With the objective of providing feedback to board members and staff, the Not-for-Profit Advisory Committee (NAC) of the Financial Accounting Standards Board (FASB) discussed grant and contribution guidance related to Higher Education Emergency Relief Fund (HEERF) allocations under the CARES Act during a September 10 meeting.
The NAC’s mission is to advise FASB and its staff on recent not-for-profit (NFP) standards, as well as current and proposed projects and longer-term issues. Higher education is represented by NAC member Drew Paluf of the University of Notre Dame.
Concerning HEERF, conditional contribution conclusions and the timing of revenue recognition reinforced NACUBO’s guidance in the Accounting for Cares Act Grants tutorial. In summary, both the student aid and institutional portions of HEERF under the CARES Act are conditional contributions. Conditional contributions must have both a “right-of return” and a “barrier to entitlement.” A right of return exists because both portions of funds fall under the Office of Management and Budget’s Uniform Guidance requirements. Barriers to entitlement exist because of selection criteria and qualifying expense limitations.
Timing of Revenue Recognition
Both NAC and FASB participants agreed that the use of the emergency student aid funds limits the timing of revenue recognition for the institutional portion. This is because institutions must spend at least 50 percent of the entire institutional HEERF allocation on emergency aid to students. Recognizing revenue for the institutional portion before student aid funds are used places institutional revenue at risk. This notion is similar to revenue recognition timing constraints for cost-sharing grants, in that a portion of revenue is considered to be at risk until cost-sharing requirements are fulfilled.
Application of Deemed Spent
A lengthy conversation between NAC members and FASB members and staff concerned the notion of deemed spent, and whether it applies to barriers to entitlement in the same way that it applies to restrictions. FASB ASC 958-205-45-11 states that “…a donor-imposed restriction is fulfilled to the extent of the expense incurred unless the expense is for a purpose that is directly attributable to another specific external source of revenue.” This Generally Accepted Accounting Principles (GAAP) requirement to use restricted funds first is commonly referred to as the deemed spent rule.
Analogizing restrictions to barriers, the question becomes: Although an institution has incurred qualifying institutional expenses for the institutional portion of HEERF in FY20, can the institution choose FY21 qualifying expenses and defer revenue recognition until FY21? Or, does the institution have barriers that are automatically deemed met in FY20, because qualifying expenses were incurred, leading to earlier revenue recognition? FASB staff stated during the NAC meeting that there is no GAAP for applying the deemed spent rule to barriers.
NACUBO’s Accounting Principles Council discussed the applicability of deemed spent several weeks before the NAC meeting and similarly concluded that there is no authoritative GAAP that requires the application of deemed spent to barriers. Additionally, because institutions have 12 months to use the institutional HEERF funds, the legislation governs the requirements rather than an analogy to a GAAP construct for which it is not intended.