FASB introduced accounting standards update 2020-07, Presentation and Disclosure by Not-for-Profit Entities for Contributed Nonfinancial Assets, to clarify the existing standard around gifts-in-kind. Such gifts may include assets like land, buildings, and equipment, or the use of such assets. Other items included in this category are utilities, materials and supplies, such as food, clothing, or pharmaceuticals, intangible assets, and recognized contributed services.
The standard must be applied retrospectively and organizations may choose to adopt the updated standard earlier than the effective date. The amendments take effect for annual reporting starting after June 15, 2021, and interim periods within annual reporting periods beginning after June 15, 2022.
What Is the Updated Requirement?
The newly updated standard requires nonprofit organizations to show contributed nonfinancial assets as a separate line item in the statement of activities. This should be kept separate from contributions of cash or other financial assets. Nonprofits are now required under the standard to disclose contributed nonfinancial assets within the statement of activities. These should be disaggregated by category. The categories should depict the type of nonfinancial asset being presented.
What Must Nonprofits Disclose?
Additional details should be disclosed around the statement of gifts-in-kind. Nonprofits should prepare statements that include the following disclosures:
- Whether the asset was used or monetized during the reporting period.
- If the asset was used, include a description of how the items were used and for which programs run by the nonprofit.
- A policy statement from the nonprofit about how gifts can or cannot be monetized rather than using the gifts-in-kind.
- A full description of any donor-imposed restrictions on how the gift may be used or monetized.
- The valuation techniques used to assess the gift’s value upon receipt. For guidance, see
- If the nonprofit is prohibited by a donor-imposed restriction on selling or using the item, the market by which fair value was estimated.
Challenges Involving Gifts-in-Kind
Accurately and clearly accounting for gifts-in-kind has always been challenging, but it can be particularly challenging for some nonprofits, especially if they aren’t used to receiving gifts-in-kind. The previously cited FASB Topic 820 offers help but common sense, previous experience, and prudent judgment must guide a nonprofit as they value items used for programs.
Some items are easier to value than others. An automobile donated to a nonprofit can be valued by using the Kelly Blue Book Value. But what about a horse or pony donated to an equine therapy program? Here, the marketplace where the animal might be sold offers some insight. Similar horses sold in the equine therapy program’s service area may be used as a basis for judging the value of the donated animal.
Some watchdog groups view gifts-in-kind differently than other donations. Because there is so much leeway in how such gifts can be valued, nonprofit accounting professionals must keep detailed records and notes of how values are obtained and reported.
Another consideration is that there may be donor or legal restrictions on gifts. A donor may choose to restrict a gift so that it cannot be sold or they may have specific conditions around the use of the gift. These conditions must be adhered to in order to be compliant with the terms of the gift.
Lastly, gifts are sometimes purchased at below market value by the nonprofit from a donor. How you account for this varies but should be considered as part of the gifts-in-kind guidelines within your nonprofit organization. You may need to establish policies around GIK so that such situations are treated consistently over time.
Gifts-in-kind can be a valuable addition to your nonprofit. Accounting for them clearly and consistently enables you to welcome them when donors step up with generous gifts.
Welter Consulting
Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.
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