Changes to In-kind Donation Disclosures for Nonprofits
AAFCPAs would like to make nonprofit clients and donors aware that the Financial Accounting Standards Board (FASB) has recently issued an Accounting Standards Update (ASU) to increase the transparency about the measurement of in-kind donations received by nonprofits, as well as the amount of those in-kind donations used in nonprofits’ programs and other activities.
The ASU in question—ASU 2020-07, Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets in September 2020—does not change the recognition and measurement requirements of in-kind donations. Nonprofits will still follow ASC Subtopic 958-605 to recognize contributed nonfinancial assets at fair value upon receipt. Nonfinancial assets include, but are not limited to, the following:
- fixed assets (e.g., land, building, and equipment),
- use of fixed assets or utilities,
- materials and supplies (e.g., food or clothing),
- software licenses,
- professional services (e.g., architectural, legal), and
- unconditional promises of those assets.
Cash equivalents and shares of stock are considered financial assets and not subject to the new guidance. In addition, the new guidance does not apply to business enterprises who receive in-kind donations.
Expanded Disclosure Requirements
The new guidance significantly expands the disclosure requirements for in-kind donations, such as the requirements to:
- Present in-kind donations as a separate line item on the face of the statements of activities.
- Provide disaggregated information in the notes to the financial statements about each category of in-kind donations, such as building, equipment, food, medical supplies, legal services, or use of facility.
- For each category of in-kind donations, nonprofits are also required to disclose:
- Revenue recognized.
- Any donor restriction associated with the in-kind donations.
- Qualitative information about the not-for-profit policy (if any) regarding the monetization rather than utilizing the in-kind donations in their programs.
- A description of the valuation techniques and inputs used to arrive at a fair value measurement.
- The principal market used to estimate the in-kind donations’ fair value.
For contributed services received, nonprofits are also required to describe the programs or activities for which those services were used, including the nature and extent of contributed services received and the amount recognized as revenues for the period.
Nonprofits are encouraged to disclose contributed services received but not recognized as revenues if that is practicable. The nature and extent of contributed services received can be described by nonmonetary information, such as the number and trends of donated hours received or service outputs provided by volunteer efforts, or other monetary information, such as the dollar amount of contributions raised by volunteers.
This ASU should be applied on a retrospective basis for all periods presented and is effective for annual periods beginning after June 15, 2021.