Treatment of contributions clarified by new international paper backed by UK standard-setters

It is called ‘Accounting by Recipients for Non-Reciprocal Transfers, Excluding Contributions by Owners: Their Definition, Recognition and Measurement’.

It is the tenth in a series of papers resulting from discussions of a working group of representatives of the IASC and national accounting standard-setting and the purpose is to the consistent accounting treatment by recipients of non-reciprocal transfers, often referred to as contributions.

Contributions are transfers of resources from one party to another where the giver does not directly receive approximately equal value in return.

These include everyday transfers such as gifts, donations, government grants and taxes. They may be received as cash, or as other assets, or as reductions in liabilities (for example forgiven loans), and may or may not have conditions or restrictions attached.

Non-reciprocal transfers are a major source of funding for government and other not-for-profit organisations. In practice, the accounting treatment of contributions by recipients is unresolved and confusion has arisen over whether should be reported by recipients as revenues, as reductions in expenses or in the cost of assets, as liabilities, or as direct additions to equity.

The paper takes the position that many recipients should report contributions as revenues in the periods the transfers are made, rather than over several periods in line with how the transferred assets are consumed by the recipients.

The IASC has invited comments on the paper.

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