Changes Reporting Gifts-in-Kind

There’s often no better feeling than the satisfaction one receives when giving. Charities and non-profits across the country provide their services partly because of their generous gifts-in-kind donations. These contributions of nonfinancial assets are made to charities and non-profits for goods or services the organization may ordinarily purchase throughout the course of regular business throughout the year. They include items to contribute to operating facilities (utilities, furniture, and supplies), items donated to be auctioned through charitable events, and items used in program activities (building supplies, appliances, and fixtures.) They can even include such intangible items as copyrights, volunteer services, and expertise—anything considered valuable to the organization. While gifts-in-kind are a common, everyday occurrence, how these gifts are reported is about to change due to ASU No. 2020-07 (ASU) Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets. This update, issued in 2020, took effect for most not-for-profits beginning with fiscal years ending June 30, 2022. It requires non-profits to change their financial statement presentation and disclose contributed nonfinancial assets.

The update applies to non-profit organizations that receive contributions of nonfinancial assets, commonly referred to as “gifts-in-kind,” and was established to improve transparency in reporting these contributions to non-profits. It stems in part from a response to concerns regarding wholesale market prices being used to determine the value of donated items not able to be sold legally in the US, such as pharmaceuticals. Fear that this inflated value could increase the revenue and program expenses for smaller organizations led to increased oversight of how these gifts and their value would be measured.

While this new standard includes contributed nonfinancial assets and services, it does not revise previously issued guidance on recognizing contributed services or required disclosures and does not change the accounting for these specific donations. These changes impact only the presentation and disclosure of this form of charitable giving. As a result, the way many organizations have kept track of their gifts-in-kind will change, requiring them to disaggregate the contributed nonfinancial assets by category, depicting the specific type of nonfinancial asset.

The most notable change implemented by the update is that donations will be disclosed by type of asset rather than reported in aggregate. Gift-in-kind donations will need to be reported as a separate line item in the statement of activities, with the following disclosures included in the notes to the financial statement:

1. Provide a line item amount of the asset(s). This Disclosure requirement should list specific asset categories to which the gift was applied, with a total listed in the disclosure.
2. Organizations must inform the financial statement user of what they did with the asset—whether the gift was liquidated and sold for proceeds or put into service. When put into service, the organization must explain the specific use and let the financial statement user know the program’s description, title, and purpose.
3. The non-profit may establish a policy, if they have not already done so, to establish whether the type of asset is monetized as opposed to using the contributed asset. If such a policy is established, it must be disclosed in the notes to the financial statements.
4. Did the asset contain any donor restrictions? If so, describe any donor-imposed restrictions associated with the contributed nonfinancial assets.
5. Disclose the Valuation Technique used to look up and determine the fair value amount (e.g., Thrift Shop Guides, Kelley Blue Book, NADA Guides).
6. The principal marketplace used in determining fair value should also be disclosed. 

Amendments for the new standard are effective for annual reporting periods beginning after June 15, 2021, and interim periods within annual reporting periods started after June 15, 2022. While the update is relatively short, it contains changes that could be significant for many non-profit entities that are about to be first-time implementors of the new standard. Because of how this standard took effect, organizations may not have gathered all of the necessary information. In such cases, it’s up to these organizations and non-profits to collect the needed data and set the appropriate internal controls to capture the information required for these disclosures. 

It helps to have an engagement team that can provide specific guidance on ASU 2020-07. If you need help understanding the application of this new standard, please reach out to a CRI advisor for more information.