Revenue Recognition for Nonprofits is Changing

Becky Gibbs

Revenue recognition changes for nonprofits are coming.  Nonprofit accounting has remained fairly stagnant since the 1990’s but that will be changing over the next few years, specifically with how organizations will now be recognizing revenue. In the past, it was looked at on whether it is an exchange (typically grants initiated with the government) or nonexchange (grants or contributions received from foundations). Now they want organizations to look at their contracts as either reciprocal (exchange) or nonreciprocal (nonexchange/contribution).

On June 21, 2018, the FASB issued a new accounting standards update (ASU) which clarified the scope and accounting guidance for contributions received and contributions made. There are a few issues to defining transactions now which is whether the transaction is reciprocal vs nonreciprocal and conditional vs unconditional. The first step is to define whether the transaction is reciprocal or nonreciprocal. If reciprocal, no further review of the transaction is necessary and would be recorded as services are exchanged. If nonreciprocal, you will need to consider whether it is conditional versus nonconditional. If conditional, you will recognize the transaction once the agreement stipulations have been met. If nonconditional, you will need to consider whether restricted or unrestricted and record the transaction at the time the of agreement.

To define reciprocal means that the resource provider will receive a direct commensurate value whereas nonreciprocal is a value to the general public. For example, if the government gave a grant to an organization to perform research studies on a specific topic and the government retains the rights to the study, that would be considered reciprocal or exchange transaction whereas if the government does not retain the rights to the study, that would be considered nonreciprocal.

The second point to consider is whether the agreement is conditional vs unconditional. For it to be considered conditional, a right of return must exist and the agreement must include a barrier. The agreement must explicitly state that the funds will be returned or released and the barriers must be measurable and limit discretion on the use of funds. For example, a foundation gave a grant to an organization to provide specific art training to 4,000 students over the next year with a minimum of 1,000 students per quarter otherwise funds will be released if targets are not met would be considered a conditional transaction however if the grant did not state a specific number of students, it would then be considered an unconditional transaction that is restricted for the purpose of art training.

The new revenue recognition standards are effective for years beginning after December 15, 2018 (calendar years ending December 31, 2019 or fiscal years ending in 2020). The new standard can be applied on a modified prospective basis which means that existing agreements can be recorded with the new standard on only the existing portion of the agreement and all new agreements entered into after the effective date therefore no restatement of prior periods will be necessary.

Contact Becky Gibbs, CPA at for additional information on nonprofit audit and accounting services.


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