United States: New Revenue Recognition: What Does My Nonprofit Need To Know?

Last Updated: August 7 2019
Article by Pam J. Eggert

Revenue recognition has been the topic of conversation in the accounting world for a few years now. Implementation is looming for FASB Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), and many are wondering how this update impacts the process of recognizing revenue for exchange transactions. Luckily for us in the nonprofit industry, there is a second revenue recognition standard that will have an impact. FASB issued ASU 2018-08, Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made (Topic 958-605). For those nonprofits that are engaging in both contribution and exchange transactions, both standards will have an impact on how nonprofits recognize revenue.

When do I need to worry about this?

The following chart shows the final implementation dates for ASU 2014-09 and ASU 2018-08. The implementation dates are similar between the two standards but not identical in all cases.

What do I need to know?

ASU 2018-08 (Topic 605)

Nonprofits will need to examine their contracts with customers and other revenue sources to determine how the revenue will be recognized under the new revenue recognition rules. The first step is to identify whether the revenue stream is exchange vs. nonexchange revenues. If it is determined to be an exchange revenue, the guidance for ASU 2014-09, as amended, will be followed, and if it is determined to be a nonexchange (contribution), the guidance for ASU 2018-08 will be followed. There can be transactions that will have elements of both contribution and exchange, and in those circumstances the revenue will need to be bifurcated with each element of the transaction following the appropriate guidance.

ASU 2018-08 clarifies and refines existing guidance to help explain the scope of contributions. One revenue area that has caused longstanding difficulty and diversity in practice is accounting for government grants and contracts. Under existing guidance, there is diversity in practice when determining if the revenue is a contribution (nonreciprocal) or an exchange (reciprocal) transaction. ASU 2018-08 clarifies that, in the case of grants and similar contracts with government agencies, unless the resource provider receives commensurate value from the resource recipient, the transaction is most likely a contribution, not an exchange transaction.

The ASU provides examples of indirect benefits that do not constitute commensurate value, which have resulted in confusion in the past. This determination comes down to the question of "who is receiving the benefit?" The following do not constitute commensurate value and, as a result, would be considered nonexchange (contribution) transactions:

  • Indirect benefit(s) received by the public.
  • Indirect benefit(s) received by a resource provider; i.e. societal benefit is not direct commensurate value.
  • Furthering a resource provider's mission or positive sentiment from acting as a donor.

Once you have determined that your revenue source is considered a contribution (nonexchange) transaction, the next step is to distinguish between conditional and unconditional contributions. For contributions that are conditional, the revenue will be recognized as the conditions are met. For a donor-imposed condition to exist, it must have both:

  1. A right of return of the gift to the donor or a release from the donor's promise to give. Look for statements such as "payments are subject to your compliance" or "any unused assets are forfeited, and any unpermitted costs that have been drawn down by the Organization must be refunded."
  2. A measurable barrier that must be overcome. Some indications that a barrier exists include a measurable performance-related barrier or other measurable barrier; whether the stipulation is related to the purpose of the agreement or the extent to which a stipulation limits discretion by the recipient on the conduct of an activity. Things to look for in contracts related to measurable performance barriers would be that the transfer of goods is related to an achievement of a specified level of service, units of output or a specific outcome. Items that would limit discretion would be items related to how the activity is conducted, such as a requirement to follow specific guidelines about incurring qualifying expenses (e.g. compliance with the cost principles issued by the OMB).

ASU 2018-08 provides a variety of indicators of barriers and right of returns to be aware of. A stipulation that is unrelated to the purpose of the agreement (trivial or administrative conditions) is not indicative of a barrier. Examples of trivial or administrative conditions would be items such as a requirement to provide an annual report, submit a budget or budget to actual reporting.

Many federal awards currently are treated as exchange transactions, and under the new standard, most federal award contracts will be treated as conditional contributions. The result of how the revenue is recognized may not change. Donors and donees will need to consider whether stipulations in grant agreements, such as objectives and milestones, are measurable performance barriers or simply guidelines and mutually agreed-upon goals. For a right of return to exist, it must be evident from the gift agreement or another document referred to in the gift agreement; its existence cannot simply be implied.

ASU 2014-09 (Topic 606)

ASU 2014-09 establishes a new model for all entities, including nonprofits, for recognizing revenue arising from contracts with customers (exchange transactions), and it eliminates previous differences scattered throughout the Accounting Standards Codification. The new model consists of a five-step process as follows:

The objective of the new model is to recognize revenue in a manner that depicts the transfers of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Nonprofits will need to re-examine their contracts with customers to be sure they recognize the related revenues in accordance with this new standard. All program-related products or services for which a fee is charged, and all other sales of any goods or services, whether program-related or not, are subject to the new standard.

How does my nonprofit begin implementation?

The first steps in implementing these standards is to review current practices, which includes reviewing current policies and accounting procedures. With the new standards, there may need to be updates to current practices. These new standards not only impact accounting; others in your nonprofit should be engaged as well. There are many other employees within an entity that receive grant agreements, contracts, etc. and they are crucial to determining the revenue recognition process. Engage the other departments that receive these documents: Development, Foundation Relations, Program Managers, etc., and educate your staff on the changes! The changes could impact processes in your organization anywhere from developing a practice aid to assist in the revenue recognition process to considering current system capabilities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions