Nonprofits: A Step-By-Step Guide for Successful ASU2018-08 Implementation

Most not-for-profit (NFP) entities are already in the process of adapting their accounting practices to accommodate the FASB Accounting Standards Update (ASU) No. 2018-08: Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made. Whether you’ve already started the process, or are still looking into the requirements, your organization still has time to evaluate the documentation requirements and incorporate these guidelines into your accounting processes before your 2019 financial statement engagements begin.

The Implementation Timeline

Public entities began applying the 2018-08 amendments on contributions received to annual periods beginning after June 15, 2018, including interim periods within those annual periods. All other entities need to apply the amendments on contributions received to annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019.

The Update

According to the BDO USA, “The ASU clarifies and improves the scope and accounting guidance for both contributions received and made in order to assist entities in evaluating if those transactions should be accounted for as contributions under the scope of Topic 958, or as an exchange transaction subject to other guidance.”

Transaction types to evaluate:

• contributions of cash and other assets, including promises to give
• reductions
• settlements
• cancellation of liabilities

As your partner in all things financial, Kruggel Lawton has created a list of guidelines to create your evaluation process. You can work to design your implementation plan using this framework, and reach out to us if you have any questions.

The Step-by-Step Guidelines

Step 1: Evaluate your key decision points.

The new standards update gives NFPs three key decision points to evaluate in order to determine the reporting actions you need to take on your nonprofit grants and contracts. In order to report properly, evaluate your non-exchange transactions using these three points:

1. Does each party directly receive commensurate value in this transaction?
   IF YES: Apply ASC 606 on revenue from contracts with customers.
   IF NO: Go on to Decision 2.
2. Are there donor-imposed conditions to this transaction?
   IF YES: Recognize revenue when conditions are met.
   IF NO: Recognize revenue in the appropriate net asset class, see Decision 3.
3. Does this transaction have any restrictions?
   IF YES: With donor restrictions.
   IF NO: Without donor restrictions.

Step 2: Designate a responsible party for making these decisions and add to your process.

Once you’ve set your decision making process, your organization will choose a person to be responsible for applying the decisions to your grants and contracts moving forward. Decide what department is in charge, and when they will make this decision. Who will make sure that the evaluation process is completed and the correct designations are assigned? Having this responsibility assigned and in place from the start will make the transition period much more manageable.

“It is expected that implementation of ASU 2018-08 will result in more grants being considered contributions, rather than exchange transactions,” said Kruggel Lawton nonprofit practice partner Margene Zink. “In addition, if you identify conditional contributions, disclosures will need to be crafted to explain what those conditions are.”

“It is important to consider if the new ASU affects your current documented policies and procedures, and if so, get your internal control and policy documents updated accordingly, before your 2019 financial statement engagement begins.”

Step 3: Refine language usage to ensure grants align with intended purpose.

The last step in this process is to adapt the language that your organization uses when creating grant proposals so that intentions and designations are clear going forward. Applying these accounting rules within the structure of your grant language will ensure that the you are meeting the standards needed for your accounting department to do their jobs properly while you work to meet the goals of your grant committees.

Kruggel Lawton can help your organization to establish the proper language and process. If you have further questions, please contact Kruggel Lawton at 574-264-2247 and a team member will assist you.