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Journal entry — FASB discusses project on revenue recognition of grants and contracts by not-for-profit entities

Published on: Jun 16, 2016

At its meeting yesterday, the FASB discussed its new project to clarify the existing guidance on revenue recognition of grants and similar contracts by not-for-profit entities (NFPs). The following two issues will be addressed in the project:

Issue 1 — Characterizing grants and similar contracts with governmental agencies and others as (i) reciprocal transactions (exchanges) or (ii) nonreciprocal transactions (contributions).

Issue 2 — Distinguishing between conditions and restrictions for nonreciprocal transactions.

Yesterday the Board discussed Issue 1 and directed the staff to further explore an approach that would require an NFP to consider a grant (or similar contract) a reciprocal transaction (i.e., an exchange transaction that would be within the scope of the revenue recognition guidance) if the resource provider does either of the following:

  • Receives from an NFP a direct good or service that is of commensurate value.
  • Fulfills a known and explicit obligation to provide goods or services to others in exchange for commensurate value (such as medical care provided by an NFP health care entity to a government employee on behalf of the government).

If it is unclear whether the resource provider is fulfilling a known and explicit obligation, the approach discussed by the Board would allow an NFP to deem that such ambiguity is indicative of a nonreciprocal transaction (a contribution outside the scope of revenue recognition guidance).

The Board instructed the staff to continue to research this approach, which would include assessing the merits of aligning it with the indicators in ASC 958-605-55-8 for determining whether transactions represent exchanges or contributions. Discussion of this approach and Issue 2 is expected at a future meeting.


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