AAFCPAs Provides Guidance on Potential Impact of FASB’s Proposed Changes to NFP Grant and Contribution Accounting

The Financial Accounting Standards Board (FASB) met on February 14, 2018 to redeliberate the amendments in the proposed Accounting Standards Update (ASU), Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made.  This proposed ASU will primarily affect nonprofits that receive government or foundation grants and contracts, but also provides clarity to other nonprofits and business entities that receive or make contributions.
This proposed ASU, issued in August 2017, assists entities in evaluating whether transactions should be accounted for as contributions (nonreciprocal transactions) or as exchanges (reciprocal transactions) and in distinguishing between conditional and unconditional contributions. Distinguishing between contributions and exchange transactions determines which revenue recognition guidance is to be applied.  Exchange transactions entered into by nonprofits will be accounted within the scope of ASC 606, Revenue from Contracts with Customers, or other applicable guidance, while the guidance related to accounting for contributions received is included in Subtopic 958-605, Not-for-Profit Entities – Revenue Recognition.
As part of its due process, the FASB issues Exposure Drafts, Discussion Papers, and other project documents for stakeholder review and input. They received 56 comment letters from the public on this proposed ASU, including one submitted by AAFCPAs’ Nonprofit Accounting & Auditing Committee.

AAFCPAs has provided for your convenience a summary of the decisions reached by the FASB in their February 2018 meeting:

  • To clarify and refine the indicators to describe a barrier. The proposed ASU requires an entity to overcome a barrier, and either a right of return of the assets transferred or a right of releases of a promisor’s obligation to transfer assets before a contribution can be deemed unconditional.   Overall, the respondents supported the concept of a table of the inductors, and agreed it will help in determining whether an agreement contains a barrier.  However, some respondents requested additional clarification and examples.
  • To affirm that the guidance for distinguishing between conditional contributions and unconditional contributions should be similar for both a recipient and a resource provider. The respondents generally supported that determining whether an agreement contains a conditional or unconditional contribution should not be different for a resource provider and a recipient.
  • To affirm the existing disclosure requirements about conditional promises to give. The existing guidance requires a recipient to disclose the total of the amounts promised and a description and amount for each group of promises having similar characteristics (e.g. establishing new programs, completing a new building, and raising matching gifts).
  • To allow simultaneous release of a condition and a restriction. Under the existing guidance, a nonprofit is allowed to classify donor-restricted contributions as unrestricted if restrictions are satisfied in the same reporting period in which the contributions are received.  The FASB decided that the simultaneous release accounting option for donor-restricted contributions could be elected for conditional restricted contributions separately from unconditional restricted contributions.
  • To affirm the modified prospective transition method should be applied in the first set of financial statements following the effective date to agreements that are either (1) not completed as of the effective date, or (2) entered into after the effective date.
  • To affirm that the effective date will be the same as the effective date of the Topic 606, Revenue from Contracts with Customers. For non-public entities, the effective date would be for the annual periods beginning after December 15, 2018.  The FASB decided that for resource providers, the effective date will be delayed by one year.
  • To affirm that early adoption will be permitted.

What does AAFCPAs advise?

This update could result in more grants and contracts being accounted for as contributions (often conditional contributions) than under current GAAP.  Although this update has not been finalized, AAFCPAs does not anticipate that the concepts will change significantly from exposure draft to final ASU.  We advise clients to begin to evaluate your current contracts and grant agreements using the proposed criteria to determine the potential impact on your financial reporting.
AAFCPAs will continue to follow the Board’s deliberations closely.  As always, we will keep you informed and provide further updates as they become available.
If you have any additional questions about how the new ASU will impact you, please contact your AAFCPA Partner, or Matt Hutt, CPA, CGMA, at 774.512.4043, mhutt@nullaafcpa.com.

About the Author

Matthew Hutt CPA
Matt leads AAFCPAs’ Healthcare Division, providing assurance, tax and advisory solutions for Federally Qualified Health Centers (FQHCs), behavioral health providers, home care agencies and hospices, nursing homes, and senior care living centers. Matt advises healthcare providers on consolidation and coordination of care, including the integration of behavioral health into the primary care delivery system. He also provides consulting solutions for providers transitioning to new value-based reimbursement models, and data driven patient care, including: developing business process and controls for collecting and advantaging data to provide analysis on: provider activity, delivery of care, and analysis of efficiency & cost effectiveness. Matt is also highly-sought after for his knowledge on issues related to affordable housing developers with requirements related to the US Department of Housing and Urban Development, MassHousing, Low Income Housing Tax Credits, Historical Tax Credits and New Markets Tax Credits.