By Matthew S. Wildasin, CPA, principal, Boyer & Ritter CPAs
GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transaction, was issued roughly 20 years ago, so there may be some question as to why this is a relevant current topic. Recent delays in subsidy payments and the rental subsidy moratorium have added an extra level of complexity to revenue transactions. This complexity has begun to raise questions about the proper revenue recognition of these delayed funds. In addition, the GASB is currently pursuing projects related to the financial reporting model, which might affect when revenue is recognized in the financial statements.
In an exchange transaction, each party receives and gives up essentially equal values. Typically, this is the result of a government providing goods or services to the provider in return for resources received. In a nonexchange transaction, the government receives value without giving equal value in return. GASB Codification Section N50 provides the framework for recording nonexchange transactions involving financial and capital resources. The standards divide nonexchange transactions into four categories: derived tax revenue, imposed nonexchange revenues, government mandated nonexchange transactions, and voluntary nonexchange transactions.
When funding is delayed, it becomes even more necessary that the school go through a few steps to ensure that revenues are being recorded appropriately.
- Substance Over Form: It is important when classifying the transactions that care is taken in considering the substance of the transaction and not to group it based off its title above. For example, a grant depending on the characteristics could be classified as a government mandated nonexchange transaction, a voluntary nonexchange transactions, or even an exchange transaction.
- Measurable and Available: Financial statement recognition is based on whether the funds are measurable and available. The question of measurability determines whether the funds are easily estimable. The question of availability answers whether the funds will be collected in the current period or soon enough to be used to pay liabilities of the current period. This could be the standard 60 days for property tax revenue, but could be up to a year in some circumstances.
- Define Stipulations:
- Time Requirement – “Time requirements specify the period or periods when resources are required to be used.” The restriction may come from enabling legislation or from the provider. For example, a grant may be received in the 2016-2017 school year that is to be used for the 2017-2018 school year.
- Purpose Restriction – “Purpose restrictions specify the purpose or purposes for which the resources are required to be used.” One example would be federal program revenue that must be used for children literacy programs.
Once these items have been defined for the transaction, it becomes easier to appropriately record them. As always, it is important to be consistent from year-to-year, and it is even better to develop and implement a revenue recognition policy that defines the time period used for the availability criterion.
Learn more about revenue recognition and other GASB developments at the Pennsylvania School District Conference on June 1. Attend in King of Prussia or via webcast.