The Financial Accounting Standards Board (FASB) has recently issued Accounting Standards Update (ASU) 2018-08, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made, which is an amendment of FASB Accounting Standards Codification (ASC) 958-602, Not-for-Profit Entities-Revenue Recognition. This new ASU provides additional guidance to determine whether a transaction is a contribution or an exchange transaction. This determination is significant because it will identify which revenue recognition guidance is applicable.
The American Institute of CPAs (AICPA) has an excellent summary of ASU 2018-08 which can be found on its website.
Revenue Recognition Guidance
Generally speaking, revenue recognition for contributions has not changed. Contributions are specifically excluded from the new revenue recognition guidance in ASC 606, Revenue for Contracts with Customers and are instead covered under ASC 958-602, Not-for-Profit Entities-Revenue Recognition. Exchange transactions fall under the guidance in ASC 606, which is complex and will require a thorough analysis of an organization’s exchange transactions to determine proper revenue recognition. Additional footnote disclosure is also required under ASC 606.
In addition to contribution and exchange transaction differentiation, ASU 2018-08 provides additional guidance to classify contributions as conditional or unconditional.
Mark Your Calendars
As a reminder, the effective dates for ASC 606, Revenue for Contracts with Customers are as follows:
- Non-public business entities: Effective for annual reporting periods beginning after December 15, 2018 (Calendar year 2019, Fiscal Year June 30, 2020); and
- Public business entities, certain not-for-profit entities, and certain employee benefit plans: Effective for annual reporting periods beginning after December 15, 2017 (Calendar year 2018, Fiscal Year June 30, 2019).