Question

Consider FASB standards for reporting revenues from government grants received by a not-for-profit organization. Answer the following questions:

a. What features of government grants indicate they are conditional contributions?

b/ When should revenue be recognized under a cost-reimbursement grant?

Answer 1

the ASU requires organizations to determine whether a contribution is conditional based on whether an agreement includes:

Is there a barrier that must be overcome?

Does the agreement contain either a right of return of assets transferred or a right of release of the donor or grantor from its obligation to transfer assets?

A barrier that must be overcome to assess whether an agreement contains a barrier, the organization would consider the following indicators:

The inclusion of a measurable performance-related barrier or other measurable barrier

The extent to which a stipulation limits discretion by the recipient on the conduct of an activity
Whether a stipulation is related to the purpose of the agreement

Either a right of return of assets transferred or a right of release of a promisor’s obligation to
transfer assets.

If the agreement (or a referenced document) includes both, the recipient is not entitled to the transferred assets (or a future transfer of assets) until it has overcome the barriers in the agreement.

If you were accounting for grants and contracts using a cost-based reimbursement model, the revenue recognition is likely the same. In the past, you recognized revenue as you met the barrier (i.e., performed the required service). This approach would remain the same in the future, as the condition and the restriction are likely met simultaneously.

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