Definition
Under ASC 958-605, as clarified by ASU 2018-08, a contribution is conditional if the agreement includes both a barrier the recipient must overcome (such as meeting a measurable performance target, a matching requirement, or limited discretion over how to spend) and a right of return of assets transferred or a right of release of the donor's obligation. Conditional promises are not recognized until the barrier is met. Unconditional promises are recognized as revenue when made, at fair value, and classified with or without donor restrictions.
Why it matters in an audit or review
The classification determines when revenue is recognized and whether a receivable is reported. Auditors read grant agreements and evaluate barriers. Cost-reimbursement awards, including many federal awards, often carry a barrier (incurring allowable costs) and a right of release, which makes them conditional. Cash received on conditional awards is a refundable advance.
Example
(Illustrative) A foundation promises $200,000 payable only if the organization raises $200,000 in matching gifts, and may withdraw if not met. The promise is conditional. Cash received of $50,000 is recorded as a refundable advance.
Dr Cash 50,000 Cr Refundable advance 50,000
Common mistakes
- Recognizing the full grant at signing.
- Treating a reporting requirement alone as a barrier.
Sources
- FASB ASC 958-605-25, Not-for-Profit Entities, Revenue Recognition, Contributions (conditional and unconditional)
- FASB ASC 958-605-55, indicators of a barrier
- FASB ASU 2018-08, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error