We wanted to share with you an accounting standard change resulting in new guidance regarding contributed nonfinancial assets. Accounting Standards Update (ASU) 2020-07 – Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets (ASU 2020-07) is effective for annual periods beginning after June 15, 2021.  This standard includes financial statement presentation and disclosure requirements for contributed nonfinancial assets received by not-for-profit entities (NFPs) and will require the financial statement footnotes to be updated for June 30, 2022 audits.  Most NFP’s use the term “in-kind contributions” which has the same meaning as contributed nonfinancial assets.

The ASU provides more transparency about the measurement and use of contributed nonfinancial assets recognized by NFPs. It is important to note that this ASU does not change existing recognition or measurement requirements – the accounting stays the same as you have always done it. A short summary of the relevant items within the updated ASU is as follows:

Presentation on the Financial Statements – Under the new guidance, a NFP will be required to present contributions of nonfinancial assets as a separate line item on the statement of activities, apart from other types of contributions (such as cash or other financial assets including contributed stocks).

Required disclosures – Under the new guidance, a NFP is required to disclose a disaggregation of the amount of contributed nonfinancial assets by category. NFPs may use either a table or narrative format (or a combination of both) to disclose the required information.

1. For each category of contributed nonfinancial assets, you will need to disclose qualitative information about whether the contributed nonfinancial asset was monetized or utilized during the reporting period, and if utilized include a description of what program or activity the assets were used for.
2. If applicable, the organization’s policy about monetizing rather than utilizing contributed nonfinancial assets.
3. A description of any donor-imposed restrictions on the contributed nonfinancial assets
4. A description of the valuation techniques and inputs used to determine fair at initial recognition.
5. The most advantageous market used to arrive at a fair value measurement when there are donor-imposed restriction from selling or using the contributed nonfinancial assets.

Implementation Considerations – Organizations should consider the following when implementing the new ASU:

• Take an inventory of contributed nonfinancial assets by category and program.
• Ensure there is proper supporting documentation to verify the fair value techniques and whether there are any donor restrictions.
• Ensure the development office of the organization has a process in place to track the various types of contributed nonfinancial assets, whether there are any donor restrictions on those contributions, and how the fair value of those contributed nonfinancial assets was determined.
• Finance department should reconcile their records to development’s records periodically.
• Develop a formal policy for contributed nonfinancial assets that are monetized instead of utilized.

CohnReznick would be happy to help any TANGO Members who need assistance or have questions with the implementation of this change.