States Creating Accounting Standards? What’s Next!

On August 21, 2019 the Financial Accounting Standards Board (FASB) unanimously voted to examine how charities account for noncash donations and come up with guidance so they do not inflate their worth.

This topic should be of utmost importance to ministries that are required to value noncash donations for inclusion into their CPA prepared financial statements. Some potential changes mentioned are:

  • Requiring disclosures on how gifts are being valued
  • Breaking out noncash gifts by type in the financial statements
  • Disclosing geographic region where gifts will be used

The main reason additional guidance is being considered is the valuation of noncash donations can lead to inflated revenues in financial statements, which makes organizations appear much larger than they really are.

In 2015 the Federal Trade Commission (FTC) filed a complaint against four charities that received donations of pharmaceutical products. Due to the over valuation of these products the FTC said the charities “deceived donors about its overall size, the resources it devoted to its programs, and how efficiently it used donors’ contributions.”

FASB’s attempt to provide additional guidance comes on the heels of California (CA) Assembly Bill 1181 (AB 1181). AB 1181 would require organizations to value noncash donations based on the country where it is ultimately distributed rather than its fair market value in the U.S. This bill has passed the CA assembly and is headed to the senate.

One major concern is if AB 1181 requirements are contrary to generally accepted accounting principles. If so, it would require affected organizations to report one set of financials to the state of CA and another set to the IRS and other states where reporting is required.

Many CPA firms and organizations have already spoken out against this bill in CA, the CA Society of CPA’s stated “the language of AB 1181 would undermine uniform national accounting and valuation standards by essentially allowing California to set its own accounting standards and procedures that significantly deviate from those that are accepted and universally utilized throughout the United States.”

It appears that FASB is taking steps to address this very important topic before individual states start adopting their own accounting standards.

ECFA is committed to tracking these developments and will provide updates as they are available.

This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.