FASB proposes update to definition of ‘collections’

By Ken Tysiac

FASB issued a proposal Tuesday that would realign the definition of “collections” with the definition used in the American Alliance of Museums’ Code of Ethics for Museums.

Under current GAAP, an entity is not required to recognize contributions of works of art, historical treasures, and similar assets if the donated items are added to collections and meet three conditions.

One of those conditions states that an entity must be subject to an organizational policy that requires the proceeds from sales of collection items to be used to acquire items for collections.

The proposed amendment would modify that condition to allow the proceeds to be used to support the direct care of existing collections in addition to the current requirement that proceeds from sales of collection items be used to acquire other items for collections.

The proposal is intended to eliminate the current diversity in practice that exists between the application of the definition in GAAP compared to the definition that many entities use for operability and accreditation purposes.

In addition, using proceeds from deaccessioned collection items toward direct care directly aligns with many entities’ missions to specifically maintain their collections. Aligning the definition and permitting proceeds to be used for the care of existing collections is consistent with the basis for conclusions in FASB Statement No. 116, Accounting for Contributions Received and Contributions Made, about the care and preservation of collections. The care and preservation of collections is the basis for permitting entities not to recognize contributed collections.

The definitions of “collections” used by FASB and the Code of Ethics for Museums diverged when the American Alliance of Museums revised the code after FASB issued Statement No. 116 in 1993.

Although accounting for collections primarily is an issue for not-for-profit organizations, the proposed amendment would apply to all entities that maintain collections.

Comments on the proposal can be made at FASB’s website through Aug. 10.

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

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