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Business and Policy Areas
Business and Policy Areas

Takeaways from FASB's Latest NFP Advisory Committee Meeting

September 18, 2017

On September 7 and 8, the Financial Accounting Standards Board (FASB) met with its Not-for-Profit Advisory Committee (NAC). Two areas of particular interest to independent institutions were the discussions surrounding revenue recognition of grants and contracts by not-for-profits (NFPs) and costs incurred in cloud computing arrangements.

Revenue Recognition of Grants and Contracts

In August, FASB issued a proposed accounting standards update (ASU) that attempts to refine current guidance for conditional contributions and address the gap created by the issuance of ASU 2014-09 (Revenue from Contracts with Customers). Comments on the proposed ASU are due November 1.

FASB sought input from NAC around terminology issues. NAC members recommended that there be discussion included in the Accounting Standards Codification (ASC) making it clear that the contribution accounting guidance encompasses many types of transactions–gifts, grants, etc.–and, as such, those transactions do not need to be labeled as contributions in the financial statements. In other words, the accounting treatment should not drive the labeling within the statements.

NAC also provided input on the proposed indicators of a barrier to entitlement. Generally, NAC members felt that providing such indicators will be useful when attempting to determine whether a contribution is conditional. They raised some concerns, however, around the indicators as proposed. Some stated that the indicators don’t stand on their own and one would need to look to the examples to better understand the gist of them. Therefore, some tightening up of the language was recommended. FASB staff indicated that they would take NAC’s comments, along with comments received on the proposed ASU, into consideration when the Board redeliberates the proposal.

Costs Incurred in Cloud Computing Arrangements

In 2015, FASB issued ASU 2015-05, which provides guidance about a customer’s accounting for fees paid in a cloud computing arrangement. Under that guidance, an entity evaluates a cloud computing arrangement to determine whether the arrangement should be accounted for as a software license or a service contract. The standard did not include guidance on how to account for implementation costs in cloud computing arrangements that are treated as service contracts. As a result, several stakeholders requested guidance in this area to avoid diversity in practice.

In May 2017, FASB’s Emerging Issues Task Force (EITF) added a narrow-scope project to address this issue. FASB staff sought input on this topic from NAC members who, generally, felt that there should be no difference in the implementation costs that would be capitalized whether the arrangement is accounted for as a software license or a service contract. They said the effort to implement the software is typically the same regardless of the ongoing accounting treatment. EITF is scheduled to continue discussion of this topic at its October 12 meeting.

The next NAC in-person meeting is scheduled for March 19 and 20, 2018.


Sue Menditto
Director, Accounting Policy