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Nonprofits Concerned with Contribution Classifications for Revenue Standard

Several nonprofits are confused over whether to classify a contribution as having a restriction or a condition with respect to the Financial Accounting Standards Board’s (“FASB”) revenue recognition standard. The issue is significant to nonprofits because it impacts the timing of recording the revenue from the contribution, but FASB Assistant Director Jeffrey Mechanick recently cautioned that it will ultimately be in the hands of an organization’s financial report preparers to decide. At last week’s meeting between the FASB and its Not-for-Profit Advisory Committee, Mechanick said due to the amount of judgment in practice, the board is attempting to offer improved guidance to the framework involved with making judgment calls.

Last week’s meeting was part of the FASB’s attempts to clarify how identify nonprofit grants and contracts in a more broad manner. Along with distinguishing between conditions and restrictions, the FASB wants to clarify whether grants and other contracts with government agencies or foundations should be classified as exchanges or contributions.

Accounting Standards Update No. 2014-09, Revenue From Contracts With Customers (Topic 606), is effective for nonprofits next year.

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