Despite ongoing challenges with remote work, labor shortages, and supply chain bottlenecks, many accounting regulation concessions are expiring. With those grace coming to an end, nonprofits need to adopt and implement policies that were deferred to allow time to manage operations as they emerge from the COVID-19 pandemic.
The Financial Accounting Standards Board (FASB) publishes Accounting Standards Updates (ASUs) that provide guidance and updated implementation dates when revisions occur. Here are a few ASUs nonprofits need to be aware of to ensure their organization remains in compliance.
Nonprofits have new presentation and disclosure standards for gifts-in-kind under ASU 2020-07. The requirements increase transparency by requiring nonprofits to present contributed nonfinancial assets as separate line items in the statement of activities. Organizations also must disclose the amounts of contributed nonfinancial assets received by type and category.
Disclosures must include a note of whether an asset was used or monetized, any donor-imposed restrictions, and the valuation technique used to determine the price assigned.
Nonprofit leaders can turn to FASB ASC 820 for fair value measurement and disclosure guidance for gifts-in-kind. Fair value is a market-based measurement, and existing marketplace conditions at the time of the asset transfer should be considered and implemented. If an identical asset or liability is not located, make an assumption and document it when determining its fair market value.
The requirement for nonprofits to implement new lease accounting standards (ASU 2016-02, Topic 842) was delayed with the issuance of ASU 2020-05 until fiscal years beginning on or after December 15, 2021. Many nonprofits have not have yet integrated the requirements into their workflow and accounting practices but should begin the process they haven’t already started.
With the deferral deadline now passed, nonprofits with leased equipment, services, vehicles, or real estate should conduct comprehensive inventories of all lease agreements and create the lease schedules the new standard requires. Nonprofits should review all contracts with embedded service agreements, as they will need to include the lease portion within the schedules.
ASU No. 2020-05 provided the option of a one-year delay to adopt the revenue recognition standards (ASC Topic 606) for nonprofits that had not issued financial statements, including the new requirement. The new five-step model takes time to perform and create the new disclosures, so ensure you allow adequate time to complete the process when preparing your financial statements.
Stay Current to Succeed
Keeping abreast of accounting standard updates allows you to stay aware of expectations and can help you set priorities and timelines. Thanks to other entity types having earlier implementation dates, nonprofits can learn from their implementations and trouble spots (particularly with lease accounting and revenue recognition requirements) to streamline their adoptions.
Ease your burdens where you can and gather the information needed to implement these and other accounting standards, providing significant time for your team to learn what’s necessary and meet all deadlines with time to spare.
Contact us today if you need assistance implementing current guidelines to stay focused on supporting your core mission.