Changes to accounting standards offer new options for collections‐related revenue

• Published date: 01 August 2019
• DOI: http://doi.org/10.1002/nba.30635
• Date: 01 August 2019

AUGUST 2019 NONPROFIT BUSINESS ADVISOR

5

© 2019 Wiley Periodicals, Inc., A Wiley Company • All rights reserved

DOI: 10.1002/nba

Regulatory News

Changes to accounting standards offer new

options for collections-related revenue

An Accounting Standards Update issued recently

by the Financial Accounting Standards Board offers a

broad swath of nonprots—and even some for-prot

companies—some new exibility when buying, selling

or caring for “collections” such as books, works of art,

antiquities and other items on display for the public.

The new policy will impact arts and culture–ori-

ented organizations like public galleries, museums

and libraries most, but really any charity that uses

donor funds to buy and curate a collection of items

as part of its programming will be affected.

Under the Accounting Standards Update 2019-

03 Not-for-Prot Entities (Topic 958): Updating

the Denition of Collections, which was issued in

March, the standards of practice governing how

proceeds from a sale of a collection item can be used

have changed. Under current generally accepted ac-

counting principles, “an entity need not recognize

contributions of works of art, historical treasures,

and similar assets if the donated items are added

to collections and meet three conditions,” the ASU

states. One of those conditions is that the proceeds

from sales of collection items must be used to acquire

other items for collections. The amendments in the

new ASU modify that condition.

According to Lee Klumpp of Washington, D.C.,

accounting rm BDO, the change is signicant be-

cause it opens up what charities can do with funds

that previously had to be spent and reported in a

very narrow and specic way. If an individual agreed

to donate a work of art to a collection, or donated

money for the purpose of buying a work of art, the

old policy stated that any proceeds from the sale of

that item would have to be used to acquire another

piece. For many donors, the policy provided peace

of mind that their donation would mean the orga-

nization had something of lasting value, instead of

potentially being spent on short-term expenses such

as routine overhead and operating costs.

Under the new standard, the proceeds of the sale

of an item can be used to support the “direct care”

of existing collections in addition to acquiring other

items for the collection. But the new policy adds some

murkiness as well, because what falls under “direct

care” is not enumerated in the standard. Instead, it

will be up to each individual organization to craft

policies that lay out which eligible expenses such

funds can be used for.

“The key is that they disclose their policy so do-

nors know what it is and what their donations could

eventually be used for,” Klumpp said.

For donors, the change means their contributions

could potentially be used in a wide variety of different

ways. Now, funds that result from the sale of artifacts,

for example, that were donated to a museum could

conceivably be used to help construct a new wing

of the building, or add a wheelchair ramp to the

outside to aid accessibility, or countless other things

that could be considered part of the direct care and

maintenance of the existing collection. Because an

argument can be made that the new wing is needed

to keep the collection items in a more secure or envi-

ronmentally protected state, for instance, just as one

could argue that a wheelchair ramp makes access to

the building easier and safer for emergency response

personnel in case of a disaster—both of which help

to maintain and preserve the collection. So long as

an organization explains the reasoning behind the

policy, and discloses it properly, such uses of funds

resulting from the sale of a collection item would be

on the up-and-up.

According to Klumpp, it falls to an organization’s

executive leadership and board of directors to ensure

that the direct care policy is ethical and proper—and

not taking advantage of the inherent “murkiness” of

the ASU.. ■

For more information

Lee Klumpp is the national assurance director for the

nonprot and education industry division at BDO USA

LLP’s Washington, D.C., ofce. BDO provides compre-

hensive assurance, tax, nancial advisory and advisory

services to a wide range of publicly traded and privately

held companies, serving clients through 60 ofces and

more than 650 independent alliance rm locations na-

tionwide. For more information, visit www.bdo.com or

contact Klumpp at lklumpp@bdo.com.