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FASB clarifies guidance for not-for-profit grant and contribution accounting

The Financial Accounting Standards Board (FASB) has clarified accounting guidance for contributions of cash and other assets received or made by not-for-profit organisations and business enterprises.

The Accounting Standards Update (ASU) clarifies current guidance about whether a transfer of assets – or the reduction, settlement, or cancellation of liabilities – is a contribution or an exchange transaction.

The ASU provides criteria for determining whether the resource provider is receiving commensurate value in return for the resources transferred which, depending on the outcome, determines whether the organisation follows contribution guidance or exchange transaction guidance in the revenue recognition and other applicable standards.

It provides an improved framework for determining whether a contribution is conditional or unconditional, and for distinguishing a donor-imposed condition from a donor-imposed restriction. 

FASB chairman said: “The new ASU clarifies whether certain transactions should be characterised as contributions or exchanges. It will improve financial reporting by reducing diversity in practice among not-for-profits and other businesses and organizations that make or receive contributions of cash or other assets—most notably in accounting for grants and similar contracts received by not-for-profits from governments.”

This ASU does not apply to transfers of assets from governments to businesses.

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