In 2018, FASB issued Accounting Standards Update (ASU) 2018-08 to provide guidance to not-for-profit (NFP) entities as they evaluate whether gifts, grants or contracts should be accounted for as contributions—subject to Accounting Standards Codification (ASC) 958, Not-for-Profit Entities—or as a reciprocal (exchange) transaction accounted for under other topics such as ASC 606, Revenue from Contracts with Customers. The effective dates of ASU 2018-08 are outlined below.
As organizations prepare for implementation, a number of questions have arisen, which FASB addressed in a recently released four-page Q&A available on its website. The Q&A focuses on the application of the limited discretion indicator and the accounting for cost-sharing provisions and answers the following questions:
- How should the limited discretion indicator be applied when determining whether a budget and related stipulations within a grant agreement are deemed to be a barrier to entitlement?
- How should an entity determine whether a cost-sharing provision in an agreement is a barrier to entitlement? Should cost-sharing provisions in an agreement be analogized to matching provisions when determining how to account for the timing and pattern of revenue recognition?
To determine appropriate revenue recognition and disclosure, we encourage organizations to review their grants, contracts and donor agreements carefully under ASU 2018-08 and FASB’s Q&A as recently released. For additional resources, BKD has prepared a library of BKD Thoughtware® on revenue recognition and NFP issues. Visit our website to learn more. If you have questions about this standard, contact your BKD trusted advisor.