Nonfinancial Assets and Liabilities - What Do I Need to Know?
By Lee Klumpp, CPA
BDO Alliance USA
Now that we are in 2010 the deferral of applying Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures, (formerly Statement of Financial Accounting Standards No. 157, Fair Value Measurements) for nonfinancial assets and nonfinancial liabilities in interim or annual financial statements has now expired and the guidance is now in effect. Nonprofit organizations are now required to reflect the fair value of nonfinancial assets and nonfinancial liabilities in their financial statements.
What does this really mean?
As of December 31, 2009, nonprofit organizations may be required to disclose fair value measurement information in the financial statements for certain nonfinancial assets and liabilities, such as other real estate owned, goodwill or pension obligations.
For purposes of the application of ASC 820, nonfinancial assets and nonfinancial liabilities include all assets and liabilities other than those meeting the definition of a financial asset or financial liability. Financial assets are defined as cash, evidence of an ownership interest in an entity, or a contract that conveys to one entity a right to do either of the following:
- Receive cash or another financial instrument from a second entity.
- Exchange other financial instruments on potentially favorable terms with the second entity.
Nonfinancial assets include land, buildings, equipment, use of facilities or utilities, materials and supplies, intangible assets or services. An example of a nonfinancial asset is when a nonprofit organization receives a donor contribution of an asset that does not have a readily marketable value and it meets the definition of a nonfinancial asset. An example would be when a donor contributes a building to a nonprofit organization to be used for the organization’s program activities. The building does not have a readily determinable market value and; therefore, would require an appraisal to determine its fair value. The asset would then be recorded at fair value at the time of the contribution to organization.
A financial liability is defined as a contract that imposes on one entity an obligation to do either of the following:
- Deliver cash or another financial instrument to a second entity.
- Exchange other financial instruments on potentially unfavorable terms with the second entity.
Nonfinancial liabilities are generally not an issue for a nonprofit organization but an example of a nonfinancial liability would be if a nonprofit organization makes an unconditional promise to contribute land to another nonprofit organization and has not yet transferred title of the land at the statement of financial position date. The nonprofit organization would need to record a grants payable, which would be a nonfinancial liability.
The FASB has issued guidance noting that lease classifications and measurements are excluded from the provisions of ASC 820.
This standard will not really be an issue for most nonprofits unless your organization is entering into a merger or doing an acquisition, disposing of an activity or long-lived asset, or your organization has intangibles such as goodwill. If you have any of these activities you should consult with your financial advisor regarding the impact of this standard on your financial statements.
For more information, please contact Gary Bong, Partner-in-Charge of Nonprofit Assurance Services in MGO's Walnut Creek Office.
Selected information obtained through the BDO ALLIANCE USA