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Business and Policy Areas
Business and Policy Areas

NACUBO and FASB Discuss Grant Revenue Recognition

April 14, 2017

NACUBO staff and Accounting Principles Council (APC) members met with several Financial Accounting Standards Board (FASB) members and staff on April 11 to provide input on revenue recognition of grants and contracts.

The primary focus of the meeting was to share relevant information and examples of terms from grants and pledge agreements that will be useful as FASB continues its deliberations, in preparation for an exposure draft on "Grant and Contract Revenue" expected by early summer. Business officers on the APC highlighted operational challenges caused by FASB’s tentative decisions so far.


The FASB grant and contact project addresses a gap in the literature caused by its issuance of Accounting Standards Update 2014-09—Revenue from Contracts with Customers. FASB is examining nonreciprocal grants: typically, sponsored grant arrangements that do not have commercial value to the sponsoring organization and therefore are not considered contracts with customers.

FASB’s intention is not to change sponsored research revenue recognition. However, pledge and gift agreements may need to be examined through a new lens given FASB’s tentative decisions that grantor- or donor-imposed conditions would include the following:

  1. An explicit right of return, entailing either a return of assets transferred or a release of a promisor from its obligation to transfer assets;
  2. A barrier that must be overcome before the recipient is entitled to the assets transferred or promised.

Meeting Discussion

For institutions represented by APC members, NACUBO staff shared volume, amount, and sponsor type for research grant agreements. The average number of grants and contributions per institution and the number of employees currently involved in administering these agreements was also discussed.

NACUBO stressed that for research universities, more than 1,000 new grants can be received annually, and grant revenue can comprise at least 20 percent of total revenue. Further, hundreds of pledges and major gift agreements are received annually per institution.

APC members presented common scenarios and typical grant terms illustrating questions that have arisen when applying the preliminary definition—specifically, whether open-ended rights of return satisfy the first criteria. Concerning barriers, APC members focused attention on several types of ambiguities, including:

  • Administrative requirements that may be substantial enough to create barriers.
  • Significant new program readiness requirements.
  • Donor designated thresholds (barriers) that can be renegotiated.
  • Imposed barriers that are outside of an institution’s control.
  • Imposed barriers that are within an institution’s control.

The scenarios illuminated the challenges and judgment that will be required to determine when a barrier has been met.

APC member Lucy Lucker, controller for Yale University, offered a modification to FASB’s preliminary definition of a conditional contribution. She asked them to consider the following: 

A contribution will be classified as a conditional contribution if one of the following exists:

  1. A right of return or release from obligation within a specific timeframe.
  2. A barrier outside the control of the recipient organization.    

APC members made a strong argument for the modified definition. Significant ambiguities are removed when the modified definition is applied to the various scenarios. However, the spirit of the concept is retained, and most grants will be considered conditional, with revenue recognized as barriers are satisfied.

Narrowing the right of return to be within a specific timeframe can remove uncertainty and add clarity. Modifying the definition to include only those barriers that are outside of the organization’s control will result in a definition of "condition" that is more consistent with today’s definition. This will eliminate the risk that many contributions currently recorded as unconditional would have been considered conditional, and therefore unable to be recorded when received.

Related to a right of return (release from obligation for promises to give), FASB representatives thought that time specificity might assist with operationalizing certain gifts and pledges. However, because FASB must consider the entire not-for-profit (NFP) sector, they were reluctant to consider eliminating the need for both a right of return and a barrier to define a condition. APC concerns and the ensuing robust discussion, however, alerted FASB to the need for greater specificity around the presence and eventual satisfaction of barriers.

With the volume of agreements that will be affected by these changes, APC members stressed that the new criteria should be relatively straightforward to interpret and operationalize. Members acknowledged that variations in practice exist today and asked that the new standards improve consistency for independent higher education institutions and NFP foundations affiliated with public institutions, as well as the entire NFP sector.

FASB is expected to discuss this topic again at its meeting on April 19. NACUBO will continue to closely monitor this project and provide input and feedback to FASB as needed.


Sue Menditto
Director, Accounting Policy