Contributions versus exchange transactions under ASU 2018-08

• Apply the commensurate value test to grants and similar agreements
• Evaluate the five indicators in ASC 958-605-15-5A
• Identify payments made on behalf of an existing customer
• Explain why the type of resource provider does not drive the answer

Why the line matters

A contribution is accounted for under Subtopic 958-605. An exchange transaction follows other guidance, usually Topic 606. The two models can give different timing, different presentation and different disclosures, so the classification is the first decision on every grant, sponsorship and membership arrangement.

ASU 2018-08, issued June 2018, clarified the scope because practice was diverse, especially for government grants and contracts. Two points from the update set the tone. First, the label does not matter: revenue can be called a gift, grant, donation or something else, and the term used is not a factor. Second, the type of resource provider does not matter: a government agency, a foundation and a corporation are evaluated the same way.

The commensurate value test

The question is whether the resource provider receives commensurate value in return for what it transfers. ASC 958-605-15-5A tells you to read the agreement and consider these indicators:

1. The resource provider is not the general public. A benefit the public receives from the NFP's work is not commensurate value to the provider. Indirect value, or value that is incidental to the public benefit, does not count.
2. Mission and good feeling are not value. Executing the provider's own mission or the positive sentiment from giving is not commensurate value.
3. Expressed intent. If both parties intend to exchange resources for goods or services of commensurate value, that points to an exchange. If the NFP solicited the resources without that intent, it points to a contribution.
4. Who sets the amount. If the provider has full discretion over the amount, that indicates a contribution. If both parties agree on an amount for goods or services of commensurate value, that indicates an exchange.
5. Penalties. If the only penalty for failure is giving back unspent money or forfeiting assets already provided, that generally indicates a contribution. Economic forfeiture beyond the amount transferred generally indicates an exchange.

No single indicator is a rule. You weigh them together and document why.

Common patterns

The implementation guidance gives a useful contrast. A federal research grant where the university incurs qualifying expenses and keeps the rights to the findings is a contribution. A clinical trial funded by a company that sets the protocol and owns the results is an exchange, because the company receives commercial value. A transaction can also be part exchange and part contribution: if an entity transfers assets for assets of substantially lower value and no unstated rights or privileges are involved, the contribution inherent in that transaction is within the scope of 958-605.

Membership dues, sponsorships and grants can each be all contribution, all exchange or a mix. Look at what the payer actually receives.

Third-party payers

When the provider receives no commensurate value itself, ask a second question: is the payment made on behalf of an identified customer in an existing exchange transaction with the NFP? ASC 958-605-15-6(e) lists examples: Medicare and Medicaid payments, health care or education services a government provides for its employees, and Pell Grants or similar state or local tuition assistance. In those cases the NFP applies Topic 606 to the transaction with the customer and treats the third party's payment as payment on the customer's behalf.

What the auditor does

• Obtain a list of every grant, contract and sponsorship above a set amount, with the agreement.
• For each, document the indicator analysis in a short memo. Templates help keep it consistent.
• Challenge any agreement that management called an exchange only because the payer is a government agency. The provider type is not a factor.
• Check that contributions and exchange revenue appear on the right lines of the statement of activities and in the right disclosures.

A grant classified as an exchange may need a contract asset or liability rollforward; one classified as a contribution moves to the condition analysis in the next lesson.

Two agreements at Northgate Health Collaborative