Follow Chad Linkedin
Email Chad Email
Financial
May 1, 2017

Impacts Of FASB’s New Revenue Recognition Standard On Not-For-Profits

Sponsored Content provided by Chad Wouters - Partner, Earney & Company, LLP

This Insights article was contributed by Sandy Crumrine, CPA, CIA, an audit partner at Earney & Company, L.L.P.

In a recent article, we discussed the challenges of implementing the Financial Accounting Standards Board’s (FASB) new revenue recognition standard – ASU 2014-09, Revenue from Contracts with customers (Topic 606).

The goal of this new standard is to promote comparability across industries. To comply, all entities that generate revenue through contracts with customers will need to review their existing methods for determining when revenue is recognized for financial reporting purposes. The core principle of Topic 606 is an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. 

Not-for-profit organizations have the further challenge of differentiating “restricted” contributions from “conditional” contributions when determining when to recognize revenue.

Typically, a conditional contribution would not be recognized as revenue until the condition stipulated by the donor is met, while a restricted donation is recognized when received but use of the donated funds is restricted to the donor-specified purpose. In other words, there is an important difference between being entitled to money and being told how to spend it (restricted) versus not yet being entitled to the money (conditional).

The FASB is trying to clarify the distinction so charities, museums, colleges and other nonprofit organizations have an easier time applying the new revenue recognition standard. As is the case with public and private for-profit companies, implementing the new standard will require significant judgment on the part of not-for-profit financial statement preparers.

FASB has tentatively decided that for a donor-imposed condition to exist, a right of return agreement – the ability for the donor to ask for his or her money back – must exist.   But many members of the not-for-profit community believe the existence of a right-of-return agreement should not be required to meet the definition of a donor-imposed condition. 

In addition to clearing up the difference between conditions and restrictions, the FASB wants to clarify whether to characterize grants and other contracts with government agencies or foundations as exchanges or contributions.
Distinguishing between exchanges is often a difficult task for not-for-profit organizations receiving funds, goods and services. 

For example, if a government agency grants money to a group to conduct cancer research, it could be interpreted as an exchange transaction – a purchase of the organization’s research services – or as a contribution to provide financial support for a worthy cause. The distinction is important because exchanges must follow the new revenue recognition standard which goes into effect for not-for-profits in annual reporting periods beginning after Dec. 15, 2018.

Confusion among not-for-profits over when to recognize revenue will be compounded by the fact that not-for-profits will soon be implementing another new FASB standard on not-for-profit financial reporting. Following best practices can help not-for-profit financial statement preparers avoid common mistakes. When facing a difficult judgement call on matters of revenue recognition, not-for-profit financial statement preparers may also want to consult with their auditors and stay tuned for further clarifications from the FASB.

Chad Wouters, CPA joined Earney & Company in December 2006 and became the tax partner in November 2013. With an emphasis on strategy and planning, Chad works with his clients all year to ensure the most efficient tax strategies are put into place.  Earney & Company, L.L.P.  is a CPA firm that handles tax compliance, consulting and planning as well as audit and other assurance services.  For more information please visit www.earneynet.com or call (910) 256-9995.  Chad can also be reached at [email protected].

 

Ecolarge
Ico insights

INSIGHTS

SPONSORS' CONTENT
Dallas headshot 300x300

Successful Planning Starts Much Earlier Than You Think

Dallas Romanowski - Cornerstone Business Advisors
Deedee gasch

Splash Into Summer with These Swimming Pool Safety Tips

Deedee Gasch - Cranfill Sumner & Hartzog LLP
Headshot2

From Adverse to Advantageous: How the Adult Studies Program Equips Learners to Thrive

Dani Somers - North Carolina Wesleyan

Trending News

Realtor Submits Site Plans For Luxury Condos, Executive Office Center

Cece Nunn - Aug 22, 2019

Firm's Expansion Expected To Lead To New CRO Jobs In Wilmington

Cece Nunn - Aug 22, 2019

SummerFest 19 To Include Street Food Cook-off At Battleship Park

Jessica Maurer - Aug 21, 2019

Timeline In Motion For Castle St. Redevelopment Project

Christina Haley O'Neal - Aug 21, 2019

Drift Coffee  & Kitchen Now Open At Mayfaire 

Jessica Maurer - Aug 21, 2019

In The Current Issue

Advocating For Realtors

Anne Gardner, the new CEO of Cape Fear Realtors, talks about her role leading one of the region's largest trade associations....


Local Distillery Makes A Splash

With Brooke Bloomquist’s background in marketing and special events and her father’s naval career and business prowess, their masterminding...


A New Leaf: CBD, Hemp Products Lead To New Businesses

Last year's Farm Bill opened the door for hemp farming, producing and selling, and that's translated into numerous new businesses nationwide...

Book On Business

The 2019 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.

Order Your Copy Today!


Galleries

Videos

WILMA's Leadership Accelerator
Power Breakfast - The H Word (June 13, 2019)
2019 WilmingtonBiz Expo Keynote Lunch - CEO, nCino, Pierre Naude`