Gifts in Kind: New Reporting Requirements for Nonprofits
November 6, 2020

On September 17, the Financial Accounting Standards Board (FASB) issued an accounting rule that will provide more detailed information about noncash contributions charities and other nonprofit organizations receive known as “gifts in kind.” Here are the details.

Need for Change

Gifts in kind can play an important role in ensuring a charity functions effectively. They may include various goods, services and time. Examples of 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, and
  • Recognized contributed services.

Increased scrutiny by state charity officials and legislators over how charities use and report gifts in kind prompted the FASB to beef up the disclosure requirements. Specifically, some state legislators have been concerned about the potential for charities to overvalue gifts in kind and use the figures to prop up financial information to appear more efficient than they really are. Other worries include the potential for a nonprofit to hide wasteful use of its resources.

Enhanced Transparency

Accounting Standards Update (ASU) 2020-07, Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets, aims to give donors better information without causing nonprofits 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.

Specifically, 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 the following:

  • 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, and
  • 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, however.

Coming Soon

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. Contact us for more information.

© 2020

You might also like

Help Donors Help Your Nonprofit with a Planned Gift

Help Donors Help Your Nonprofit with a Planned Gift

Most established nonprofits are already equipped to solicit and accept planned gifts. But if your nonprofit is new to planned giving and doesn’t yet understand the long-term advantages of deferred gifts, it’s a good time to get up to speed. You’ll likely need to...

read more
Want to Boost Income? Consider a For-Profit Subsidiary

Want to Boost Income? Consider a For-Profit Subsidiary

Just because you run a nonprofit organization doesn’t mean you can function on low or no income. Although your nonprofit’s tax-exempt status prohibits certain money-making activities, you may be able to create a for-profit subsidiary that isn’t hampered by such...

read more
Don’t Let IRS Compliance Issues Drag Down Your Nonprofit

Don’t Let IRS Compliance Issues Drag Down Your Nonprofit

In recent years, the IRS has increased its scrutiny of tax-exempt organizations. Most nonprofits that fail to file Form 990 for three consecutive years will have their exempt status revoked automatically. The IRS is also cracking down on nonprofits that don’t properly...

read more