Do you know the new accounting rules for gifts in kind?
Not-for-profit organizations that accept contributions of nonfinancial assets, such as land, services and supplies, need to know about Financial Accounting Standards Board (“FASB”) rules approved last year. Accounting Standards Update (“ASU”), Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets is intended to increase transparency around gifts in kind.
New procedures and disclosures
The most dramatic change from previous gifts-in-kind rules is that donations should be reported by type of asset (for example, building, food or pharmaceuticals), rather than reported in aggregate. The rules also require the reporting of gifts-in-kind donations as a separate line item in the statement of activities.
Further, the following must be disclosed:
- The organization’s policies for monetizing in-kind donations (such as by selling them), rather than actually using the donations in operations,
- Any donor restrictions,
- The valuation techniques and data used to calculate a gift’s value, and
- The principal market or most advantageous market used to calculate the gift’s value.
This last disclosure is necessary if donor restrictions prohibit the nonprofit from selling or using the donation in the principal or most advantageous market. The principal market has the highest volume of activity for the donated asset. The most advantageous market generally maximizes the amount that would be received if the donation were sold.
Compliance required soon
It is important to begin to prepare to comply with these new rules, which take effect for annual reporting periods starting after June 15, 2021, and interim periods within fiscal years starting after June 15, 2022.
Contact us if you have questions or need help.