In June 2018 FASB issued Accounting Standards Update 2018-08, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. The new guidance applies to all entities that receive or make contributions, including business entities.
The new guidance clarifies the definition of an exchange transaction. Non-Profits will need to determine whether a contribution should be recorded as a contribution or exchange transaction.
- A contribution is an unconditional transfer of cash or other assets to an entity or a settlement or cancellation of its liabilities in a voluntary nonreciprocal transfer by another entity acting other than as an owner.
- An exchange transaction is a reciprocal transfer in which each party receives and sacrifices approximately equal value. In an exchange transaction, the potential public benefits are secondary to the potential proprietary benefits to the resource provider.
- A contribution that results if an entity voluntarily transfers assets (or net assets) or performs services for another entity in exchange for either no assets or for assets of substantially lower value and unstated rights or privileges of a commensurate value are not involved is an inherent contribution.
Before determining if you have a contribution or an exchange transaction there are many indicators that need to be considered; recipient Non-Profit intent in soliciting the asset/services, resource provider’s expressed intent about the purpose of the asset/services to be provided by the Non-Profit, method of delivery, method of determining amount of payment, penalties assessed if the Non-Profit fails to make timely delivery of assets/services, delivery of the assets/services to be provided by the recipient Non-Profit.
Government grants to business entities have been scoped out. Procurement/vendor arrangements are not affected. No new disclosures are required. If you have any questions regarding the new changes we can help, Please give our office a call.
Paul Conniff, CPA, CGMA