In-Kind Contributions: FASB Update Requires Changes in Disclosures and the Statement of Activities

The concept of in-kind contributions – receiving a contribution that is goods or services – has been around, and unchanged, for quite some time. FASB released a new accounting update that will not change the accounting or recognition, but will change the disclosure and presentation of many in-kind contributions. ASU 2020-07, Presentation and Disclosures by Not-for-profit Entities for Contributed Nonfinancial Assets will be effective for years beginning after June 15, 2021. This means that June 30, 2022, and later year ends will need to apply this standard.

The good news is that the accounting and recognition will not change. All the information needed for the new disclosure and presentation requirements should already be available to your organization. It just may need to be structured differently.

The presentation will now require contributed nonfinancial assets to be in a single line, separate from any contributed financial assets, in the statement of activities. FASB is not making you change the line items for all your contributions; financial contributions (cash, receivables, investments, etc.) can continue to be labeled in however many line items with whatever titles you wish. It only impacts contributed nonfinancial assets (goods, services, and use of goods). All of those contributed nonfinancial assets need to be lumped into one line item on the statement of activities, and it cannot include contributed financial assets. This may mean adding a new account to your chart of accounts and may require some reclassifications of amounts between accounts.

The disclosure portion of the standard is far more in-depth. The disclosure needs to disaggregate the contributed nonfinancial assets into categories. The categories are not specifically listed, and you may find the qualitative information useful in helping determine how to choose categories.

• Each category needs to indicate the dollar amount of the contributed nonfinancial assets.
• Each category also needs to indicate if it was monetized (sold for money) or utilized during the reporting period. As part of the monetization, describe any policy the organization has on monetizing certain contributions.
• For those categories that were utilized, the programs or activities they were used in must be disclosed per category; this should match up to the functions listed in the statement of functional expense.
• In addition, if any of the contributed nonfinancial assets have donor-imposed restrictions, those must be disclosed.
• Valuation techniques and valuation inputs used to arrive at the fair value of the contributed nonfinancial assets must be described by category, as well as the principal, or most advantageous, market if the entity is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial assets in that market.

These are significantly more robust disclosures than we have ever had before for contributed nonfinancial assets. One way to show these disclosures is to have a grid format with a column for each type of information necessary; this may be the most efficient way if there are multiple categories of nonfinancial assets.

Let’s go back to the discussion of the principal, or most advantageous, market used to arrive at fair value when the organization is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial asset. This seems far-fetched, but it happens all the time in pharmaceuticals. When the pharmaceutical is donated, the fair value must be recorded. The fair value standards indicate to use the fair value in the principal market, so that is where the most sales happen. That principal market could be the U.S., for example. If there is no principal market, then the most advantageous market to the seller should be used. However, a pharmaceutical company may restrict donated pharmaceuticals to be allowed to be used in only Africa and not in the U.S. This would still require the U.S. market value (principal market) to be used even though the organization could not use the drug in the U.S. That would now need to be disclosed.

Contributed services also seem to have some additional disclosures that have been missed in the past. We know that not all contributed services meet the requirements to be recorded as revenue. However, the standards indicate that the programs and activities the contributed services were used for, and the nature and extent of those contributed services, should be disclosed. This is in addition to any revenue amounts recorded. So, if volunteers do not meet the criteria to have services recorded as revenue, the nature of those services, extent (number of volunteers or hours), and the programs they are used in should still be disclosed.

This standard is required to be retroactively implemented for all periods presented. That means, if comparative financial statements are shown, there will potentially be restatements of line items in the statement of activities for the prior year, and the disclosures must also be comparative. The person assisting in preparing the financial statements may not have all the original records necessary to determine all of this detail, and the organization may need to locate those originals for the prior year as well. 

These new changes should result in more transparency across the industry. Users will now be able to see more directly the impact that contributed nonfinancial assets have on the organization and how important they are. The biggest concerns are likely to be collating the information for the prior year’s disclosures in this year of implementation and ensuring that financial contributions, such as investments, are not included incorrectly in the contributed nonfinancial assets line item and disclosures.