GAAP In-Kind Reporting Update: ASU 2020-07 Effective for Nonprofit Organizations for Fiscal Years Beginning After June 15, 2021

7/5/2022 - By Emily Lalas

Due to the differences in definitions between grantors, nonprofit management and Generally Accepted Accounting Principles (GAAP), the reporting and disclosing of in-kind goods and services can become tricky and sometimes hard to get right. Many nonprofits rely on volunteers and donations of goods and services in order to achieve their missions. As such, it is important that organizations properly record such donations so that users of financial statements can see the true support utilized to operate programs.

Accounting Standards Update

In an effort to increase transparency regarding the utilization of donated goods and services, the Federal Accounting Standards Board issued Accounting Standards Update 2020-07 (ASU 2020-07). The main provisions of this update include specifically presenting nonfinancial assets as a separate line item in the statement of activities as well as disclosure enhancements including the disaggregation of the amount of contributed nonfinancial assets recognized within the statement of activities by category. All organizations are required to adopt the new standards for annual periods beginning after June 15, 2021, and interim periods within annual periods beginning after June 15, 2022. Early adoption is permitted.

Enhanced Disclosure Requirements

The enhanced disclosure requirements should include the following: 

  • Disaggregation of contributed nonfinancial assets by type (i.e. services, goods, etc.)
  • Information regarding whether the assets were utilized (i.e. using a donated van to carry out program operations) or monetized (i.e. selling a donated van and using the proceeds to fund operations)
  • Any restrictions associated with the donated assets
  • A description of the valuation techniques used in determining the fair value of contributed goods and services
  • A description of the programs or activities for which contributed services were used
  • The nature of contributed services received for the period as well as the amount recognized as revenue

GAAP Requirements

In order to meet GAAP requirements to record services as contributed nonfinancial assets in the financial statements, the services must meet certain criteria primarily summarized as being services requiring skilled labor such as those that must be performed by doctors, lawyers, accountants, architects, etc. Therefore, most volunteer hours that organizations benefit from would never be acknowledged in the organization’s financial statements. Although the requirements for recording contributed services in the Statement of Activities has not changed, organizations are now required to disclose that information in their financial statement footnotes whether through nonmonetary information (number of volunteer hours or units provided by volunteer efforts) or monetary information (dollar value of contributed services). Additionally, although not required, organizations are now encouraged to disclose the fair value of contributed services received but not recognized as revenues in the statement of activities.  

If you have not already been doing so, organizations should ensure they have reliable processes in place to track the information required to be disclosed.

This is a great opportunity for nonprofits to really show users of their financial statements the true cost, including nonmonetary costs, of operating their programs. Additionally, organizations can utilize the enhanced disclosures to show the true network of support that they have through their volunteers. If done strategically, this can be a great way to tell a more complete version of your organization’s story.

Questions?

If you have not already done so, reach out to your Saltmarsh accountant to see how you can best prepare to adopt the new standard as well as how you tailor this disclosure to best communicate your organization’s story!

About the Author | Emily Lalas

Emily is a senior in the Audit & Assurance Services practice of Saltmarsh, Cleaveland & Gund. Her primary areas of expertise include providing audit and assurance services to the firm’s non-profit and healthcare clients. Emily is active in serving non-profit organizations throughout Pensacola and before joining Saltmarsh, she worked in bookkeeping and office administration for a regional law firm.


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