In June 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-08. Not-for-profit entities (Topic 958) “Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made”as a means of clarifying and improving the existing standards for such matters. The ASU was issued in response to difficulties encountered in characterizing grants and similar contracts with resource providers as either exchange transactions or contributions and in determining whether a contribution is conditional. 

While accounting for contributions is primarily an issue faced by Not-for-profit entities, the amendments in this ASU apply to all entities including business entities. 

The Amendments in this Update clarify and improve current guidance about whether a transfer of assets is a contribution or exchange transaction and how an entity determines whether a resources provider is receiving commensurate value in return for the resources provided. Additionally, the Amendments in this update require that an entity determine whether a contribution is conditional on the basis of whether an agreement includes a barrier that must be overcome and either a right of return of assets transferred or a release of a promisor’s obligation to transfer assets, which must be observable in the agreement itself. The presence of such conditions indicates that a recipient is not entitled to transferred assets or future assets until it has overcome such barriers. The ASU presents certain indicators of these barriers which are beyond the scope of this memorandum. 

The implementation of this update for a Resource Recipient for publicly held companies or a not-for-profit entity that has issued certain bonds which are trade, listed or quoted on an exchange or an over-the-counter market is effective to annual reporting periods beginning after June 15th, 2018. All other entities should apply the Amendments to annual reporting periods beginning after December 15th, 2018.

The implementation dates for a resource provider are a year later.

These Amendments should be applied on a modified prospective basis as defined, or on a retrospective basis as permitted.