient of the grant or donation as well as the granting organization. No extra disclosures would be required.

The discussion was part of a debate about clarifying the difference between a grant or gift that has a “restriction” on it versus a grant or gift that has a donor-imposed condition. The board is trying to determine whether to characterize grants and other contracts with government agencies or foundations as exchanges or contributions. The differences can be subtle, but they are important because contributions must follow Subtopic 958-605, Not-for-Profit Entities—Revenue Recognition, while exchanges must follow the revenue standard, which was published in May 2014 as Accounting Standard Update (ASU) No. 2014-09, Revenue From Contracts With Customers (Topic 606).

Public businesses and not-for-profit organizations that have issued, or are conduit bond obligors for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market, must comply with the revenue standard in 2018. All other not-for-profit organizations will have an effective date of 2019 for the standard.

The board’s research staff said it would draft the proposed changes, circulate them among an external review panel, and return to the board with the questions the reviewers raise at a future meeting. After that, the board expects to release a proposal for public comment. If finalized, the update will be effective at the same time as the revenue standard.

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