Revenue Recognition of Grants and Contracts by Not-for-Profit Entities Tentative Board Decisions to Date As of December 13, 2017

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1 The is provided for the information and convenience of constituents who want to follow the Board s Board Deliberations Agenda Decision Issue 1: Determining Whether a Transaction Should be Accounted for as a Contribution or an Exchange Transaction The Board decided to add a project to its agenda to improve and clarify existing guidance on revenue recognition of grants and contracts by not-for-profit entities (NFPs). The Board directed the staff to perform additional research on the identified issues to best address stakeholder concerns. The Board discussed various ways to improve the existing guidance for distinguishing between grants (and similar contracts) that are nonreciprocal transactions (contributions) and those that are reciprocal transactions (exchanges). The Board directed the staff to further explore an approach requiring that an NFP consider a grant (or similar contract) a reciprocal transaction if a resource provider, in making the grant (or similar contract), either (1) directly receives goods or services of commensurate value or (2) fulfills a known and explicit obligation to provide goods or services to others. If it is unclear whether the resource provider is fulfilling such an obligation by means of the grant (or similar contract), that ambiguity would be indicative of a nonreciprocal transaction. April 20, 2016 June 15, 2016 SGMs October 27 and 31, 2016

2 The is provided for the information and convenience of constituents who want to follow the Board s Issue 2: Distinguishing Between Conditional and Unconditional Contributions The Board discussed ways to improve the existing guidance for distinguishing between conditions and restrictions for nonreciprocal transactions (contributions). The Board did not make any technical decisions at this meeting. The Board directed the staff to further explore an approach based on the existence of a right of return. The staff will explore the following aspects of that approach: (1) how determinative a right of return should be in indicating the existence of a donor-imposed condition (and the implications of trivial right-of-return stipulations) and (2) whether a right of return must be explicit in an agreement. The Board also asked the staff to conduct additional outreach and research relating to the proposed approach and its operationality in practice. August 31, 2016 SGMs October 27 and 31, 2016 Issue 1 and Issue 2 The Board discussed ways to improve the existing guidance for two issues: 1. Distinguishing between those grants and similar contracts that should be accounted for as nonreciprocal transactions (contributions) and those that should be accounted for as reciprocal transactions (exchanges) 2. Distinguishing between conditional and unconditional contributions. Issue 1: The Board decided to clarify and refine existing guidance in Subtopic by adding paragraphs that would clarify the scope of the Subtopic as well as illustrative examples. Issue 2: The Board did not make any technical decisions. The Board directed the staff to pursue an approach where a contribution would be conditional if an explicit right of return SGMs October 27 and 31, 2016 December 14, 2016

3 The is provided for the information and convenience of constituents who want to follow the Board s exists and there is a substantive barrier that must be overcome. The Board directed the staff to provide further analysis, including examples, to determine whether a substantive barrier to entitlement exists. Issue 2 Issue 2, Resource Provider Perspective, Disclosures, The Board discussed ways to improve the existing guidance for distinguishing between conditional and unconditional contributions. The Board decided to clarify and refine existing guidance in Subtopic , Not-for-Profit Entities Revenue Recognition, by indicating that the definition of a donor-imposed condition would include the following: 1. A right of return, entailing either a return of assets transferred or a release of a promisor from its obligation to transfer assets. 2. A barrier that must be overcome before the recipient is entitled to the assets transferred or promised. A barrier would be described through the use of indicators and illustrative examples. The Board continued its deliberations focusing on right of return or a release of the promisor from its obligation to transfer assets, accounting from the resource provider s perspective, disclosures, transition, and effective date and early adoption. The Board decided that the proposed clarifying guidance about distinguishing between conditional and unconditional contributions would apply to a resource provider and a recipient. February 22, 2017 SGMS February 14, 16, and 17, 2017 April 19, 2017

4 The is provided for the information and convenience of constituents who want to follow the Board s Transition, and Effective Date The Board decided that in order to meet the definition of a donor-imposed condition, the notion of either a right of return or a release of the promisor from its obligation to transfer assets must be present in the agreement (or another document referenced in the agreement). The agreement must indicate that a recipient is entitled to the transferred assets (or a future transfer of assets) only if it has met the stipulations in the agreement. Recurring Disclosures The Board decided that no additional recurring disclosures would be required for a recipient or a resource provider. Transition and Transition Disclosures The Board decided that an entity would apply the forthcoming guidance on a modified transition approach to revenue or expense that has not yet been recognized prior to the year of adoption in accordance the forthcoming guidance. Under this modified approach, an entity would be required to disclose: 1. The nature of and reason for the accounting change in principle 2. An explanation of the reasons for significant changes in each financial statement line item in the current reporting period resulting from the application of the forthcoming guidance compared with the guidance that was in effect before the change. Retrospective application would be permitted.

5 The is provided for the information and convenience of constituents who want to follow the Board s Effective Date and Early Adoption External Review Comments, Cost Benefit Analysis, Comment Period The Board decided that the effective date of the proposed Update would be the same as the effective date of Accounting Standards Update No , Revenue from Contracts with Customers (Topic 606). Early adoption would be permitted. Accounting Standards Update No , Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update by one year. The Board discussed (1) comments from external reviewers on a draft of the proposed Accounting Standards Update on clarifying the scope and the accounting guidance in Topic 958, Not-for-Profit Entities, for contributions received and contributions made and (2) any remaining issues, including costs and benefits, and made the following decisions. The Board decided to remove the phrase future and uncertain event from the definition of a donor-imposed condition. The Board decided that the comment period deadline for the proposed Update should be 90 days from the issuance date of the proposed Update. The staff will draft a proposed Accounting Standards Update for vote by written ballot. June 7, 2017

6 The is provided for the information and convenience of constituents who want to follow the Board s Board Redeliberations The Board discussed a summary of comments received on the proposed Accounting Comment Standards Update, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Letter Accounting Guidance for Contributions Received and Contributions Made. No decisions were made. Summary December 13, 2017