If your nonprofit uses donations of supplies, services, and even time to help fund your operations, you need to know about recent changes in accounting standards for in kind donations.
All the way back in 2020, the Financial Accounting Standards Board (FASB) released new standards for “Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets.” Or, in other much simpler words, in kind donations.
But because the new standards didn’t go into effect immediately, many organizations put off making the necessary changes. And many others never even heard about the changes.
But the deadline for making the changes has passed, and the FINAL deadline (for interim reporting periods) is coming up next month. So now is the perfect time to make sure you report in kind gift donations in compliance with GAAP standards in 2022.
When do the changes to in kind gift reporting go into effect?
The changes are effective retrospectively, starting with annual periods beginning after June 15, 2021. So if your annual reporting period follows the calendar year, you’ll be required to be compliant when you file your IRS 990 for the 2022 tax year.
The changes are also effective for interim periods within the annual period beginning after June 15, 2022. So, if you file quarterly reports, then you’ll need to be following the new standards by next month, if not sooner.
And if you’ve already implemented the changes below, you’re in luck because the FASB did specify that early adoption of these standards is okay.
Who do the changes impact?
The changes to in kind donation reporting are specifically for organizations that follow generally accepted accounting principles (GAAP) in preparing their financial statements. Typically, a CPA would prepare these statements as part of a yearly review or audit.
The changes impact the presentation of your data, so you may not need to change the process for how you track or account for in kind contributions internally. And even if you’re not fully GAAP-compliant currently, implementing these best practices now will save you a lot of cleanup work later in the case you require a financial statement audit.
What exactly is changing about in kind donation reporting?
A few things are changing about how you show in kind gifts on your financial statements. The first one is about how you display them on your Statement of Activities. And the second will impact the information you include in your disclosures (footnotes) to your financial reports.
1 – Show in kind goods and services on Statement of Activities
Historically, nonprofits may not have shown in kind donations as a separate line item in the revenues and/or expense section of the Statement of Activities. The new standards require you to create a separate line item within each section to show which portion of your revenue and expenses can be attributed to non-financial assets.
2 – Break down how you used in kind contributions in disclosures
In the past, there was no clear direction for reporting details about the type of in kind gifts you received (goods vs. services) or how you used them. The new standard makes it very clear exactly how you need to display that information in the future:
- You must show each type of gift broken down by category (goods/services)
- Within each category, you must include additional detail, specifically:
- “Qualitative information” about whether you utilized or monetized the “contributed nonfinancial assets” during the reporting period. And, if you utilized the contributions, you need to disclose a description of the programs or other activities where you used those gifts
- Your organization’s internal policy concerning monetizing vs. utilizing in kind contributions (if you have one)
- A description of any restrictions your donors attached to the gift of these non-financial assets
- A description of the valuation techniques and inputs you used to determine the fair market value of the gifts (in accordance with Topic 820).
- The principal market you used to arrive at a fair value measure if it’s a market that you can’t sell in based on restrictions your donors made on their gift.
We’ve paraphrased the actual text of the standards for this article. You can download the official release from FASB here, including some helpful examples of how to make the required declarations.
And, of course, don’t trust your finances to a blog (even a well-informed one). Always talk to your CPA to ensure your organization is in full compliance with new regulations.
Why is FASB making this change?
The update enhances your financial reporting by setting new standards for disclosing specific details about the in kind donations you receive. It makes it easy to see how much of your total revenue or expenses can be attributed to in kind donations.
This is especially important for nonprofits that receive substantial in kind contributions. Take the case of a food pantry, for instance. The majority of a food pantry’s product comes from in kind donations of food. If they report all of their revenue and expenses on one line, it would be impossible to tell how much cash they need to keep their programs running.
Hopefully, you can see why it would be important for donors and other interested parties to understand which portion of their revenue and expenses are cash vs. in kind gifts.
Need a process to track in kind contributions?
Want to know how to start asking for donations of in kind gifts or services?
Check out this episode of A Modern Nonprofit Podcast, featuring Allie Meador of RightGift: