Armanino Blog

FASB Proposal Shakes Up Grant Accounting

by Paul Peterson
October 05, 2017

When is a gift truly a gift? As nonprofit accounting professionals know, that determination is not always so simple. For nonprofits that rely on government grants, accounting for the grant money has historically been a matter of interpretation, since the Financial Accounting Standards Board (FASB) has not provided definitive guidance on the matter. At least until now.

The FASB addressed this thorny issue in its August 3 exposure draft, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made (Topic 958). The proposed standard provides nonprofits with a robust framework for evaluating and determining if a transaction should be accounted for as a contribution or an exchange, and it also provides guidelines for distinguishing between conditional and unconditional contributions.

Exchange Transaction vs. Contribution
In determining whether a transfer of assets is an exchange transaction or a contribution, a nonprofit must identify whether the resource provider (such as a government agency, private foundation, individual donor or other nonprofit) receives something of commensurate value in return for the resources transferred, meaning something of equal measure or amount is given or received.

When considering if a resource provider is receiving commensurate value, the nonprofit must evaluate:

  • The resource provider’s mission and purpose for the transfer

  • The express intent of the institution and the resource provider

  • Which party has discretion in determining the amount of the grant

  • The penalties to the recipient for nonperformance

  • Whether the recipient has discretion over how the funds are used

The proposed guidance offers nonprofits some much needed clarity on the distinction between “direct” and “indirect” benefit. A government agency that bestows a grant often receives an indirect benefit in the form of services provided to the constituents of that government. Under the proposed new rules, such indirect benefit does not constitute commensurate value.

Most government grants would be accounted for as contributions under the new guidance. However, there will be some exceptions. For example, a research grant might be classified as an exchange transaction if the funding agency retains all rights to the research results. Like other exchange transactions, this type of grant would be accounted for under the new revenue recognition standard (FASB Codification topic section 606, Revenue from Contracts with Customers).

Conditional vs. Unconditional Contributions
Once a transaction has been deemed a contribution, the next determination is whether that gift comes with strings.

Although grants and similar contracts always have terms that could be interpreted as conditions, these terms only create a “conditional” contribution if they introduce barriers that must be overcome by the recipient. Also, the donor must have the right of return of assets, or a right of release from its obligation to transfer assets. The table below gives some examples of types of barriers a donor could impose.


Type of Barrier

Measurable Metric


Measurable performance-related

Specific outcome, certain level of service, identified number of units

A nonprofit receives a certain amount of money contingent upon the nonprofit raising matching funds

Stipulation related to the purpose of the agreement

Additional activity or event (generally excludes administrative tasks and trivial situations)

Funding to address cybersecurity risks is contingent on the institution engaging an external consultant to perform a cybersecurity risk assessment

Limited discretion by recipient

Specific guidance on how assets should be spent

A grant that is designated for a specific program or activity

Requires additional action

Additional action(s) taken for a new or existing activity

The recipient is required to expand its facility


Some Examples
A grant from a state agency to a social services nonprofit to house and feed a certain number of homeless people each year would be an example of a conditional contribution. Under the current FASB proposal, the grant is a contribution because the agency does not receive a direct benefit from the recipient’s services. Because the grant makes the award conditional upon achieving certain performance-related benchmarks, the revenue should be accounted for under FASB Codification topic section 958-605 as the conditions are met.

An example of an unconditional contribution would be a grant for capital improvements without stipulations about how the improvements should be made. Because the nonprofit has discretion over how the grant is used, it would be classified as unconditional donor-restricted revenue when awarded.

Submit Your Comments by November 1
Not all nonprofit accounting professionals agree with how the FASB has defined contributions and exchange transactions. If you have concerns, now is the time to speak up. The FASB invites practitioners to submit comments on the exposure draft through November 1.

For most nonprofits, the effective date for the amendments in the proposed update would be December 15, 2018—the same as the effective date for the new ASC 606 revenue recognition standard.  If you have questions about these or any other accounting updates, contact your Armanino nonprofit accounting team.

October 05, 2017

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