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Nonprofits Still Unsure of Grants Guidance for Revenue Standard

Facing implementation of the Financial Accounting Standards Board’s (“FASB”) revenue recognition standard in 2019, nonprofits are uncertain whether government grants and related contracts with government entities or foundations are to be classified as exchange transactions or contributions. The issue was the center of discussion at the September 8 meeting between the FASB and its Not-for-Profit Advisory Council, along with how the conditions and restrictions on such contributions should be distinguished.

The meeting was part of the accounting board’s effort to streamline implementation of Accounting Standards Update No. 2014-09, Revenue From Contracts With Customers (Topic 606). While the landmark standard outlines how nonprofits should recognize tuition and sales of goods, confusion exists regarding where government grants fit into guidance that is more tailored to entities that conduct business with a customer. In addition, governmental entities often fund organizations under various arrangements like grants and fee-for-service contracts. Some grants come attached with conditions such as a requirement to give back the funds if they are not used as intended by the grant.

Accounting for grants has been a years-long issue among nonprofits. The new standard brought a renewed focus on the problem due to the FASB eliminating the guidance concerning exchange transactions. Although the FASB has been working since April to clarify its revenue guidance, no clear answer has emerged regarding the accounting treatment for grants with respect to nonprofits.

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