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A Financial Accounting Standards Board (FASB) Staff Q&A (an update) was released June 7 to explain how budget stipulations or cost share requirements may or may not act as barriers (by limiting discretion) and consequently impact the timing of revenue recognition for sponsored research grants.

FASB Accounting Standards Update (ASU) 2018-08, “Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made,” was issued to resolve long-standing ambiguity concerning whether sponsored research grants are technically exchange or non-exchange transactions. As such, the ASU clarifies that contributions (non-exchange transactions or promises to give) are conditional when both (1) a right of return of funds (or release of a promisor’s obligation) and (2) a barrier to entitlement of funds (or promised assets) exist.

Barrier are hurdles imposed by grantors (or donors) that can limit a recipient’s discretion related to the conduct of an activity. The update’s  objective is to clear up the difference between a barrier and a restriction when evaluating limited discretion. For example, a budget containing line item approval requirements may be interpreted differently in practice depending on the facts and circumstances of a particular grant agreement. The update explains that conditions beyond the need to incur qualifying expenses would need to be present in order for budget requirements to be considered a barrier to entitlement.

The update also clarifies when various types of cost-sharing requirements in sponsored research grants are barriers to entitlement that can impact the timing of revenue recognition. For example, whether cost sharing is an ongoing obligation throughout the grant period or relevant after a percentage of work or time passes can depend on a combination of agreement language, institutional resources used, and work completed.  

NACUBO urges institutions with contributions, pledges, or non-exchange research grants to review the update and apply the examples to their agreements. See NACUBO’s June 2018 news coverage for additional information on ASU 2018-08.


Sue Menditto

Director, Accounting Policy


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