During our August nonprofit workshop, our nonprofit team shared the latest in accounting and tax updates, as well as insights from AICPA’s recently revised Audit & Accounting Guide for Not-for-Profit Entities. We posed various questions during our workshop and over the next few blog postings, we will share the answers to those questions.

Q. What is the appropriate classification of government grants? As a contribution or an exchange transaction?

A. There has been significant discussion among accountants regarding the appropriate classification of federal and state grants as contributions or exchange transactions. Some accountants conclude that, in many cases, the federal or state government is purchasing goods or services because they believe that government transactions are reciprocal in nature (that is, the government expects commensurate value in return). They also point to the government's service delivery requirements (for example, eligibility requirements), its proposal process for soliciting and awarding grants for the acquisition of desired goods or services, its ability to disallow grant expenses incurred, and other reimbursement requirements as indicators that many government grants are exchange transactions. Other accountants conclude that federal and state government grants often represent contributions because the time and place of service delivery for programs are usually at the discretion of the organization, the grant amount is typically less than the total program cost, and the assets are delivered to individuals or organizations other than the government. Each government grant should be evaluated based on its specific requirements.

Q. When is a challenge grant considered met?

A. Check out our next ‘Exploring the World of Contributions’ blog posting for the answer…

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Donella Wilson

Donella Wilson, CPA, leads GHJ’s Nonprofit Practice and is also President and Chief Philanthropy Officer of GHJ Foundation, GHJ’s vehicle for purposeful and proactive giving to the community. A leader in both the nonprofit and accounting communities, Donella was named a finalist in the 2021 Los…Learn More