Philosophers tell us the only thing constant in the universe is change. When it comes to accounting rules, that seems to be the norm as well. The past year we had a little break from the constant stream of changes coming from FASB, but a new change to the presentation of gifts in kind is on the horizon. Here’s what nonprofits need to know about ASU 2020-07, changes to the presentation of gifts in kind.
What Are “Gifts in Kind”?
The term “gifts in kind” may refer to fixed assets or intangible assets. Examples of gifts in kind that are included in the updated accounting rules include fixed assets such as land, buildings, and equipment. It also includes the use of fixed assets, so if a donor allows you the use of a building, for example, that must be included as well.
Other donations must be included: utilities, food, clothing, medicines, and medical supplies. Lastly, intangible assets such as contributed services are also categorized as gifts in kind and should be described as such in your accounting documents.
5 Required Disclosures
Under the revised ASU 202-07, nonprofits are now required to disclose five things related to each item included as a gift in kind.
- Qualitative information
- Nonprofit policies
- Donor restrictions
- Valuation technique
- Principal market
Let’s unpack each one.
Under qualitative information, nonprofits are asked to disclose whether the asset was sold or utilized. If the asset was used by the nonprofit for its work, the disclosure should include information about which project the asset was used for and how it was used.
Nonprofit policies refer to the organization’s written policy regarding gifts in kind. Some organizations have written policies about how gifts in kind are monetized. For example, are assets sold at auction or sold in a charity shop? How are they valued? Such policies should be included as part of the description.
Donor restrictions include any conditions that donors place upon how the asset is used or disposed of; for example, if the donor restricts an item to use by the nonprofit rather than allowing it to be monetized.
Valuation techniques are described in FASB ASC Topic 820, Fair Value Measurement. The technique used to value items at initial recognition should be described and recorded.
Principal market (or most advantageous market) used to arrive at a fair value measure if it is a market in which the recipient not-for-profit is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial assets.
Reporting Changes to Gifts in Kind Are Retroactive
FASB has stated that these reporting changes should be applied retroactively, so nonprofits should begin immediately to assess gifts in kind and how they are reported. The amendments take effect for annual reporting periods beginning after June 15, 2021 (for example, fiscal years ending June 30, 2022, and December 31, 2022). And, if you’re so inclined, you may report early—FASB is allowing early adoption of the updated reporting standard.
Everything changes, and that includes FASB standards. If your organization accepts gifts in kind, now is the time to act on these updates.
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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