FASB proposes changes to grant and contribution accounting

Accounting guidance for contributions received and made, primarily by not-for-profits, would change under new rules FASB proposed Thursday.

The proposed Accounting Standards Update (ASU) is designed to help organizations decide if a transaction should be accounted for as a contribution or an exchange. The proposal includes clarifying guidance to help organizations evaluate whether a resource provider is receiving value in return for the resources transferred.

FASB undertook the project after receiving feedback that characterizing grants as exchanges or contributions—and distinguishing between conditional and unconditional contributions—has led to difficulty and diversity in practice among not-for-profits.

“The proposed ASU provides not-for-profits with a more robust framework to evaluate and determine if a transaction should be accounted for as a contribution or an exchange,” FASB Chairman Russell Golden said in a news release. “This will help organizations more consistently apply the guidance and would make the accounting for contributions more operable.”

The proposal also would help organizations evaluate transactions for accounting purposes by creating a new framework to determine whether a contribution is conditional or unconditional. The framework also is designed to help organizations better distinguish between donor-imposed conditions and donor-imposed restrictions.

Although accounting for contributions is primarily an issue for not-for-profits, the proposed amendments would apply to all organizations that receive or make contributions of cash and other assets, including business enterprises.

The proposal would not apply to transfers of assets from government to business. The guidance would apply to recipients of contributions received and resource providers of contributions made.

Effective dates for the proposal would be the same as those for FASB’s revenue recognition standard. A public company or a not-for-profit that has issued or is a conduit bond obligor for securities that are traded, listed, or quoted on an exchange or an over-the-counter market would apply the standard to annual reporting periods beginning after Dec. 15, 2017, including interim periods within that period. Other organizations would apply the standard to annual reporting periods beginning after Dec. 15, 2018, and interim periods within annual periods beginning after Dec. 15, 2019.

Early adoption of the proposal would be permitted irrespective of the early adoption of the amendments in the revenue recognition standard.

Comments on the proposal can be submitted at FASB’s website through Nov. 1.

—Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is a JofA editorial director.