Attention Non-Profits: AICPA Clarification on Release of Temporarily Restricted Net Assets

temporarily restricted net assetsIn response to inquiries from non-profit entities, the American Institute of Certified Public Accountants (AICPA) has provided additional clarity and guidance regarding accounting for unconditional promises to make donations, with payments due in future periods, and the release of any restrictions on these contributions and net assets.

The Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) states that unconditional promises to donate to a non-profit with payments due in future periods shall be recorded as a restricted contribution unless there are explicit donor stipulations stating the contributions are intended to support activities of the current period.  It is assumed that because the payments are due in future periods, they will support activities and operations in that future period, and therefore have an inherent time restriction.  These contributions that are temporarily limited by time restrictions are not available to support expenses until the contribution is received and time restrictions have expired.  Additionally, if donors stipulated the use of the donated assets, they would have a purpose restriction that would lapse at the time the assets were used in accordance with the donor’s intentions.

The AICPA has offered guidance regarding the timing of the release of an inherent time restriction, stating that such restriction on the assets lapses in the period the receivable is due, whether or not the funds or other donated assets have been collected.  The collectability of the related receivable would potentially need to be evaluated, but the restriction would lapse at that point.

Certain contributions receivable, such as a commitment to donate a certain amount of funding over a number of years to the construction of a new facility, are restricted for investment in long-lived assets.  This type of contribution receivable would have both a time restriction (implied, because payment is in a future period) and a purpose restriction, as the asset is restricted for the construction of the new facility.  The FASB ASC states that for contributions having two or more restrictions, the contribution restriction would lapse when the last remaining restriction had expired, regardless of whether the receivable had been collected.  For example, if a final payment for a contribution restricted for facility construction was due in 2020, and the facility was placed in service in 2025, the net assets would be considered released from restriction in 2025, even if the funds were received and spent in 2020.

In summary, non-profit entities should consider the facts and circumstances surrounding promised giving and determine if the donor intended the contribution to support activities of the current period, or if a time or purpose restriction may apply.

If you have any questions about temporarily restricted net assets, or would like to request a speaker on this topic for your organization or event, contact one of our executives below at (800) 270-9629.

Kathryn Good

Kathryn Good


Doug Arnold

Doug Arnold


Mike Shamblin

Mike Shamblin

Managing Principal of Audit & Assurance Services

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