FASB clarifies accounting for grants and contributions

FASB issued an Accounting Standards Update (ASU) clarifying when a transfer of cash or other assets received and made, primarily by not-for-profits, qualifies as a contribution or an exchange transaction.

The ASU, which amends FASB ASC Topic 958, Not-for-Profit Entities, updates current guidance about whether a transfer of assets — or the reduction, settlement, or cancellation of liabilities — should be accounted for as a contribution or an exchange transaction. Specifically, the ASU establishes criteria for determining whether the asset provider is receiving commensurate value in return for those assets. That determination then dictates whether the organization follows contribution guidance or exchange transaction guidance found in the revenue recognition and other applicable standards.

The new guidance is expected to be particularly helpful in the accounting for grants and similar contracts awarded by governments to not-for-profits. FASB proposed the changes last year after receiving feedback that not-for-profits had run into difficulty deciding whether to characterize grants as exchanges or contributions.

The ASU also provides an enhanced framework for determining whether a contribution is conditional or unconditional, and for distinguishing a donor-imposed condition from a donor-imposed restriction.

The new standard does not apply to transfers of assets from governments to businesses. The update includes extensive instructions on effective dates, which range from June 15, 2018, to Dec. 15, 2019.

In addition, FASB:

• Issued a standard that makes several clarifying changes to its Accounting Standards Codification and corrects what the board describes as unintended application of guidance. The changes in ASU No. 2018-09, Codification Improvements, are not expected to have a significant effect on current accounting practices or create significant implementation costs for most financial statement preparers.
• Issued an additional standard with 16 minor amendments to its new lease accounting standard, clarifying rules and correcting application of guidance that the board had not intended when it created the standard. The amendments in Codification Improvements to Topic 842, Leases, affect narrow aspects of the guidance issued in February 2016.
• Issued a proposal that would realign the definition of “collections” with the definition used in the American Alliance of Museums’ Code of Ethics for Museums.