Key Considerations for Nonprofits and Gifts-in-Kind
Charitable donations don’t always come in the form of checks or financial assets. Sometimes, an organization may receive nonfinancial donations like gifts, services, and intangible assets. These are referred to as “gifts in kind” (GIK).
A 2022 update by the Financial Accounting Standards Board (FASB) aims to increase transparency regarding the ways in which gifts-in-kind are recorded in an organization’s financial statements. The update was released with two goals: improving how GIKs are reported by organizations, and helping financial statement readers identify the nature, amount, and real impact of GIKs on an organization’s operations.
Here’s what nonprofits need to know to comply with the 2022 standards.
What are gifts in kind?
In-kind donations, also called gifts in kind, are gifts of goods, services, or time that are given to an organization instead of cash donations. These gifts may be tangible—like equipment or vehicles— or intangible—like copyrights and patents. Gifts in kind can be made by individuals, businesses, and corporations.
Examples of gifts in kind include:
- Physical goods: tech equipment, office equipment, food, vehicles
- Intellectual property: patents, copyrights, trademarks, trade secrets, artwork
- Services: accounting, legal, tax, marketing, or social media services
Donations of time involve a person giving their time to a donation for payment by a third party, like if an employer lent a paid employee’s services over to a nonprofit.
Determining and recording the “fair value” of GIKs is less straightforward than with cash donations or investments.
As described by the American Institute of Certified Public Accountants (AICPA), accurate valuation and revenue recognition of nonfinancial gifts can be particularly convoluted when GIK are used for program activities instead of being sold on the market.
What types of organizations do the FASB standards apply to?
FASB standards apply to nonprofit audits. Each state has different requirements regarding which organizations are required to undergo independent audits.
For example, many states require charitable organizations to submit a copy of audited financial statements when they register with the state for fundraising purposes, according to the Council of Nonprofits.
Other times, an organization may be requested to undergo an audit before receiving funding from private foundations or receiving government grants.
What are the new accounting requirements regarding gifts-in-kind?
As of 2022, nonprofits are now required to present GIKs as a separate line item in their organization’s “statement of activities.”
GIKs should be listed separately from cash or other financial contributions and should be broken down by category. The categories for GIK donations include:
- fixed assets
- the use of fixed assets or utilities
- materials and supplies
- intangible assets
- recognized contributed services
Additionally, nonprofits are now required to disclose specific information regarding GIK, including:
- Qualitative information detailing if the contributed GIK was monetized or utilized during the reporting period. If a GIK was utilized, a description of the programs or activities that they were used for is required
- The organization’s policy (if any) about monetizing rather than utilizing contributed nonfinancial assets
- A description of any donor-imposed restrictions associated with the GIK donation
- The valuation techniques and inputs used to determine the fair value measurement of the GIK
When did the new FASB requirements take effect?
The new FASB standards took effect for annual reporting periods beginning after June 15, 2021, and interim periods beginning after June 15, 2022.
More information on compliance with the FASB’s 2022 accounting standards update is available on their website.
Lia Tabackman is a freelance journalist, copywriter, and social media strategist based in Richmond, Virginia. Her writing has appeared in the Washington Post, CBS 6 News, the Los Angeles Times, and Arlington Magazine, among others. She writes weekly nonprofit-specific content for 501c.com.
