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Financial Accounting Standards Board ( Fasb's Implementation Of Not-For-Profit Accounting

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Introduction Not-for-profits entities (NFP) encounter multiple dilemmas in recognizing their revenue and expenses. The challenge to distinguish and assess whether certain not-for-profit revenue transactions are actually contributions or exchange transactions is one of those. Moreover, there are a diversity or multiplicity of factors or consequence to consider in evaluating transactions that meet the definition of a contribution i.e. is it really a contributions or an exchange, if it's a contribution, is it conditional or unconditional; is it an agency transaction, or a promise to give or an intent to give, and if it is a promise to give, whether the promise is legally enforceable or not. These evaluations frequently compel the choice to…show more content…
The amendments in this proposed Update would assist entities in (1) evaluating whether transactions should be accounted for as contributions (nonreciprocal transactions) within the scope of Topic 958, Not-for-Profit Entities, or as exchange (reciprocal) transactions subject to other guidance and (2) distinguishing between conditional contributions and unconditional contributions (FASB Exposure draft, Proposed Accounting Standards Update ,2017). It has been a long-standing issue that financial statements users have on distinguishing whether grants and comparable transactions are contributions or exchange transaction.
That distinction is important because it determines whether an entity should follow the guidance for contributions received in FASB ASC 958-605 which tackles the revenue recognition of an NFP entity. This proposal concentrated on this concern and considerations on results in diversity in practice, specifically in the accounting for similar contracts was observed and dissected. This new guideline also would facilitate NFP entities distinguish whether a contribution is conditional or unconditional, which would influence when would the revenue be recognized and recorded. An unconditional contribution is recognized when received, while a conditional contribution is recognized when the barriers to entitlement are overcome. Although the accounting for contributions primarily affects (NFP) entities, the proposal would apply to all entities that receive
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