FASB Issues Guidance on Not-for-Profit Entities’ Presentation of and Disclosures About Contributed Nonfinancial Assets (December 4, 2020)

FASB Issues Guidance on Not-for-Profit Entities’ Presentation of and Disclosures About Contributed Nonfinancial Assets

by Tim Smith and Rob Moynihan, Deloitte & Touche LLP

Background

In September 2020, the FASB issued ASU 2020-07,1 which amends ASC 958-6052 to require not-for-profit entities (NFPs), as defined in the ASC master glossary, to (1) “present contributed nonfinancial assets as a separate line item in the statement of activities, apart from contributions of cash and other financial assets” and (2) disclose contributed nonfinancial assets.

The ASU is intended to address stakeholders’ concerns related to the lack of transparency regarding an NFP’s measurement of contributed nonfinancial assets and the amount of those contributed assets used in the NFP’s programs and other activities.

The scope, key provisions, transition requirements, and effective dates of the ASU are discussed below.

Scope

The ASU’s amendments apply to NFPs that receive contributions of nonfinancial assets. In an NFP’s financial statements, different terms may be used to present contributed nonfinancial assets, such as contributions, donations, gifts, gifts-in-kind, or grants. The ASC master glossary defines a nonfinancial asset as “[a]n asset that is not a financial asset. Nonfinancial assets include land, buildings, use of facilities or utilities, materials and supplies, intangible assets, or services.”

Connecting the Dots

The FASB decided not to include contributed securities and other financial assets within the ASU’s scope because contributed financial assets other than cash are usually monetized and used similarly to cash.

Key Provisions of the ASU

While the ASU adds presentation and disclosure requirements to ASC 958-605 as summarized below, it does not change the recognition and measurement requirements for contributed nonfinancial assets.

New Presentation Requirement

The ASU adds to ASC 958-605 a new requirement that NFPs must present contributed nonfinancial assets as a separate line item in the statement of activities (i.e., separately from other contributions that an NFP may receive, such as contributions of cash and other financial assets).

New Disclosure Requirements

Under the ASU, NFPs must disclose the disaggregation of the amount of contributed nonfinancial assets recognized within the statement of activities by the category that depicts the type of contributed nonfinancial assets (e.g., building, household goods, food, medical supplies, pharmaceuticals, clothing, vehicles, services). The ASU states that for each category, NFPs must disclose the following:

“Qualitative information about whether contributed nonfinancial assets were either monetized or utilized during the reporting period.”
“A description of the programs or other activities in which [the] contributed nonfinancial assets were used.”
“NFP’s policy (if any) about monetizing rather than utilizing contributed nonfinancial assets.”
“A description of any donor-imposed restrictions associated with the contributed nonfinancial assets.”
“A description of the valuation techniques and inputs used to arrive at a fair value measure . . . at initial recognition.”
“The principal market (or most advantageous market) used to arrive at a fair value measure if it is a market in which the recipient NFP is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial assets.”

Connecting the Dots

Under current guidance (i.e., before the ASU’s adoption), the only type of contributions to which specific disclosure requirements apply are contributed services. NFPs that receive such services must describe the programs or activities in which the services were used, including (1) the nature and extent of contributed services received for the period and (2) the amount recognized as revenues for the period. The ASU retains those disclosure requirements, which apply to both NFPs and business entities, but moves them from ASC 958-605-50-1 to ASC 958-605-50-1B.

The following are some considerations regarding the required disclosures for each category of contributed nonfinancial assets under the ASU:

“Qualitative information about whether contributed nonfinancial assets were either monetized or utilized during the reporting period” — NFPs will need to ensure that they have a process in place for determining whether contributed nonfinancial assets were either monetized or used during the reporting period. They should also consider how this disclosure requirement aligns with their requirement to disclose their policy (if any) about monetizing rather than using contributed nonfinancial assets.
A “description of the programs or other activities in which [the] contributed nonfinancial assets were used” — NFPs must consider how this disclosure requirement aligns with the requirement to describe programs or activities elsewhere in the financial statements.
“NFP’s policy (if any) about monetizing rather than utilizing contributed nonfinancial assets” — NFPs need to determine whether they have such a policy and, if so, how it aligns with their policy for categories designated for disaggregation of the contributed nonfinancial assets.
A description of any donor-imposed restrictions associated with the contributed nonfinancial assets” — NFPs should ensure that they have a process in place for determining which contributed nonfinancial assets are subject to donor-imposed restrictions and thus require incremental disclosure about such restrictions.
“A description of the valuation techniques and inputs used to arrive at a fair value measure . . . at initial recognition” — As discussed in paragraph BC21 of the ASU, ASC 820 currently requires all entities (including NFPs) to disclose the valuation techniques and inputs used “for assets and liabilities that are measured at fair value on a recurring or nonrecurring basis after initial recognition.” Therefore, the fair value disclosures in ASC 820 are not currently required for contributed nonfinancial assets unless such assets are subsequently remeasured (i.e., if impaired).

Under the ASU, NFPs must now disclose a description of the valuation techniques and inputs used in the fair value measurement of contributed nonfinancial assets in accordance with ASC 820-10-50(bbb)(1) at initial recognition.

For further discussion of fair value estimates and disclosures, including valuation techniques and inputs, see Deloitte’s A Roadmap to Fair Value Measurements and Disclosures (Including the Fair Value Option).
“The principal market (or most advantageous market) used to arrive at a fair value measure if it is a market in which the recipient NFP is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial assets” — This disclosure requirement was deemed appropriate because it permits NFPs to demonstrate that donor-imposed restrictions do not affect the measurement of contributed nonfinancial assets given that fair value is a market-based rather than entity-specific measurement.

Implementation Guidance and Illustrations

The ASU adds ASC 958-605-55-70U through 55-70W (reproduced below), which provide new implementation guidance and illustrations.

ASC 958-605

Example 22: Contributed Nonfinancial Assets

55-70U This Example illustrates the requirements described in paragraph 958-605-50-1A. Those disclosure requirements are not prescriptive on how the information should be disclosed; therefore, this Example demonstrates two alternative formats. This Example does not illustrate all categories of contributed nonfinancial assets, such as intangible assets. An NFP may be required to include disclosure information about valuation techniques and inputs, including assumptions and judgments that an NFP makes, in addition to those included in this Example, which is consistent with the fair value disclosures required by Topic 820. The valuation language used in this Example is not intended to provide guidance on how contributions of nonfinancial assets should be valued, including whether the principal market (or most advantageous market) disclosed is appropriate in the circumstances. While not illustrated in this Example, there may be additional information about the nature and extent of contributed services, including nonrecognized contributed services, that an entity may disclose in accordance with paragraph 958-605-50-1B.

55-70V The following illustration includes a table disclosing the amounts recognized within the statement of activities by category as well as a narrative disclosure about donor-imposed restrictions and valuation techniques and inputs for each category of contributed nonfinancial asset.

Contributed Nonfinancial Assets

For the years ended December 31, contributed nonfinancial assets recognized within the statement of activities included:

NFP K recognized contributed nonfinancial assets within revenue, including a contributed building, vehicles, household goods, food, medical supplies, pharmaceuticals, clothing, and services. Unless otherwise noted, contributed nonfinancial assets did not have donor-imposed restrictions.

It is NFP K’s policy to sell all contributed vehicles immediately upon receipt at auction or for salvage unless the vehicle is restricted for use in a specific program by the donor. No vehicles received during the period were restricted for use. All vehicles were sold and valued according to the actual cash proceeds on their disposition.

The contributed building will be used for general and administrative activities. In valuing the contributed building, which is located in Metropolitan Area B, NFP K estimated the fair value on the basis of recent comparable sales prices in Metropolitan Area B’s real estate market.

Contributed food was utilized in the following programs: natural disaster services, domestic community development, and services to community shelters. Contributed household goods were used in domestic community development and services to community shelters. Contributed clothing was used in specific community shelters. Contributed medical supplies were utilized in natural disaster services. In valuing household goods, food, clothing, and medical supplies, NFP K estimated the fair value on the basis of estimates of wholesale values that would be received for selling similar products in the United States.

Contributed pharmaceuticals were restricted by donors to use outside the United States and were utilized in international health services and natural disaster services. In valuing contributed pharmaceuticals otherwise legally permissible for sale in the United States, NFP K used the Federal Upper Limit based on the weighted average of the most recently reported monthly Average Manufacturer Prices (AMP) that approximate wholesale prices in the United States (that is, the principal market). In valuing pharmaceuticals not legally permissible for sale in the United States (and primarily consumed in developing markets), NFP K used third-party sources representing wholesale exit prices in the developing markets in which the products are approved for sale (that is, the principal markets).

Contributed services recognized comprise professional services from attorneys advising NFP K on various administrative legal matters. Contributed services are valued and are reported at the estimated fair value in the financial statements based on current rates for similar legal services.

55-70W The following table illustrates the disclosures in paragraph 958-605-55-70V for each category of contributed nonfinancial asset. It includes both amounts and narrative disclosure. For illustrative purposes, only one year is presented.

Contributed Nonfinancial Assets

	Revenue Recognized	Utilization in Programs/Activities	Donor Restrictions	Valuation Techniques and Inputs
Building	$ 550,000	General and Administrative	No associated donor restrictions	In valuing the contributed building, which is located in Metropolitan Area B, NFP K estimated the fair value on the basis of recent comparable sales prices in Metropolitan Area B’s real estate market.
Household goods	$ 95,556	Domestic Community Development; Community Shelters	No associated donor restrictions	NFP K estimated the fair value on the basis of estimates of wholesale values that would be received for selling similar products in the United States.
Food	$ 85,407	Natural Disaster Services; Domestic Community Development; Community Shelters	No associated donor restrictions	NFP K estimated the fair value on the basis of estimates of wholesale values that would be received for selling similar products in the United States.
Medical supplies	$ 90,389	Natural Disaster Services	No associated donor restriction	NFP K estimated the fair value on the basis of estimates of wholesale values that would be received for selling similar products in the United States.
Pharmaceuticals	$ 111,876	International Health Services; Natural Disaster Services	Restricted to use outside the United States	In valuing contributed pharmaceuticals otherwise legally permissible for sale in the United States, NFP K used the Federal Upper Limit based on the weighted average of the most recently reported monthly Average Manufacturer Price (AMP) that approximate wholesale prices in the United States (that is, the principal market). In valuing pharmaceuticals not legally permissible for sale in the United States (and primarily consumed in developing markets), NFP K used third-party sources representing wholesale exit prices in the developing markets in which the products are approved for sale.
Clothing	$ 85,765	Natural Disaster Services; Domestic Community Development; Community Shelters	No associated donor restrictions	In valuing clothing, NFP K estimated the fair value on the basis of estimates of wholesale values that would be received for selling similar products in the United States.
Vehicles	$ 127,900	It is NFP K’s policy to sell all contributed vehicles immediately upon receipt unless the vehicle is restricted for use in a specific program by the donor. All vehicles received were sold.	No associated donor restrictions	Proceeds from vehicles sold are valued according to the actual cash proceeds on their disposition.
Services	$ 73,890	Various Administrative Legal Matters	No associated donor restrictions	Contributed services from attorneys are valued at the estimated fair value based on current rates for similar legal services.

Connecting the Dots

As discussed in ASC 958-605-55-70U, NFPs may use either a table or narrative format (or a combination of both) to disclose the required information.

Effective Date and Transition

ASU 2020-07 is effective for all NFPs for fiscal years beginning after June 15, 2021, and interim periods within fiscal years beginning after June 15, 2022. Early adoption is permitted.

The ASU must be applied retrospectively, and NFPs must provide the transition disclosures required by ASC 250-10-50-1 in the period of adoption. Such disclosures include:

The nature of, and reason for, the change in accounting principle, including an explanation of the newly adopted accounting principle.
The method of applying the change.
A description of the prior-period information that has been retrospectively adjusted, if any.
The effect of the change on relevant financial statement line items.

Connecting the Dots

Although the ASU is effective for all NFPs for fiscal years beginning after June 15, 2021, it must be applied retrospectively. NFPs should therefore ensure that they are prepared to provide the required disclosures for fiscal years beginning after June 15, 2020 (if they present comparative financial statements).

Footnotes

FASB Accounting Standards Update (ASU) No. 2020-07, Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets.

For titles of FASB Accounting Standards Codification (ASC) references, see Deloitte’s “Titles of Topics and Subtopics in the FASB Accounting Standards Codification.”

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