In June 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-08 to provide guidance about accounting for nonprofit organizations’ grants and contracts. This new ASU clarifies when to account for a transfer of assets as an exchange transaction versus as a contribution and how to determine whether a contribution is unconditional or conditional.

The first determination is important because these two types of transactions are governed by different accounting standard codifications. Exchange transactions are covered by ASC 606, Revenue from Contracts with Customers, while contributions fall under ASC 958-605, Not-for-Profit Entities – Revenue Recognition.

If the transaction is considered a contribution, the new ASU also provides guidance on how to determine if the contribution is unconditional or conditional, which affects the timing of revenue and expense recognition. An unconditional contribution is recognized when it is received, while a conditional contribution is recognized when barriers restricting access to it are overcome.

Exchange Transaction vs. Contribution

The new ASU has a robust framework to determine whether a transaction is considered to be an “exchange transaction” or a “contribution.”

In an exchange transaction, the donor transfers assets and receives commensurate value in return. According to the ASU, nonprofit organizations must use two criteria to determine if the donor (resource provider) is receiving commensurate value:

1. The resource provider — a private foundation, government agency or other organization — is not synonymous with the general public. Indirect benefit received by the public as the result of the transaction doesn’t constitute commensurate value received by the resource provider.

2. Furthering the resource provider’s mission or generating “positive sentiment” by acting as a donor doesn’t constitute commensurate value for the purposes of the ASU.

Note that, consistent with GAAP, if the resource provider is not itself receiving commensurate value, the nonprofit organization must determine whether the transfer represents a payment from a third-party payer on behalf of an existing exchange transaction between the recipient and an identified customer. If so, other FASB guidance applies.

If the nonprofit organization determines that the resource provider receives no commensurate value, the transaction is considered a contribution.

Conditional or Unconditional?

Next, the nonprofit organization must determine whether the contribution is conditional or unconditional. A contribution is conditional if it satisfies both of the following criteria:

1. Specific barriers are in place that the recipient must overcome to gain access to the contribution.

2. If the barriers are not met, the donor is released from its obligation or the recipient must return any advanced assets.

“Barriers” include performance-related or other measurable barriers such as a specific outcome, a matching requirement, or an achievement of a certain level of service or units of output. Limits on the recipient’s discretion about how to conduct an activity are also considered to be a barrier, as is a stipulation related to the purpose of the agreement.

Ask for Assistance

Determining the effective date of ASU 2018-08 is complicated and depends on various factors including whether or not the nonprofit entity is the resource recipient or the resource provider. We listed the details incorrectly and want to provide a more clear summary. Given the complexity, we know you may have questions. Please review the following and let us know if you need further clarification.
Summary of effective dates:  
  • Nonprofits that are resource recipients and hold conduit debt obligations traded in public markets:
    • ASU 2018-08 is effective for annual periods beginning after June 15, 2018.  
  • All other nonprofit resource recipients:
    • ASU 2018-08 is effective for annual periods beginning after December 15, 2018.
  • Nonprofits that are resource providers and hold conduit debt obligations traded in public markets:
    • ASU 2018-08 is effective for annual periods beginning after December 15, 2018.  
  • All other nonprofit resource providers:
    • ASU 2018-08 is effective for annual periods beginning after December 15, 2019.
Early adoption of ASU 2018-08 is permitted.


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