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Not-For-Profit Revenue Recognition – How Will The New Standard Affect Your Organization?

Not-For-Profit Revenue Recognition - How Will The New Standard Affect Your Organization?

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) as part of a joint project with the International Accounting Standards Board (IASB). The purpose of the joint project and this new standard is to:

  • remove inconsistencies and weaknesses in revenue requirements;
  • provide a more robust framework for addressing revenue issues;
  • improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets;
  • provide more useful information to users of financial statements through improved disclosure requirements; and
  • simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer

This ASU only affects contracts; therefore, not-for-profit organizations with exchange transactions will need to follow these new rules once they go into effect. Since the rules only affect exchange transactions, these rules will not affect items such as contributions, split interest agreements and financial instruments. However, these new rules will apply to not-for-profit organizations that have contracts with customers for items such as tuition, room and board, fee for service arrangements, cost reimbursement contracts, membership dues and special events, etc.

Under the new standard, entities should recognize revenue to depict the transfer of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled. The standard provides a 5 step process, which is as follows:

  1. Identify the contract with the customer
  2. Identify the performance obligations in the contract
  3. Determine the transaction price
  4. Allocate the transaction price to the performance obligations in the contract
  5. Recognize revenue when (or as) the entity satisfies a performance obligation

The AICPA has set up a not-for-profit Revenue Recognition Tax Force specifically for not-for-profit organizations which has been charged with developing revenue recognition implementation issues that will provide helpful hints and illustrative examples on how to apply the new standard. The following issues have been identified by the Task Force:

  • tuition and housing revenue;
  • tuition discounts;
  • contributions (it has been determined that the standard provides adequate guidance to come to the conclusion that contributions are not in the scope of this standard);
  • government grants with deliverables;
  • government grants-best effort;
  • sponsorships;
  • subscriptions;
  • special events;
  • revenue vs. agency transactions;
  • government grants-apportions;
  • membership dues;
  • royalties and licensing;
  • service concession arrangements;
  • charitable remainder trusts;
  • and bifurcation of transactions between contributions and exchange components

On July 8, 2015, the FASB approved a one-year deferral on the effective date of the standard. The new effective date for not-for-profit entities that have issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market is annual reporting periods beginning after December 15, 2017. For all other not-for-profit entities, the new effective date is annual reporting periods beginning after December 15, 2018.

Although the effective date of this standard is a few years away, not-for-profits should start considering how the new standard will affect their organization and consider taking the following steps to ensure compliance with the standard once it becomes affective:

  1. Read the standard and attend continuing professional education (CPE).
  2. Check the AICPA Task Force’s webpage for relevant implementation guidance, and periodically check back for updates
  3. Compile a list of all of your organization’s revenue sources
  4. Assign employee(s) to become an expert on specific revenue sources and have them teach the rest of the group how to implement the standard
  5. Develop and document the revenue recognition process for each source of revenue
  6. Consider discussing issues with similar organizations within your industry
  7. Communicate all required changes to the CFO, Board, audit and finance committees, senior staff, key programmatic employees and your auditors
  8. Determine whether to adopt the standard retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application
  9. Develop a plan for training staff


If you have any questions about this not-for-profit update, please contact your WithumSmith+Brown professional, a member of Withum’s Not-for-Profit & Education Services Group or email us at nfp@withum.com.


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