FASB Working to Address Revenue Standard Guidance for Nonprofit Grants

January 3, 2017

Before nonprofits implement the Financial Accounting Standards Board’s (“FASB”) revenue recognition standard, the board needs to decide how and when such organizations should disclose revenues from conditional grants. In particular, the FASB needs to resolve whether grants and contracts with government agencies should be characterized as exchanges or contributions, and how to distinguish between conditions and restrictions on such contributions.

Some progress on the matter was made during the FASB’s December 14 meeting. The FASB approved adding illustrative examples to its nonprofit guidance, which will help differentiate between grants and related contracts that must be disclosed as contributions, as opposed to contracts that should be categorized as exchanges. However, the FASB was unable to agree on distinguishing between conditional and unconditional contributions.

FASB Assistant Director Jeffrey Mechanick remarked that nonprofits will have to use their own judgment in determining the specifics of a stipulation or the possibility of a right of return clause being exercised. In contrast, University of Chicago Associate Vice President John Kroll urged the board to allow flexibility.

Nonprofits must implement Accounting Standards Update No. 2014-09, Revenue From Contracts With Customers (Topic 606), in 2019.