In our 2022 not-for-profit (NFP) accounting series, we’re detailing the biggest issues NFPs are currently facing. For this article, we’re examining contract and grant implementations.
Here’s why. A 2019 report by the National Council of Nonprofits stated that 31.8% of funding for NFPs comes from government contracts and grants. And of course, this percentage was before the COVID-19 pandemic when NFPs were given more funding opportunities, some of them being contracts and grants.
Nonprofits rely heavily on these forms of funding and, thus, accounting for them is important.
ASU No. 2020-05 and ASU No. 2018-08
In June 2018, FASB issued ASU No. 2018-08 to address the question – Should NFP grants and contracts be considered a contract with a customer or should they be deemed contributions.
The answer is not a simple one in many cases. It depends on how the contract or grant is written.
But to this current discussion about grants and contracts, ASU No. 2018-08 matters because FASB decided in 2020 for the standard to go into effect as initially written. There would be no delay in effective dates. This decision was made in the early days of the pandemic to give NFPs more guidance on how to account for funding as the nation moved into unprecedented times.
Contrary to its decision with ASU No. 2018-08, FASB issued ASU No. 2020-05, which delayed for a year the revenue recognition standards outlined in ASC Topic 606. This delay applied to nonpublic entities that had not yet adopted the new standards.
While these ASUs were helpful at the time, NFPs in 2022 must address grants and contracts and how these funds affect revenue reporting.
How to Account for PPP Loans?
This is the million-dollar question. Are they loans, or are they grants? As with most things concerning government funding, it’s not always simple. The answer for your NFP probably lies in how you used the PPP loan.
Morgan & Associates Help with Grant and Contract Implementation
The good news – we can help your NFP with grant and contract accounting. And we’ll delve into the fine print of your PPP loan if needed.