Contributed nonfinancial assets (gifts in kind) under ASU 2020-07

• Identify contributed nonfinancial assets and contributed services
• Apply the ASU 2020-07 presentation requirement
• Test the category disclosures ASU 2020-07 requires
• Evaluate the principal market used to value donated goods

What the update covers

ASU 2020-07 targets transparency for gifts in kind. It defines the scope by reference to the Master Glossary term nonfinancial asset, which includes fixed assets such as land, buildings and equipment; use of fixed assets or utilities; materials and supplies; intangible assets; services; and unconditional promises of those assets. The update addresses presentation and disclosure only. It states that it does not change the recognition and measurement requirements of Subtopic 958-605.

It was effective for annual periods beginning after June 15, 2021, applied retrospectively to all periods presented.

Presentation

ASC 958-205-45-36 requires an NFP to present contributed nonfinancial assets as a separate line item in the statement of activities, apart from contributions of cash and other financial assets. One line for "contributions" that blends a donated building with checks from donors no longer complies.

Disclosures

For contributed nonfinancial assets recognized in the statement of activities, the NFP discloses a disaggregation by category that shows the type of asset (for example, food, medical supplies, professional services, use of facilities). For each category it discloses:

1. whether the assets were monetized (sold) or utilized during the period, and if utilized, the programs or other activities in which they were used
2. its policy, if any, about monetizing rather than utilizing such assets
3. a description of any donor-imposed restrictions
4. the valuation techniques and inputs used to arrive at fair value under Topic 820 at initial recognition
5. the principal market (or most advantageous market) used, if it is a market in which the NFP is prohibited by a donor restriction from selling or using the assets

The fifth item matters for donated drugs and goods restricted to use abroad. If the donor bars sale in the US market, valuing the goods at US prices needs explanation.

Recognition rules still apply

ASU 2020-07 did not change recognition, so the old rules still govern:

• Contributed services are recognized only if they create or enhance nonfinancial assets, or require specialized skills, are provided by people with those skills and would typically need to be purchased if not donated. Volunteers stocking shelves do not qualify. A donated audit by a CPA, or legal work by a lawyer, does.
• Contributed use of facilities is recognized at the fair value of the use received.
• Collections of art and historical treasures can be excluded from recognition if they meet the collection criteria.

Audit risks

Gifts in kind carry valuation risk and existence risk with little cash trail.

• Valuation. Donors often provide a value, but that value can be a list price, a tax receipt figure or simply wrong. Test fair value using the principal market the NFP would access, observable prices for similar items and condition of goods (used clothing is not valued at new retail).
• Restricted markets. For goods the NFP must distribute in a specific country, consider whether the principal market is that country and whether the disclosure in item 5 is needed.
• Completeness and existence. Compare intake logs, warehouse counts and distribution records. Large donated inventories need observation at year end.
• Expenses. Utilized goods and services also flow into expenses by function and nature, so check the allocation in the functional expense analysis.
• Monetized goods. When the NFP sells donated items, compare sale proceeds with the value recorded at receipt. Large, repeated losses on sale suggest the initial values were too high.

A donated asset can also inflate program ratios if valued too high, which raises the stakes for donors and rating agencies who read those ratios. The NFP disclosure checklist lists the ASU 2020-07 items for your file.

Donated medicines at Global Relief Partners