FASB 116 is the accounting standard that tells nonprofits how to record the gifts they receive. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 116, Accounting for Contributions Received and Contributions Made, in June 1993. Its rules now live in the FASB Accounting Standards Codification at ASC 958-605, the revenue recognition subtopic for not-for-profit entities. This article explains what FASB 116 requires, how it worked alongside FASB 117, and how later updates, including ASU 2016-14, ASU 2018-08, and ASU 2020-07, built on it.
What Is FASB 116?
FASB 116 sets the rules for recognizing contributions, which are gifts of cash, other assets, or services given voluntarily and without the donor receiving something of equal value in return. Under the standard, as summarized by FASB:
- Contributions received are generally recognized as revenue or gains in the period they are received, measured at fair value.
- Unconditional promises to give, often called pledges, are recognized when the promise is made, not when the cash arrives.
- Conditional promises to give are not recognized until the conditions are substantially met. ASU 2018-08 later clarified this as the point when the barriers in the agreement are overcome.
- Contributions are reported by whether donor restrictions apply.
FASB 116 was effective for fiscal years beginning after December 15, 1994. Smaller organizations, those with less than $5 million in total assets and less than $1 million in annual expenses, had one more year, to fiscal years beginning after December 15, 1995.
FASB 116 and ASC 958-605 Today
When FASB launched the Accounting Standards Codification in 2009, the original numbered statements were superseded and their guidance was reorganized by topic. The contribution rules from FASB 116 are found in ASC 958-605. Many nonprofit leaders, board members, and auditors still say “FASB 116” out of habit, but current guidance should be read in the Codification, which includes every later amendment.
Contributed Services Under FASB 116
Volunteer time is valuable, but not all of it belongs on the financial statements. FASB 116 allows contributed services to be recognized only if they:
- Create or enhance a nonfinancial asset, such as volunteers building an addition to a building, or
- Require specialized skills, are provided by people who have those skills, and would typically need to be purchased if they were not donated.
The standard lists accountants, architects, carpenters, doctors, electricians, lawyers, nurses, plumbers, teachers, and other professionals and craftsmen as examples of specialized skills. Services that do not meet these criteria are not recognized, although the organization still describes the programs and activities volunteers supported.
Collections: Art and Historical Treasures
FASB 116 includes an exception for works of art, historical treasures, and similar items. A nonprofit does not have to recognize these gifts as revenue if the items are added to a collection that is held for public exhibition, education, or research in furtherance of public service; is protected, kept unencumbered, cared for, and preserved; and is subject to a policy requiring proceeds from any sale to be used to acquire other collection items.
FASB 116 and FASB 117: How They Worked Together
FASB 116 and 117 were issued together in 1993 and are often discussed as a pair. FASB 116 covered when and how to record contributions. FASB 117 addressed the presentation of financial statements. It introduced three classes of net assets: unrestricted, temporarily restricted, and permanently restricted. Together, the two standards made nonprofit financial reporting far more consistent and comparable from one organization to the next. For over two decades, they served as the backbone of nonprofit accounting.
ASU 2016-14: The New Financial Statement Presentation Standards
In August 2016, FASB released Accounting Standards Update (ASU) 2016-14 to improve nonprofit financial statements. It became effective for fiscal years beginning after December 15, 2017.
Net Asset Classification for Nonprofits
ASU 2016-14 reduced the net asset classes from three to two:
- Net assets with donor restrictions
- Net assets without donor restrictions
The update also requires enhanced disclosures about the nature, amounts, and effects of donor-imposed restrictions, including information about underwater endowment funds.
FASB Transparency Requirements for Nonprofits
- Liquidity disclosures: Organizations provide qualitative and quantitative information about how they manage liquid resources and the availability of financial assets to meet cash needs for general expenditures within one year of the balance sheet date.
- Functional expense reporting: Expenses are presented by both nature and function in one location, either on the face of the statement of activities, as a separate statement, or in the notes.
- Investment return presentation: Investment return is reported net of external and direct internal investment expenses.
ASU 2018-08: Clarifying Conditional Contributions
Over time, nonprofits and auditors applied FASB 116’s contribution rules differently, especially to government and foundation grants. In June 2018, FASB issued ASU 2018-08 to clarify the guidance in ASC 958-605. Two questions now drive the analysis:
- Is it a contribution or an exchange? If the resource provider receives commensurate value in return, the transaction is an exchange and other guidance, such as Topic 606, applies.
- Is the contribution conditional? Under ASU 2018-08, a contribution is conditional only when the agreement includes both a barrier the recipient must overcome and either a right of return of assets transferred or a right of release from the donor’s obligation to transfer assets.
Indicators of a barrier include a measurable performance-related requirement, such as serving a set number of people, a stipulation that limits the recipient’s discretion on how an activity is conducted, and a stipulation related to the purpose of the agreement. Routine administrative tasks generally do not count. Once a contribution is determined to be unconditional, the organization then decides whether it carries a donor restriction.
ASU 2020-07: Reporting Gifts-in-Kind
In September 2020, FASB issued ASU 2020-07 on contributed nonfinancial assets, also known as gifts-in-kind. It requires nonprofits to present these contributions as a separate line item in the statement of activities, apart from cash and other financial assets, and to disclose them by category, including whether they were used or sold, any donor restrictions, and how fair value was measured. It is effective for annual periods beginning after June 15, 2021. For more detail, see our article on changes to NFP reporting of gifts-in-kind.
Why These Standards Matter
Each of these standards gives donors, grantmakers, boards, and auditors clearer and more comparable information. Donors and grantmakers can better understand a nonprofit’s financial health and the true cost of its programs. Board members and management gain clearer insight into liquidity and long-term sustainability. Auditors and regulators benefit from more consistent reporting across the sector. If you want to understand how these rules show up in your own statements, our guide to reading your nonprofit audit report is a good next step.
Implementing the Standards: Challenges and Best Practices
Organizations that are updating their processes may need to adjust accounting systems, gather new information for liquidity disclosures, develop methods for allocating expenses by function, review grant agreements for barriers and rights of return, and educate board members about changes in presentation. Best practices include:
- Start early: Begin well before your reporting deadline.
- Engage with your auditors: Confirm your approach aligns with their expectations.
- Review grant and pledge agreements: Document whether each one is conditional or unconditional and why.
- Educate your board and stakeholders: Help them understand what changed in the statements.
- Document your decisions: Keep clear records of how you interpreted and applied the standards.
Frequently Asked Questions About FASB 116
What is FASB 116?
FASB 116 is Statement of Financial Accounting Standards No. 116, Accounting for Contributions Received and Contributions Made, issued in June 1993. It sets how nonprofits recognize and measure gifts, pledges, and donated services.
Is FASB 116 still in effect?
The numbered statement was superseded when FASB launched the Accounting Standards Codification in 2009. Its contribution guidance continues in ASC 958-605, as amended by later updates such as ASU 2018-08 and ASU 2020-07.
What is the difference between FASB 116 and FASB 117?
FASB 116 covers when and how contributions are recorded. FASB 117 covered how nonprofit financial statements are presented, including the original three classes of net assets that ASU 2016-14 later reduced to two.
When are donated services recorded under FASB 116?
Donated services are recorded only if they create or enhance a nonfinancial asset, or if they require specialized skills, are provided by people with those skills, and would typically need to be purchased if not donated.
How Temple Management Consulting Can Help
Applying contribution accounting rules correctly takes judgment, especially for grants and pledges with conditions. Temple Management Consulting works with nonprofits and churches on accounting and financial reporting that meets current standards. Contact us to talk about your organization’s needs.
