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Mar 23, 2020

Clarifying the Treatment for Nonfinancial Contributions

The Financial Accounting Standards Board is seeking to clarify the reporting of nonfinancial contributions to nonprofits, so it released the first draft of a proposed Accounting Standards Update on the topic. Ahead of the April 10 deadline for comment, we talked with Michael Cade, strategy consultant and executive coach for MFCCoach LLC in Morrisville, Pa., to get his thoughts on the proposed ASU. You can also get more insights from Cade at his blog, Not for Profit – Beyond the Numbers.

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By: Bill Hayes, Pennsylvania CPA Journal Managing Editor

Podcast Transcript


With the release of a recent first draft of a proposed Accounting Standards Update for nonprofits focused on nonfinancial contributions, the Financial Accounting Standards board is seeking to improve the clarity on treatment of these sorts of contributions for financial statement users. Ahead of the due date for comment on the first draft, we're looking to see if the FASB has done what it sought to do. To get our own clarification on that question, we are meeting today with our own nonprofit guru, Michael Cade, strategy consultant and executive coach for MFCCoach LLC. in Morrisville.

With the FASB recently releasing this first draft of a proposed Accounting Standards Update for nonprofit entities focused on nonfinancial contributions, they sought to improve the clarity and ease the understanding of these types of contributions for financial statement users. From what you have seen of the draft, have they accomplished their mission?

[Cade] I think for the most part, yes. They are really looking at trying to make that area of contributions a little bit more clear. And there are a few things lumped in there currently in the financial versus the nonfinancial. Those are two pretty big pieces, so I think splitting them out makes sense. The devil's in the details obviously, but I think it's a good step in the right direction.

For some context here for people, what exactly are nonfinancial contributions?

[Cade] Thankfully, it's fairly simple and straightforward. It's anything that a not-for-profit receives that's not cash or a cash equivalent. It could be bookbags for a school drive. It could be an art collection from someone who has passed away that wants to donate it. It could be equipment or furniture or items for a silent auction. It's basically anything that isn't them handing a cash or check, or something along those lines.

What is the new proposal’s effect on some specific things, such as financial statement preparation and footnote disclosures?

[Cade] There are basically two parts to this new update. Part one basically is the financial statement presentation and they basically say we want to see financial contributions split out from nonfinancial contributions. We'll just basically add another line. That's sometimes easier said than done, but that's basically what the requirement is. The second major part of the standard update is a footnote disclosure basically detailing a little bit more information about those nonfinancial contributions. What are they, how did you value them, what are you going to do with them? Are there restrictions on them? The typical things you hear but focused on the nonfinancial contributions.

The FASB, it has a proposal out, like we said. It's coming out, they're looking for comments by April 10th, 2020. And this podcast, it's going to be released on March 23rd. So the FASB, they've got these questions out there to their constituents, and I figured we'd kind of ... when the All-Star, you want to see people who voted for the all-star game. You want to see who they've put on their ballot. This is sort of what we're going to do here. We're going to take a look at some of the questions that are being asked by the FASB and get Mike's thoughts on them. I guess one of the questions on there first is the GAAP amendment. Is it operable, and why or why not? What do you think?

[Cade] Well, there's really no reason why it can't be done. I think it really comes down to a question of magnitude. This is one of the reasons that the FASB will ask for feedback, because they want to make sure that this isn't too onerous on anybody. Sometimes they do it anyway, even if it is onerous.

But they need to hear from folks that are going to be impacted by this to say, "Is this the right level of disclosure? Is it too much? Is it too little?" To get that feedback. I think it's doable. There's nothing in here that I would say, "Oh my goodness, I can't imagine how somebody would do it." It may not be information readily at hand and it may not be so easy to get. So, we want to have that opportunity of feedback if people think there's going to be some significant issues with it.

The second question we're taking from the proposed draft and the requests for comments: should disclosure requirements apply to all categories of nonfinancial contributions? Or should some categories be excluded?

[Cade] This is one of those wonderful “it depends” questions. Every organization has different levels of nonfinancial contributions. In the back of my mind, I say there's probably some that are so small that you shouldn't worry about them, but some organizations may get boatloads of those types of contributions that it may be big enough to be significant and need to be broken out. I think organizations need the feedback if they feel they have a style contribution that doesn't fit in here, that they need to say that out loud very quickly, get that feedback into FASB so that it can be considered.

The final question from the draft: is education or implementation guidance for the new standard required? What do you think about that?

[Cade] Always. The reality is people already ... the reason for these updates is that they've learned that things are not consistent across all the industries that are out there. It's always a good time when something new comes out to make sure everybody's on the same page. I like that they put that question in all the time and I can't imagine somebody says, "No, we don't need any education. That's fine. We're great."

The evaluation issues that come up with nonfinancial contributions are complex. There's rules about it, but they're not always perfect. So, it's always a good learning opportunity to basically have them say, "This is what we meant by it."

We'll exit out of the sneak peek at the questions there and close down with just how wide-reaching would the impact of this amendment be for nonprofits? What should nonprofits CPAs do to prepare for it?

[Cade] Basically any organization that receives or thinks they may eventually receive nonfinancial contributions will be impacted. That could be many, many, many. Some of the small ones, again, it may be something that they get a piece of equipment that a school gives up. There's so many things that come in to a not-for-profit that aren't cash or check. I think it's going to impact a lot of organizations.

From a preparation perspective, again, read this update, provide some feedback into the FASB, and then once that's working in the process of moving forward, talk about this topic to the board, to the senior management, make sure everybody understands what's coming. So that, once it does go through its process and becomes live, you're ready to basically do the work at that point. Prepare early and make sure that you're ready for it when it comes out.

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Podcast transcripts are provided as a summary of the conversation and have been lightly edited for the written medium. The transcript is not a verbatim representation of the interview.
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