In August, the Financial Accounting Standards Board (FASB) proposed a new set of rules that would change the way in which grants and contributions are handled. This new proposal would require not-for-profits to account for grants from the federal government under the contribution accounts model as opposed to the new revenue recognition standard. This change could have a significant impact on both the timing and the expense recognition for funders as well as the recipients of conditional grants and gifts.
The new proposal defines a conditional gift or grant as one that requires a barrier to be overcome before funds become available. If the barrier is not overcome, the funds must be returned. Gifts and grants that do not include these provisions today would no longer qualify under the new amendment.
If approved, these amendments will go into effect for annual reporting periods beginning after December 15th, 2017, in conjunction with the new revenue recognition standards. Not-for-profit organizations that will be affected by these changes include charities, foundations, colleges and universities, health care providers, religious organizations, cultural institutions and more.
The goal of these changes is to harmonize the revenue recognition model used by not-for-profits for government grants, foundation grants and charitable contributions. The amendment is designed to help not-for-profits provide more relevant information about their resources as well as changes to those resources.
Under the proposed changes, the determination of whether or not a contribution is conditional applies equally among all parties involved. In this way, the proposal accentuates the FASB’s objective of making accounting contributions consistent for both the giver and the receiver. The comment period of these changes is open until November 1st and we will be watching closely to see if they are approved.
Burdette Smith & Bish provides accounting services, audit and assurance services, tax planning, financial statement preparation and advisory services for the not-for profit sector. We understand how confusing these amendments might seem. We strive to educate our clients so that we can create a team approach to handling day-to-day accounting as well as quarterly and annual filings. Please contact us for more information about our not-for-profit accounting services.