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New Accounting Standard Clarifies Accounting for Contributions

Posted by Admin Posted on Aug 07 2017

In June 2018, FASB issued Accounting Standards Update 2018-08, "Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made."  The standard is effective for years beginning after December 15, 2018, but may be early adopted.   

The new standard focuses on two topics - 1) determining whether transactions are contributions or exchange transactions, and 2) determining whether contributions are conditional or unconditional.  Both topics affect when and how revenue from transactions are recognized. 

Currently there is much diversity in practice in how certain transactions - particularly with government entities - is recognized, and one of the purposes of the proposal is to bring uniformity in recording such transactions.  The standard will likely result in more governmental grants and contracts being treated as contributions rather than exchange transactions.  The standard also provides a framework to evaluate whether a contribution is conditional or unconditional.  Included in the standard are several illustrative examples that should prove useful in implementing the new provisions.