FASB has proposed a new alternative to assist NPA firms or Private company franchisors in sync with a new accounting standard. Under the same, such firms would need to provide additional information on the contributions of non-financial assets (Gifts-in-kind) that they receive.
Gifts-in-kind usually include fixed assets like land, buildings, and equipment; the use of fixed assets or utilities; materials and supplies, such as food, clothing, or pharmaceuticals; intangible assets; and recognized contributed services.
The new Accounting Standards Update (ASU) requires an NPA firm to present contributed non-financial assets as a separate line item in the statement of activities. This will be separate from any cash or other financial assets’ contribution. A Not-for-profit also needs to lay down its Gifts-in-kind which are recognized within the statement of activities and categorized therein, indicating different types of non-financial assets.
For each category of Gifts-in-kind recognized, below disclosures are required under the new standard:
- Qualitative information on such Gifts-in-kind being monetized or utilized during the reporting period. In case utilized, a description of the programs or other activities where such assets were used need to be disclosed.
- The NPA firm’s policy (if any) about monetizing Gifts-in-kind (other than utilizing).
- Donor-imposed restrictions (if any) associated need to be described.
- Valuation techniques and inputs used to arrive at a fair value measure, as per FASB ASC Topic 820, Fair Value Measurement, at initial recognition.
Note: The principal market (the most advantageous market) used to arrive at a fair value measure denotes a system where the recipient NPA firm is prohibited by a donor-imposed restriction from selling or using the Gifts-in-kind. FASB also requires the standard to be applied retrospectively where the amendments get effected for annual reporting periods beginning after June 15, 2021, and interim periods within annual reporting periods beginning after June 15, 2022. However, FASB permits an early adoption of this standard to firms.