Webcast to explain proposed guidance for grants, contributions to not-for-profit groups

The FASB on Sept. 11, 2017, plans to hold a webcast to explain its recent proposal to clear up an accounting issue that has for years vexed museums, charities, foundations, and other not-for-profit organizations.

The webcast is scheduled to feature Harold Monk, a member of the accounting board, FASB Assistant Director Jeffrey Mechanick, supervising project manager Richard Cole, and project manager Elizabeth Gagnon. The accounting board said the event is being held to help financial professionals understand the proposed guidance for grants and contributions and the restrictions donors place on them.

The draft version of the changes were released on August 3 in Proposed Accounting Standards Update (ASU) No. 2017-270, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. The proposal attempts to clarify the difference between contributions and transactions called exchanges. For contributions, the proposal further breaks down the difference between conditional contributions and unconditional contributions.

The distinction is important to not-for-profit groups and some for-profit enterprises because the categorization of a grant affects when the revenue can be recognized. For some large groups, grants can be millions of dollars, and the timing can make a difference on an organization’s financial statements.

The proposal primarily affects not-for-profit groups, but the FASB said businesses that receive or make contributions of cash or other assets could also be affected. The proposal aims to address a long-standing criticism that U.S. GAAP contains limited and at times conflicting guidance to distinguish between exchanges and contributions to not-for-profit organizations. The criticism increased after the FASB published ASU No. 2014-09, Revenue From Contracts With Customers (Topic 606), and erased the already limited guidance.

Proposed ASU No. 2017-270 says Subtopic 958-605, Not-for-Profit Entities — Revenue Recognition, should be applied to contributions, while other guidance, such as Topic 606, should be applied to exchange transactions.

The proposal clarifies the guidance about “exchange” transactions. An exchange, sometimes called a reciprocal transaction, involves a not-for-profit group’s receipt of money in return for the provision of services or the fulfillment of other obligations, such as cancer research by a health care organization. The proposal says an exchange transaction involves an evaluation of whether the resource provider — typically a foundation or government agency — is receiving “commensurate value” in return for the funds. If so, it is an exchange transaction that must follow the revenue recognition standard.

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