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Connecticut CPA
March/April 2018
FASB Proposes
Not-for-Profit Accounting
Standards Update
to Clarify Accounting for Contributions
Received and Contributions Made
By Michael J. Rolleri, CPA, Associate Professor of Accounting, University of New Haven and Partner, Whelan Rolleri & DePietro
and Robert Wnek, J.D., LL.M., Professor of Taxation and Business Law, University of New Haven
Why Now?
Since the Financial Accounting Stan-
dards Board (FASB) issued Statement
of Financial Accounting Standards
No. 116 (Accounting for Contributions
Received and Contributions Made) in
1993, there has been diversity in its
application. Along came Revenue from
Contracts with Customers (ASC 606),
effective for non-public companies
and not-for-profits for periods begin-
ning after December 15, 2018. ASC
606 is widely expected to cause enti-
ties disruption in their current revenue
collection and reporting practices for
contracts with customers.
Last August, FASB proposed an ac-
counting standards update timed to
be effective with ASC 606. The pro-
posed change scopes certain trans-
actions between resource providers
and not-for-profit entities out of the
Revenue from Contracts with Custom-
ers standard.
The amendments could result in
more grants and contracts being ac-
counted for as contributions (often
conditional contributions) than un-
der current GAAP.
Proposed Accounting Standards
Update Not-for-Profit Entities (Topic
958): Clarifying the Scope and Ac-
counting Guidance for Contributions
Received and Contributions Made is
expected to reduce diversity in prac-
tice by clarifying that non-reciprocal
resources provided (including those
received from governmental entities)
should be treated as contributions.
According to Topic 958, "The amend-
ments in this proposed update would
clarify that some transactions that may
be currently considered exchanges
should be accounted for as contribu-
tions (likely conditional), which is ex-
pected to be more relevant and less
costly than applying Topic 606 (includ-
ing the additional disclosure require-
ments), which is an accounting model
that was not developed to address the
exchange nature of such grants and
Exchange transactions result when
both the resource provider and the
recipient receive commensurate value
for assets transferred and follow the
guidance under Topic 606 or Topic
842, Leases.
Contributions follow the reporting guid-
ance under Topic 958, which amends
concepts and terminology in the master
glossary. Topic 958 applies to "all en-
tities, including business entities, that
receive or make contributions."
Contributions with Donor-Imposed
Conditions are contributions with bar-
riers that must be overcome before the
recipient is entitled to the assets trans-
ferred or promised.
The following items should be con-
sidered when deciding if a transfer of
assets is an exchange transaction or a
1. The resource provider must receive
direct value from the organization.
Indirect benefit received by the
public from the transfer of assets
does not qualify as direct value. In
the past, indirect value received by
the public was used as the basis
for classifying a transaction as an
exchange and not a contribution;
2. Commensurate value does not
include cases where payment of
resources helps the provider fulfill
its mission or gives the provider a
feeling of positive sentiment;
3. To qualify as an exchange transac-
tion, the provider and the recipient
must exchange goods or services
of commensurate value;
4. If the resource provider determines
the amount paid to the recipient,
the transaction is considered a
contribution and not an exchange;
5. If the penalty imposed on the re-
cipient for nonperformance is the
return of unspent funds and noth-
ing more, the transaction will not
be considered an exchange trans-
action but a contribution instead.