The Right Moves for Grant and Contribution Accounting. FASB ASU 2018-08 Topic 958 Clarification on Contributions Received and Made.
Have you ever been out on the dance floor, and as the music starts to play… you pause – Swing or Latin? Salsa or Rumba? And then you realize you’re not sure how to tell which dance you should be doing! Clearly, an understanding of how to classify the music would be helpful to moving along the decision tree and around the dance floor.
Well… as a nonprofit finance executive, you may or may not find yourself on the dance floor making decisions about music and how to move, but you are definitely making decisions about revenue and how to record it. And with anything, Clarity – on what you’re dealing with and how to deal with it – is Key.
In 2014 when FASB released ASU 2014-09 Topic 606, Revenue from Contracts with Customers, it definitely caused the nonprofit community to pause – raising questions about whether grant revenue should be subject to the standard as an exchange transaction. Just last week, on June 21, 2018, FASB issued a much-anticipated follow-up – ASU 2018-08 Topic 958, Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made.
IMPACT – Transactions, once recorded as grants and contracts, are more likely to be accounted for as contributions.
Clarification Highlights in ASU 2018-08 Topic 958
Step 1. Determine if the Transaction is Exchange, Third-Party Payer, or Contribution?
Exchange (apply Topic 606) = Commensurate value is received by the resource provider.
Commensurate value is NOT achieved by:
1. the resource provider executing their mission through the transfer of assets, or
2. the general public receiving benefit from resources provided through another entity, such as a government agency.
Third-Party Payer (apply other guidance such as Topic 606) = No commensurate value is received by the resource provider AND the resource provider is paying on behalf of an existing exchange transaction between the recipient and an identified customer.
Contribution = No commensurate value is received by the resource provider AND they are not a third-party payer.
Step 2. If a Contribution, Determine if Conditional or Unconditional?
Conditional = Agreement includes BOTH a Barrier that must be overcome AND either a Right of Asset Return or Release of Promise to Give. Ambiguous donor stipulations are presumed to be conditional if not clearly unconditional.
1. measurable performance requirement before entitlement to assets
2. stipulation related to the purpose of the agreement limiting recipient discretion in conducting an activity (e.g., requirements to follow specific guidelines or hire specific people)
Step 3. When Unconditional, Determine if Restricted or Unrestricted
And, if you’re looking for help with your dance moves – well…. you might try a good dance instructor.