Nonprofits remain one of the most important aspects in the front lines of helping communities in need. During times of crisis, such as the COVID-19 pandemic, many may find themselves with an influx in donations and in-kind gifts. Remember to use the new reporting requirements outlined by the Financial Accounting Standards Board (FASB) in accounting standards update No. 2020-07 released in September 2020.
Check out what reporting changes must be made by nonprofits and when they should go into effect.
What is considered an in-kind gift?
When nonprofits receive non-financial gifts from donors, they are more than likely considered a in-kind gifts. The FASB Master Glossary defines these as gifts of nonfinancial assets or fixed assets (e.g.. buildings, land, equipment), the use of fixed assets or utilities, materials and supplies, unconditional promises of assets, and intangible assets and services.
In-kind gifts allow nonprofits to focus more on their mission and the communities they serve while building relationships with businesses and individuals who may choose to or need to contribute in a non-financial manner.
When will the reporting requirements go into effect?
According to the accounting standards update No. 2020-07 by the FASB, nonprofits must include the new reporting requirements on annual financial reports for fiscal years beginning after June 15, 2021. If your organization follows a nontraditional fiscal year, you may already be tracking in-kind gifts in more detail. If you follow the calendar year, your organization will need to implement new procedures for recording in-kind gifts in the new year.
What are the new reporting requirements?
Nonprofits are now, or will soon be, depending on their fiscal year, required to report in-kind gifts as a separate line item on the statement of activities. This should be separate from cash or other financial assets.
When recording in-kind gifts throughout the year, keep the following reporting needs in mind. If you’re tracking these correctly along the way, creating the updated financial reports should be less daunting.
Statement of Activities reporting requirements:
- In-kind gifts as a separate line item and further broken down by category to show the type of non-financial assets.
Disclosures for in-kind gifts:
- Nonprofits must disclose the following for each category type:
- If the gifts were monetized or used during the reporting period and how they or the money was used.
- The policies in place for monetizing in-kind gifts.
- A description of any donor-imposed restrictions, if applicable.
- How the nonprofit arrived at the valuation for the in-kind gifts received.
- Principal (or most advantageous) market used to calculate the fair market valuations.
Other reminders for reporting in-kind gifts
In addition to the new requirements, nonprofit organizations should be mindful of generally accepted accounting practices for in-kind gifts. When receiving in-kind gifts, recognize them as income in the period they were pledged or committed to your organization, using fair market value at the time of the gift. This does not apply if there are certain stipulations that dictate how the contribution should be used or if it is part of a conditional transaction.
Nonprofits can also act as an agent if the donor specifies the in-kind gift has another beneficiary. This is because the donor hasn’t given up their “variance power.” If contributed services are donated, they only need to be recorded in financial statements if the service “creates or enhances non-financial assets” or the service “requires specialized skills provided by individuals with those skills that would typically need to be purchased if they were not previously donated.” Examples of these types of services include accounting, medical care, legal services, and construction work.
For clarification on in-kind gifts or assistance establishing a method for tracking and reporting these contributions, reach out to our team of knowledgeable professionals today.