AICPA Issues Technical Questions and Answers on Direct Care of Collection Items

May 1, 2019

NEW YORK (May 1, 2019) – The American Institute of CPAs (AICPA) has issued non-authoritative guidance on the definition of direct care of collections to help non-profits implement the Financial Standards Accounting Board (FASB) Accounting Standards Update No. 2019-03.

“The requirements of the new FASB standard provide latitude in the way an entity with a collection chooses to spend the proceeds from sales of those items, by permitting the proceeds to be used for direct care of existing items,” said Christopher Cole, CPA, CFE, CFF, CGMA, associate director, of the AICPA’s Not-for-Profit Section.

The term “direct care” is not defined in the FASB Accounting Standards Codification (ASC). The FASB decided that an industry should be able to determine what it considers direct care, rather than FASB defining it.

Some stakeholders raised concerns that the Codification’s Master Glossary definition of collections is different from other sources of non-authoritative guidance. FASB ASU 2019-03, Not-for-Profit Entities (Topic 958): Updating the Definition of Collections, requires that the use of “proceeds from [collection] items that are sold to be for the acquisition of new collection items, the direct care of existing collections, or both.”

The AICPA guidance says that when an entity determines which costs are considered direct care, important characteristics to consider include, but are not limited to, whether those costs:

  • Enhance the life, usefulness, or quality of an entity’s collection.
  • Provide a benefit to the collections (and not the entity as a whole or other areas of the entity beyond the collections), and
  • Exclude expenditures that are regular and ongoing in nature (such as expenditures for routine maintenance of the collection).