Effective Dates:

Nonpublic Entities:

Resource Providers- Annual periods beginning after December 15, 2019

Resource Recipients- Annual periods beginning after December 15, 2018

Early Adoption is permitted

Background: In June 2018 Financial Accounting Standards Board (FASB) released Accounting Standards Update (ASU) 2018-08, Clarifying the Scope of the Accounting Guidance for Contributions Received and Contributions Made. The ASU provides clarification for accounting for grants and contracts of nonprofit organizations particularly in regard to the determination of whether a transaction is a reciprocal or non-reciprocal transaction and helps to more clearly define conditions versus restrictions. Part I of our two-part blog on ASU 2018-08 will walk you through the key determinants for private foundations and grant making organizations to consider when recording grants as well as address common key questions on the new standard.

Step 1: Determination if Transaction is a Reciprocal Transaction or Non-Reciprocal Transaction

A transaction is considered a non-reciprocal transaction (contribution) if commensurate value is not exchanged between the two parties. This blog will be focused on non-reciprocal transactions or contributions, as the majority of private foundation grants will fall in this category. Reciprocal transactions follow the new revenue standard, Accounting Standards Codification (ASC) 606, and we will expand on the determination of this and the defining the concept of commensurate value in our next blog in the series, which will focus on resource recipients (grantee organizations). Non-reciprocal transactions follow the guidance within ASC 958-605. ASU 2018-08 was issued to help provide clarity in regard to this guidance.

Step 2: If Transaction is a Non-Reciprocal Transaction, Determine if it is Conditional or Unconditional

Once a foundation grant or contract (such as a direct charitable activity contract) is determined to be a non-reciprocal transaction, the next key step is to determine if the grant or contract is conditional or unconditional.

In order to be conditional, the agreement must include:

Right of return/release


Performance Related Condition or Other Measurement Barrier (specifically around the conduct of activity)

What is a right of return/release? A right of return is the right retained by the resource provider/grantor to the return of assets (typically cash) transferred to a recipient/grantee if stipulations are not met by the recipient. A right of release is a release of the resource provider/grantor’s obligation to transfer assets if stipulations are not met by the recipient/grantee. The grant agreement does not need to use the exact terminology “right of return/release” and may reference another document that is referenced by the grant agreement (such as a general terms and conditions document).

What is considered a performance-related condition or other measurement barrier?

Some examples of barriers, as well as activities or requirements that would not be considered barriers, appear below:

Barrier: Grant to hire a specific position or individual.

Not a Barrier: Grant to support overall hiring.

Barrier: Specified outcomes such as matching (raising a specific dollar amount), milestones (completing a wing of a building), or an outside event needing to occur in order to receive funds.

Not a Barrier: Administrative reporting such as report on grant expenditures, the requirement for an annual audit, etc.

Barrier: Requirement to incur only qualifying expenses based on specific criteria (i.e. cost reimbursement grants).

Not a Barrier: Inclusion of a project budget within a grant agreement.

Key Consideration: The likelihood or probability of overcoming barriers should not be considered when determining when grant expense should be recorded. In other words, in the past your organization may have recognized grant expense and a related liability upon approval of the grant even if there were specific barriers in the agreement, due to past history with the grantee and the fact it was probable that they would meet this barrier. This reasoning is no longer permitted under the new guidance. In this situation, the grant would be considered a conditional grant in which the related expense would not be recorded until the barrier(s) is/are achieved.

Restrictions vs. Conditions: Barriers create conditions and conditions may limit the conduct of the activity by the grantee. Think of conditions as prescribing how an activity is performed, versus restrictions which prescribe what activity is to be performed. Additionally, in the case of a multi-year grant agreement, the grant may be unconditional, but may be time restricted based on the timeframe the agreement is funding.

Step 3: Recording and Disclosing

When should my organization record a grant expense? If the grant is unconditional it can be recorded upon approval, however if barriers exist, your organization would not record the related expense until those barriers are met.

Am I required to track my grantees accounting to ensure identical reporting? No, grantors are not required to track grantees’ accounting to attain the same reporting results.

Are any additional disclosures required? There are no new disclosures. As was previously required, the total amount of conditional grants must be disclosed.

How should I approach implementation if my organization is a grant recipient as well as a grantmaker? If an entity is a resource provider as well as a recipient, it is recommended to early adopt ASU 2018-08.

Final Thoughts:

Grantors should carefully consider language in the grants they are drafting that will be effective under the new standard. If the intent is not to give conditional funding it is recommended that vague wording be avoided. It is also recommended that wording that may indicate barriers (such as milestones, matching requirements, etc.) be either avoided or very clearly explained if the intention is to award an unconditional grant. Grantors should consider explicitly stating that the award should not be deemed to be conditional on any clauses within the grant agreement.

Grantors should consider ahead of time how they will track conditions (within grants management software or externally) and how program staff will communicate to accounting staff when conditions have been met.


Application on a modified prospective basis to any remaining portion of existing agreements not yet recognized as of the effective date is permitted. Under this basis, the organization should not restate prior period results. Retrospective application is permitted.

Amy Eybsen WEBSITE Standing

Amy Eybsen

Amy Eybsen, CPA, has more than 10 years of public accounting experience and is a managing director within GHJ’s Audit and Assurance Practice. Amy provides accounting, auditing and consulting services to a wide variety of companies and organizations that span multiple industries within the greater…Learn More