Why FASB ASC 606 – Revenue Recognition for Non-Profits Should Be Pressing for Non-Profits Now

The effective dates for FASB 2014-09, Revenue from Contracts with Customers are looming. NFPs are not exempt from this standard. Is your Not-For-Profit ready to comply?

Not-For-Profits that have issued or are a conduit bond obligor for securities traded, listed, or quoted on an exchange or an over-the-counter market, the standard takes effect in annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Other Not-For-Profit entities will be required to comply with the Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) on December 15, 2018.

How to Implement ASC 606?

  1. Identify the contract with the customer. For an NFP, the customer would be the donor or member. The NFP must determine if the revenue is a contribution or an exchange, (ASC 958-605-55-8), A contribution would be voluntary and no expectation of a return of service or goods. An exchange would be defined as an expectation of a service or good in return for the monetary value.                    Examples of revenue included in the new standard includes membership fees (ASC 958-605-55-12), subscriptions, products and        services, royalty agreements, sponsorship, conferences and seminars, tuition, advertising, licensing and federal and state contracts.
  2. Identify the Performance Obligations. The NFP must determine when the not-for-profit satisfies the performance obligation. If the transaction requires the NFP entity produce a good, for an example a magazine, newsletter, seminar, etc. then the revenue cannot be recognized until the time in which the expectation has been met.
  3. Determine the Transaction Price. If the transaction includes multiple contributions, the NFP entity must determine the separate amount for each portion of the transaction.
  4. Allocation of the Transaction Price. The transaction price should be allocated based on the standalone selling price. ASC 606 requires the allocation of discounts to be reviewed as well.
  5. Revenue Recognition – Recognition of revenue can only be completed once the performance obligation or a portion thereof has been met.

Preparing for this major change can be daunting and may require a change in your accounting technology. Let the Software Technology Resources team help you maneuver the waters and develop a plan that will not only meet all regulations but also allow you to run your business more effectively.  Contact us at (804) 768-4667 or sales@stechresources.com.