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?
- 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.
- 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.
- Determine the Transaction Price. If the transaction includes multiple contributions, the NFP entity must determine the separate amount for each portion of the transaction.
- 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.
- 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 firstname.lastname@example.org.