for under ASC 958-605 Not-For-Profit Entities – Reve- nue Recognition amended by ASU 2018-08.
overcome and either a right of return of assets transferred or a right of release of a promisor’s ob- ligation to transfer assets. If an agreement has both a barrier and a right of return or a right of release, the recipient should not recognize revenue until the barrier(s) are overcome. Funds received in advance of the barrier(s) being overcome should be record- ed as deferred revenue. Indicators are used to determine if the agreement contains a barrier: • Measurable performance-related barrier or other measurable barrier, such as providing the services required in the agreement • The extent to which a stipulation limits discretion by the recipient on the conduct of the activity, such as a requirement to follow specific guidelines about or qualifying allowable expenses, or a specific pro- tocol that must be adhered to • A limited discretion stipulation and whether a stip- ulation is related to the purpose of the agreement – this indicator excludes administrative tasks and trivial stipulations. If there are no donor-imposed conditions placed on this gift, recognize revenue when received or known and determine if there is a donor-imposed restriction or not. If there is a donor-imposed restriction on how or when the contribution should be used, it should be recorded as a contribution “with donor restrictions.” If there is no restriction on the contribution, it should be recorded as a contribution “without donor restrictions.” Classifying government grants as conditional contribu- tions will result in an additional footnote disclosure for many organizations that receive government grants. For unconditional promises to give, an organization needs to disclose the following: • The amount of promises to give that are receivable in less than one year, in one to five years, and in more than five years • The amount of the allowance for uncollectible promises to give • The discount rate to present value the receivables due more than one year. REQUIRED FOOTNOTE DISCLOSURES
The ASU clearly states that government and foundation grants that benefit the general public or society, such as a child care grant or a grant to provide homeless services, are contributions and nonreciprocal transac- tions because the government or foundation is not directly receiving something of approximate equal value. The issue is: who is directly receiving the benefit? If it is not the grantor directly, then the transaction is a contribution. Basically, what FASB is stating is that the government is not synonymous with the general public. Also, if the government or foundation grantor receives value indirectly by providing a societal benefit, it would still be considered as a contribution and not an ex- change transaction. Therefore, the majority of govern- ment and foundation grants/contracts will now have to be considered as contributions (nonreciprocal) and the accounting will have to follow the standards as stated in ASU 2018-08. But before organizations start recording their govern- ment and foundation grants as contributions as soon as they receive the funds or are aware of the grant, please continue reading. To make this work for government/foundation grants, FASB had to change the definition of conditional contribution by revising it to be a contribution where there is a right of return/release from obligation and a measurable barrier to overcome. An organization must consider the following: • Consideration #1: Reciprocal (exchange) transaction versus nonreciprocal (contribution) If both parties of the transaction receive commen- surate value, then it is an exchange transaction and the organization should follow guidance in ASC Topic 606 as amended by ASU 2014-09. If not, it is nonreciprocal (contribution)— see consideration #2. It is important to note that exchange transactions cannot result in revenue being recorded as “with donor restrictions.” • Consideration #2: Conditional versus unconditional Organizations must determine whether a con- tribution is conditional or not. It is conditional if the agreement includes a barrier(s) that must be HOW WILL THIS ALL WORK
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Nonprofit and Government Times
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