Proposed Grants and Contributions Guidance Receives Support

November 13, 2017

With the comment period ending last week for Proposed Accounting Standards Update (ASU) No. 2017-270, Not-for-Profit Entities (Topic 958) Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made, nonprofit and professional groups and audit firms have expressed support for the Financial Accounting Standards Board’s (“FASB”) attempts to simplify how organizations disclose revenue from grants and contributions.

Mostly impacting nonprofits like charities and foundations, the proposal revises the guidance on determining whether gifts to nonprofit groups must be presented as contributions subject to ASC 958-605, Not-for-Profit Entities—Revenue Recognition, or as reciprocal transactions (i.e., exchanges) subject to ASC 605/606. The proposal also seeks to help differentiate between conditional and unconditional contributions. For-profit enterprises for certain transactions could also apply the new guidance.

One audit firm considered the FASB’s proposal a major improvement to the current guidance to identify when an asset transfer signifies an exchange transaction or a contribution. The audit firm said the new guidance would also help differentiate conditional and unconditional contributions, and provide greater consistency.

A second audit firm said the proposal offers a much-needed clarification for nonprofits confused with accounting for exchange transactions and contributions, in addition to differentiating between conditional and unconditional transactions. However, the Chicago-based firm also called for additional clarity on accounting for government grants and contracts.

Meanwhile, the American Institute of Certified Public Accountants’ Financial Reporting Executive Committee (“FinREC”) offered its support to the FASB’s plan to clarify accounting and the board’s attempt to distinguish between exchange transactions and contributions. FinREC also expressed concerns over the operability of certain portions of the plan, specifically regarding how for-profit enterprises may construe how to account for received government grants. In its comment letter, the committee said it believes that entities could end up drawing different conclusions about how the new guidance are supposed to work together with the current exclusion from contribution accounting of government grants to companies.

The United States Conference of Catholic Bishops also expressed reservations with its support for the proposal. The group agreed with the proposal’s overall premise, but asked the FASB to reconsider its guidance for determining a donor-imposed condition. As mentioned in its letter, the group does not believe a gift should be conditional only on the basis that an agreement includes a right of return in the contract language. Instead, the group wants grants or contracts to be considered conditional when the gift recipient cannot overcome a barrier.