The Financial Accounting Standards Board issued Accounting Standards Update No. 2018-08, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made (ASU 2018-08). ASU 2018-08 provides additional guidance on determining contributions vs. exchange transactions. Specifically, ASU 2018-08 states that the resource provider should not be a factor when making this determination and further explains that government grants should be accounted for as contributions. A contribution is defined as a nonreciprocal transfer. To be classified as an exchange transaction, both the recipient and the resource provider are exchanging goods or services for commensurate value.
ASU 2018-08 also provides additional guidance on determining if contributions are conditional and therefore would not be recognized as revenue until the conditions have been met. A donor-imposed condition is a (1) barrier that must be overcome to be entitled to the funding and failure to overcome the barrier/s gives the resource provider the (2) right of return or release of the obligated funding. If these two factors are present, the contribution should be classified as conditional. The key takeaway is that an organization is not entitled to the funding until it overcomes the stipulated barrier(s).
ASU 2018-08 applies to all entities, including most not-for-profit and non-public entities, on a modified prospective basis and is effective for periods beginning after December 31, 2018.
For more information on this new standard, please contact Mark Robins or one of our nonprofit specialists at 301.231.6200