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Nonprofits: Guide To Reporting In-Kind Donations

July 18, 2022

Article

Authored By Tony Smith

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GreerWalker is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries. Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources. For more information on how GreerWalker can assist you, please call (704) 377-0239.

Securing in-kind donations is vital for any nonprofit or charitable organization, but just as important is accounting for them properly. In June 2020, the Financial Accounting Standards Board (FASB) introduced changes to the General Accepted Accounting Principles  for documenting and presenting the value of in-kind donations in financial statements through Accounting Standards Update (ASU) 2020-07. This article provides an overview of the changes and what you need to know.

What are in-kind donations?

In-kind donations are any non-cash contributions made to an organization. These can include time, products, or services. Although nonprofits tend to focus on raising money, in-kind donations serve as a significant source of revenue for most nonprofits. For donors, it is often easier to contribute items they no longer use or contribute services when they have extra capacity. With in-kind donations, businesses and individuals are able to donate far more than if they were limited to just donating cash.

Whether donations are cash or in-kind, the FASB wanted to make the reporting of those assets more clear on financial statements.

What was changed with ASU 2020-07?

Historically, nonprofits were not required to give detailed information on the value and use of in-kind donations in financial reports. This raised concern because lack of detail can make an organization look significantly larger or smaller on paper. It also made it difficult to parse the exact value of in-kind donations and their usefulness to the organization. 

ASU 2020-07, issued in September of 2020, states that nonprofits have to change how they present and disclose in-kind contributions. 

The first change is how information is presented on a financial statement. Specifically, in-kind donations can no longer be recorded in the same line item as direct financial donations in the statement of activities. Instead of reporting aggregate contributions as a single line item, the financial statement must show a line item for financial contributions and a separate line item for in-kind contributions.

The second change is with disclosure requirements. The nonprofit must disclose information on in-kind donations by category that depicts the type of nonfinancial asset. For example, categories might be Equipment, Clothing, Food, or Legal Services.

For each category of in-kind donations, the nonprofit must disclose:

  • Qualitative information about whether the nonfinancial assets donated were used or liquidated during the reporting period. If used, the nonprofit must describe the program or activities in which they were used.
  • The nonprofit’s policy, if any, on liquidating rather than utilizing the assets.
  • A description of any donor-imposed restrictions associated with the assets.
  • A description of the valuation techniques and inputs used to arrive at a fair value measure, per the requirements in Topic 820, Fair Value Measurement, at initial recognition. 
  • The principal or most advantageous market used to arrive at a fair measure of value if it is a market in which a donor-imposed restriction prohibits the nonprofit from selling or using the assets. 

How should financial statements be formatted?

There are multiple ways to present the required information within financial statements. The FASB provides various examples of formatting the required information in their Not-for-Profit Entities (Topic 958) publication. While it’s beyond the scope of this article to show the various formatting examples, one of our expert advisors can help your nonprofit determine which format would best suit your financials. 

What is the path to compliance?

Many nonprofit organizations already have the raw data needed for the change, particularly if they use professional donor management software. The nonprofit must track down the core data, create a workflow to include it on financials, and properly format the information in financials.  

To ensure that the new guidance is properly followed on the back end, organizations that have not yet made the shift should strongly consider disseminating the requirements to staff, especially in accounting roles. On the front end, nonprofits should review their donation intake and tracking procedures to ensure they capture the required information and at the level of detail needed.

When should the changes be adopted?

The ASU 2020-07 requirements should be applied on a retrospective basis and are effective for annual periods beginning after June 15, 2021, and interim periods within annual periods beginning after June 15, 2022. Early adoption is permitted.

This article provides an overview of the ASU 2020-07 changes and is not a substitute for speaking with one of our expert advisors. If you would like to discuss proper financial reporting for your nonprofit, please contact our office. 

 

 

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GreerWalker is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries. Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources. For more information on how GreerWalker can assist you, please call (704) 377-0239.

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