BC1. The following summarizes the Board’s considerations in reaching the conclusions in this Update. It includes reasons for accepting certain approaches and rejecting others. Individual Board members gave greater weight to some factors than to others.
BC2. The Board is issuing the amendments in this Update to enhance the transparency of an NFP’s reporting of contributed nonfinancial assets by requiring additional presentation and disclosure requirements for those contributions.
BC3. Stakeholders raised concerns about an NFP’s reporting of gifts-in-kind, specifically contributed nonfinancial assets. Some stakeholders expressed concerns about the lack of transparency for contributed nonfinancial assets, specifically the amount of contributed nonfinancial assets received and used in an NFP’s programs and other activities. Other stakeholders expressed concerns about the clarity of certain aspects of the measurement guidance in Topic 820 about certain contributed nonfinancial assets. In response, the staff created a working group to assist the staff in identifying potential changes to GAAP to address the concerns brought to the Board’s attention about an NFP’s reporting of gifts-in-kind, specifically contributed nonfinancial assets.
BC4. Subtopic 958-605 has (a) requirements for the recognition and initial measurement of contributions and (b) disclosure requirements for contributed services. However, Subtopic 958-605 does not include specific presentation requirements or specific disclosure requirements for contributed nonfinancial assets other than contributed services. In June 2019, the Board added a project to its research agenda on the presentation, disclosure, and measurement of gift-in-kind contributions.
BC5. On August 21, 2019, the Board decided to add a project to its technical agenda with the objective of providing additional transparency in the reporting of gifts-in-kind, specifically contributed nonfinancial assets, through potential enhancements to presentation and disclosure. The Board decided not to change existing fair value measurement requirements in Topic 820 related to entityspecific restrictions because those changes could have had unintended consequences. The fair value framework applies to transactions of NFPs, private companies, and public business entities beyond those involving contributed nonfinancial assets.
BC6. Feedback from stakeholders, including the Not-for-Profit Advisory Committee (NAC), the working group, and the American Institute of Certified Public Accountants’ NFP Expert Panel, indicated that presentation and disclosure of contributed nonfinancial assets could be improved to provide donors, grantors, creditors, and other users of an NFP’s financial statements with more useful information.
BC7. On February 10, 2020, the Board issued proposed Accounting Standards Update, Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Notfor -Profit Entities for Contributed Nonfinancial Assets, with comments due on April 10, 2020. The Board received 25 comment letters on the proposed Update. The Board also discussed the proposed Update with the NAC at its April 7, 2020 meeting. Overall, comment letter respondents and NAC members supported the amendments in the proposed Update, noting that the proposed amendments are in line with the objective to increase transparency for contributed nonfinancial assets through presentation and disclosure. NAC members also noted that the flexibility afforded by the amendments in the proposed Update when applying the presentation and disclosure requirements would enable NFPs to provide information that is most relevant to each NFP’s stakeholders. Some respondents suggested clarifying specific aspects of the proposed amendments, which are described below in the basis for conclusions section.
Benefits and Costs
BC8. Overall, the Board concluded that the expected benefits of the amendments in this Update justify the expected costs. The Board does not anticipate that most NFPs will incur significant costs as a result of the amendments. The Board believes, on the basis of research and outreach, that the amendments are operable and can be implemented without significant cost. The amendments provide donors, creditors, and other users of NFP financial statements with the benefit of enhanced financial reporting of contributions by NFPs by providing more transparency and relevant information. The amendments do not create new recognition and measurement requirements. Rather, the amendments create new presentation and disclosure requirements. Research indicated that some NFPs already provide the information in their financial statements that is required by the amendments and, the Board concluded that this information should be readily available for most NFPs.
Basis for Conclusions
BC9. The Board concluded that the amendments in this Update should apply to contributed nonfinancial assets recognized by NFPs. Contribution is defined in the Master Glossary as “an unconditional transfer of cash or other assets, as well as unconditional promises to give, to an entity or a reduction, settlement, or cancellation of its liabilities in a voluntary nonreciprocal transfer by another entity acting other than as an owner.” Nonfinancial asset is defined in the Master Glossary as “an asset that is not a financial asset,” which itself is a defined term in the Master Glossary. Nonfinancial assets include fixed assets (such as land, buildings, and equipment), use of fixed assets or utilities, materials and supplies, intangible assets, and services. The Board concluded that the scope will be operable because contributions and nonfinancial assets are defined terms in GAAP and understood by NFPs. The Board considered whether to further narrow the scope within nonfinancial assets (for example, limiting the scope to only tangible nonfinancial assets) but decided that a broader scope will better support the project’s objective to improve transparency. In addition, using a scope that is currently defined in GAAP will be simpler for NFPs to apply.
BC10. The Board decided to limit the scope to NFPs because the concerns about additional transparency were raised primarily by NFP stakeholders. Additionally, the presentation and disclosure requirements in this Update are based on concepts that are focused on the informational needs of users of NFP financial statements and those users often have different informational needs than users of business entity financial statements. In addition, voluntary nonreciprocal transfers of assets to NFPs by nonowners are significantly more prevalent for NFPs than for business entities.
BC11. Consistent with the feedback received during initial deliberations, respondents’ views about whether the presentation and disclosure requirements should be extended to business entities were mixed. The Board affirmed its decision that the presentation and disclosure requirements in the Update should apply only to NFPs that receive contributed nonfinancial assets. The Board concluded that the amendments in this Update likely are more relevant for NFPs and their financial statement users as compared with business entities. At present, there is not enough information about the costs and benefits of or the need for extending the scope to include business entities.
BC12. The Board discussed whether to exclude contributed services that are recognized in accordance with Subtopic 958-605 because paragraph 958-605-501 already requires that an NFP disclose information about contributed services. The disclosure requirements in paragraph 958-605-50-1 are separate from the requirements in paragraph 958-605-50-1A and were originally put in place, in part, because of the Board’s decision to limit recognition to only those services that are readily measurable. However, the disclosure requirements in paragraph 958-60550-1A are intended to bring additional transparency about nonfinancial contributed assets more broadly. The Board decided that the presentation and disclosure requirements also will provide useful information for contributed services recognized in accordance with Subtopic 958-605. In addition, services are included in the definition of nonfinancial assets. Because of the disclosure requirements already in place in paragraph 958-605-50-1, the incremental information needed for the amendments in this Update related to contributed services should be readily available for most NFPs. In addition, the Board clarified that the requirements in paragraph 958-605-50-1B apply to all entities within the scope of Subtopic 958605, including both NFPs and business entities.
BC13. The Board decided not to include contributed financial assets within the scope of the amendments in this Update because contributed financial assets (other than cash) typically are liquidated (monetized) immediately and used similarly to cash in funding an NFP’s programs and other activities. Therefore, enhanced presentation and disclosure of contributed financial assets (other than cash) are unnecessary and less relevant to increasing the transparency of contributions.
BC14. The Board decided to require that an NFP present contributed nonfinancial assets recognized as a separate line item in the statement of activities. Separate line item presentation of contributed nonfinancial assets received in the statement of activities provides relevant information about the breakdown and nature of contributions by highlighting the difference between cash and noncash revenue. The Board considered the proposed FASB Concepts Statement, Concepts Statement 8, Conceptual Framework for Financial Reporting—Chapter 7: Presentation, which describes the Board’s current thinking about information appropriate for presentation to achieve the objective of financial reporting. Proposed Chapter 7 states that “. . . line items can reflect more homogeneous classes of items and usually are more useful to resource providers in faithfully representing the differences in effects of transactions, events, or circumstances. Therefore, creating line items that include classes of items that are as nearly homogeneous as possible is a critical aspect of presentation” (paragraph PR36). Additionally, “combining items measured differently into a single line item produces information that either is less meaningful or is more difficult to use . . .” (paragraph PR49). Separate line item presentation of contributed nonfinancial assets received on the face of the statement of activities will enhance the overall transparency of an NFP’s financial reporting of contributions and provide users of NFP financial statements with useful information.
BC15. The Board considered requiring further disaggregation of contributed nonfinancial assets on the face of the statement of activities (which could require a subtotal) but ultimately concluded that the incremental benefit would not justify the cost and that NFPs should have flexibility in presentation.
BC16. The Board also considered requiring separate line item presentation of contributed nonfinancial assets utilized within expenses on the statement of activities, apart from one another. However, the Board concluded that the incremental value of providing information about contributions utilized would not justify the costs because tracking the use of contributed nonfinancial assets could be costly and burdensome and provide minimal useful information. This is especially the case in instances in which an NFP also purchases similar nonfinancial assets for use in its programs and other activities. In addition, the Board decided that nonfinancial assets utilized whether purchased by or contributed to an entity are sufficiently homogeneous classes of items that do not warrant separate line item presentation, apart from one another, within expenses. Rather, quantitative information about contributed nonfinancial assets received and qualitative information about how those contributions are used (in the notes to financial statements) should provide relevant and sufficient information.
BC17. FASB Concepts Statement No. 8, Conceptual Framework for Financial Reporting—Chapter 8, Notes to Financial Statements, provides a broad range of possible information for the Board to consider when deciding on the disclosure requirements for a Topic in the Codification. The amendments in this Update are the result of the Board’s consideration of the concepts in Chapter 8 as they relate to an NFP’s contributed nonfinancial assets.
BC18. The Board decided to require that an NFP disclose the amount of contributed nonfinancial assets recognized by category in the notes to financial statements. An NFP is additionally required to disclose the following in the notes to financial statements for each category of contributed nonfinancial assets:
- Qualitative information about whether the contributed nonfinancial assets were monetized or utilized during the reporting period and, if utilized, a description of the programs or other activities in which those contributed nonfinancial assets were used
- The NFP’s policy (if any) about monetizing rather than utilizing contributed nonfinancial assets
- A description of any donor-imposed restrictions associated with the contributed nonfinancial assets
- A description of the valuation techniques and inputs used to arrive at a fair value measure, in accordance with paragraph 820-10-50-2(bbb)(1), at initial recognition
- The principal market (or most advantageous market) used to arrive at a fair value measure if it is a market in which the recipient NFP is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial assets.
BC19. Requiring that an NFP disaggregate the amount of contributed nonfinancial assets recognized by category in the notes to financial statements provides useful information about an entity’s resources that will help donors, creditors, and others in (a) assessing an NFP’s reliance on contributed nonfinancial assets and (b) understanding how an NFP uses contributed nonfinancial assets in relation to cash donations, as well as an NFP’s ability to effectively serve its mission. Additionally, the amendments in this Update enhance transparency about the nature of contributed nonfinancial assets and how they are valued, especially for NFPs that have significant contributed nonfinancial assets.
BC20. The amendments in the proposed Update would have required that an NFP disclose its intended future use of contributed nonfinancial assets. Concerns were raised about determining the intended use in a future period because it involves judgment and uncertainty that could be difficult to operationalize and audit and that could lead to inconsistency in practice. To address stakeholders’ concerns, the Board decided to require disclosure of an NFP’s policy (if any) for monetizing rather than utilizing contributed nonfinancial assets and remove the requirement to disclose an NFP’s intended future use of contributed nonfinancial assets.
BC21. The amendments in the proposed Update would have required that an NFP disclose a description, in accordance with paragraph 820-10-50(bbb)(1), of valuation techniques and inputs used to arrive at the fair value measure for contributed nonfinancial assets recognized in the statement of activities, in addition to explicitly requiring disclosure of the principal market (or most advantageous market), if significant. At present, Topic 820 requires disclosures for assets and liabilities that are measured at fair value on a recurring or nonrecurring basis after initial recognition. Therefore, the fair value disclosures in Topic 820 are not required for contributed nonfinancial assets unless subsequently remeasured (for example, if impaired). Because of stakeholders’ concerns about insufficient transparency for how those assets are valued, the Board decided to require the fair value disclosures in Topic 820 relating to valuation inputs and techniques to apply to contributed nonfinancial assets at initial recognition. The Board noted that many NFPs are already providing similar fair value disclosure information and should be able to comply without a significant amount of cost.
BC22. To clarify the Board’s intent about the disclosure relating to principal market and to address users’ concerns about increasing transparency, the Board decided to (a) remove the general reference to principal market (if significant) from the requirement to disclose a description of the valuation techniques and inputs used to arrive at a fair value measure and, instead, (b) explicitly require that the principal market (or most advantageous market) be disclosed if the principal market is a market in which the recipient NFP is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial asset. The Board observed that an NFP could still include information about the principal market in other instances in which that market is deemed a significant input in valuing the asset.
BC23. The Board considered requiring quantitative disclosure of contributed nonfinancial assets monetized or utilized during the reporting period, the amount of contributed nonfinancial assets in ending inventory, and the accounting policies on accepting contributed nonfinancial assets. The Board concluded that the benefits of those disclosures would not justify the cost to prepare that information, especially when an NFP also purchases similar nonfinancial assets for use in its programs and other activities.
Effective Date and Transition
BC24. The Board decided that the amendments in this Update are effective for NFPs for annual periods beginning after June 15, 2021, and interim periods within annual periods beginning after June 15, 2022. Early adoption is permitted. The Board concluded that a period of approximately two years until the time of the first annual disclosures for NFPs with June 30 annual period year-ends is consistent with the approximate lead time that many respondents indicated was appropriate for the proposed changes and also provides additional time given the Coronavirus Disease 2019 pandemic and the disruption that it has caused for many NFPs.
BC25. To improve the comparability of financial information, the Board decided that the amendments in this Update should be applied retrospectively to all periods presented within an NFP’s financial statements. The Board expects that retrospective application will not result in significant costs for most NFPs and that the amendments will not require a change in accounting. The Board believes that the benefits of retrospective application justify the costs.