Gifts-in-Kind: New Reporting Requirements for Nonprofits

Nonprofits that receive contributions of nonfinancial assets are subject to new financial reporting rules. Because of the nature of nonprofits and the far-reaching impacts of this standard, it’s important to be apprised of these changes and prepare for the additional requirements.

What are Gifts-in-Kind?

Also known as in-kind donations, gifts-in-kind are charitable non-cash contributions in the form of goods, services, or time. Both tangible and intangible items can come in many different forms such as:

• Land, buildings, equipment, or supplies
• Food, clothing, furniture, or cars
• Free or discounted use of facilities, properties, or rentals
• Advertising, copyrights, or patents
• Pharmaceuticals
• Collectables: art, stamps, coins, or antiques
• Professional services or time commitment for labor

While the calculation to determine the fair value of cash and marketable securities is relatively straightforward, in-kind donations are often more complex. In recent years, these valuations have become an unsettled intersection between nonprofits and regulators, leading to new disclosure requirements of nonfinancial assets. 

New Rules and Procedures

In September 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU), Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets in an effort to improve transparency around how nonprofits present and disclose gifts-in-kind.

The two-pronged amendment requires nonprofits to:

1. present the gifts-in-kind as a separate line item in the statement of activities, rather than grouping all cash and financial contributions together.
2. disaggregate gifts-in-kind into categories that reflect the type of contributed gift and make the following disclosures for each category. Nonprofits must disclose:
   • Qualitative information about whether the contributed nonfinancial assets were either monetized or utilized during the reporting period. If they were utilized, a description of the programs or other activities in which those assets were used is required.
   • The nonprofit’s policy (if any) about monetizing rather than utilizing contributed nonfinancial assets.
   • A description of any donor-imposed restrictions associated with the contributed nonfinancial assets.
   • A description of the valuation techniques and inputs used to arrive at a fair value measure, in accordance with the requirements in FASB ASC Topic 820, Fair Value Measurement, at initial recognition.
   • The principal market (or most advantageous market) used to arrive at a fair value measure if it is a market in which the recipient not-for-profit is prohibited by a donor-imposed restriction from selling or using the contributed nonfinancial assets.

The ASU should be applied retrospectively and is effective for annual reporting periods beginning after June 15, 2021, and interim periods within fiscal years beginning after June 15, 2022. Early adoption is permitted.

Next Steps for Nonprofits

Nonprofits that receive significant contributions of nonfinancial assets should consider implementing organization-wide best practices for accepting, categorizing, and valuing gifts-in-kind to ensure consistency and accurate reporting.

Your organization can start with defining a certain set of criteria for acceptable (and restricted) gifts and how they further the mission of the organization, and then identify applicable categories to classify the contributions. Once a clear structure has been shaped to capture the activity, create valuation criteria based on fair market value for tangible goods and request rates from service providers for in-kind service contributions. These benchmarks will allow the organization to operate within a defined framework that promotes a transparent reporting process. 

The Big Picture

The new ASU will have an overall positive impact on transparency, not only for regulators, but also for the nonprofit’s board of directors, management, donors, and community. By presenting the in-kind contributions separate from cash contributions, users of financial statements will be able to better understand the importance and reliance on nonfinancial assets to help serve the nonprofit’s mission.

Governing bodies may even consider placing increased emphasis on generating more in-kind donations and adding them as a potential revenue stream if much of the fundraising has been focused on cash contributions. The direct cost savings associated with nonfinancial contributions could allow nonprofits to allocate cash resources to other facets of the organization such as staffing, programs, outreach, capital improvements, and reserves.

Contact BPW for Additional Information

If you would like further guidance navigating these new reporting requirements, please reach out to an advisor at (805) 963-7811.