Insights // Winter 2022 7
HBK Nonprofit Solutions
ASSU R A N C E
GAAP Requires Nonprofits to Report In-Kind Donations on Financial Statements
T
he GAAP requirement for the reporting of gifts in-kind has been in existence for a number of years. In June 2018, the Board issued Accounting Standards Update No. 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. This Standard focused predominately on the revenue recognition of donations-inkind and with a heightened focus on donated services rather than all nonfinancial assets. The presentation and disclosure of contributed nonfinancial assets differed greatly among nonprofit entities. To help supplement its cash resources, many nonprofit entities rely heavily on donors for contributions, which can be classified as either financial or in-kind, i.e., nonfinancial assets. Financial contributions are commonly received in the form of grants, pledges, or donations and are received by the organization through a transfer of monetary funds from the donor. In-kind contributions are nonfinancial assets,
By Anthony Savasta, CPA HBK AUDIT MANAGER
including goods or services received at no cost or below market cost. Nonfinancial assets include tangible items such as food, clothing, medical or other supplies, furniture and intangible items such as services, voluntary labor, or facilities. Some of the most frequently overlooked gifts in kind include contributions of advertising time, technical services, use of facilities, costs
There is a common misconception among nonprofits that because inkind donations are provided at little or no cost, the organization doesn’t have to report them on its financial statements. associated with fundraising events, collection items, car donations, and borrowings at belowmarket interest rates. In-kind services are only recorded on the organization’s financial statements if they meet specified criteria as determined by Generally Accepted Accounting Principles (GAAP), which
requires services contributed in-kind must be performed by professionals and tradesmen with a specialized skill in the service. Inkind contributors are typically accountants, architects, carpenters, doctors, electricians, lawyers, nurses, plumbers, teachers, and other professionals and tradesmen. When analyzing these types of services, the organization needs to focus on the notion of “specialized skills” GAAP also requires that contributed services create or enhance a nonfinancial asset belonging to the organization and that it would otherwise have to purchase the service. For example, an electrician donating his services during a construction project at a cost below market or for no cost. Under GAAP, the service would qualify as an in-kind contribution as the electrician has a specialized skill that the nonprofit would otherwise have to purchase. The organization would record the receipt of these services in the “statement of activities” with an offsetting expense or capital assets addition, as explained below.
