The Financial Reporting Executive Committee (FinREC) of the American Institute of CPAs (AICPA) has expressed support for the Financial Accounting Standards Board’s (FASB or Board) proposal to clarify guidance for accounting for grants and contracts, writing that certain changes will serve to improve the clarify and consistent application of not-for-profit grant and contribution accounting.
The comments came in a September 27, 2017 letter in response to the FASB’s proposed Accounting Standards Update, Not-for-Profit Entities (Topic 958), Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made.
“FinREC supports the Board’s intent to clarify and improve the scope and the accounting guidance for contributions received and made, primarily by not-for-profit entities (NFPs),” the letter stated. “We believe that certain changes, such as clarifying the differences between exchange transactions and contributions, the clarification of the application of commensurate value, the proposal of a unifying model to guide revenue recognition regardless of the funder and the vast number of examples, will serve to improve the clarity and consistent application of NFP grant and contribution accounting.”
The letter noted that interpretations of current guidance have resulted in significant diversity in characterizing grants and similar contracts with resource providers as either exchange transactions or contributions and in distinguishing between conditional contributions and unconditional contributions.
“The amendments in Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), place an increased focus on the issues because those amendments add new disclosure requirements and eliminate certain limited exchange transaction guidance in FASB ASC Subtopic 958-605. The amendments in this proposed ASU are intended to provide a more robust framework to determine when a transaction should be accounted for as a contribution under FASB ASC Subtopic 958-605 or as an exchange transaction accounted for under other guidance (for example, Topic 606). The proposed amendments also are intended to provide additional guidance about how to determine whether a contribution is conditional or unconditional.”
FinREC also recommended that FASB clarify and emphasize that the proposed ASU would apply to for-profit entities who receive grants and contributions.