Definition
A donor restriction is a stipulation by the donor that limits the use of a contribution to a specific purpose, a time period, or in perpetuity. Under ASC 958, a not-for-profit classifies net assets into two groups: net assets with donor restrictions and net assets without donor restrictions. Board designations do not create donor restrictions. When a restriction is met, the nonprofit releases the amount from net assets with donor restrictions to net assets without donor restrictions and shows the release in the statement of activities.
Why it matters in an audit or review
Auditors test whether contributions are classified correctly, whether conditions that must be met before revenue is recognized are distinguished from restrictions, and whether releases are supported by qualifying spending. They also check disclosures of the nature of restrictions, endowment information, and liquidity. Errors here misstate both net asset classes and can breach grant or donor agreements.
Example
Illustrative: a donor gives $50,000 for a scholarship program. The nonprofit records it as with donor restrictions. When it spends $20,000 on awards, it releases that amount, leaving $30,000 restricted at year end.
Common mistakes
Calling a board-designated reserve a donor restriction, or recognizing a conditional gift as revenue before the condition is met.
FAQ
Is a time restriction a donor restriction?
Yes. A gift limited to a future period is with donor restrictions until that period.
Sources
- FASB ASC 958-210, Not-for-Profit Entities, Balance Sheet (net asset classes, ASU 2016-14)
- FASB ASC 958-205, Not-for-Profit Entities, Presentation of Financial Statements (donor restrictions, releases)
- FASB ASC 958-605, Not-for-Profit Entities, Revenue Recognition (conditions versus restrictions, ASU 2018-08)
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