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
Web awstaffpic2020 1 132245438

The 2024 Luncheon for Literacy featuring Special Guest Jason Mott

Alesha Edison Westbrook - Cape Fear Literacy Council
Chris coudriet

A Public Service Profile on Communicating in the Face an Emergency

Chris Coudriet - New Hanover County Government
Mcwhorter 0005

So, You Have an Idea for an Amazing, Life-Changing Company... Now What?

Heather McWhorter - UNCW Center for Innovation and Entrepreneurship

Trending News

Haley Promoted To President, CEO Of Wilmington Downtown Inc.

Staff Reports - Jun 18, 2024

Commercial Real Estate Firm Adds Four Partners

Staff Reports - Jun 18, 2024

Women To Watch Awards Finalists Announced

Staff Reports - Jun 18, 2024

Blue Surf Cafe To Celebrate 10th Anniversary, Add Dinner Service

Jessica Maurer - Jun 19, 2024

Proposed Castle Hayne Projects Could Bring Thousands Of Homes, Commercial Space

Emma Dill - Jun 17, 2024

In The Current Issue

Local Museum Celebrates 45 Years Honoring Railroad

The museum was founded as a joint contribution of three local Wilmington residents and a handful of artifacts, growing from there....


Aging In Place

Based on an age-in-place philosophy, CCRCs have existed for more than a century....


Startups Weigh Local Support

What do Wilmington startup newcomers moving for quality of life and proximity to the beach think of the area through a technological and ent...

Book On Business

The 2024 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.

Order Your Copy Today!


Galleries

Videos

2024 Power Breakfast: The Next Season