On February 10, 2020, the Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU) intended to improve transparency around how not-for-profit organizations present and disclose contributed nonfinancial assets, also known as gifts-in-kind. Contributed nonfinancial assets includes fixed assets such as land and buildings, materials and supplies such as food, clothing and pharmaceuticals and contributed services such as use of space or professional services.
Under Generally Accepted Accounting Principles (GAAP), nonprofit organizations are required to report gifts-in-kind at fair market value on the date of the contribution. In general, consistent practice exists in arriving at the fair market value for gifts-in-kind, except for contributed pharmaceuticals. The practice followed for the valuation of contributed pharmaceuticals varies and, in some cases, has been questionable and controversial. For instance, the state of California has sued several charities over pharmaceutical valuation methodologies. The California legislature then established their own GAAP on valuation of contributed pharmaceuticals, which was vetoed by the Governor. The proposed ASU is as a result of these events and would require not-for-profit organizations to have additional presentation and disclosure requirements as below:
Proposed Presentation Requirements:
Not-for-profit organizations would be required to present contributed nonfinancial assets as a separate line item in the statement of activities.
Proposed Disclosure Requirements:
a) Disaggregate the gifts-in-kind by category
b) For each category, provide qualitative information on whether the gifts-in-kind were or are intended to be either monetized or utilized during the reporting period and future periods. If utilized, include a description of programs in which these gifts-in-kind were or are intended to be used
c) Description of donor restrictions on the gifts-in-kind, if any
d) The valuation technique used to arrive at fair market value, including the principal market or most advantageous market if there is no principal market
The comment period ends on April 10, 2020.
More information is available at fasb.org.
Compliments of Marks Paneth, a Member of the EACCNY