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Not-for-Profit Accounting Standards Update: Updating the Definition of Collections

May 17, 2019

The Financial Accounting Standards Board (FASB) regularly issues Accounting Standards Updates (ASUs) to make changes to the FASB Codification, the primary source of Accounting Principles Generally Accepted in the United States (GAAP). Below is an ASU recently issued that will impact not-for-profit organizations.

ASU No. 2019-03, Not-for-Profit Entities (Topic 958): Updating the Definition of Collections

The FASB became aware that the definition of collections in the Master Glossary of the FASB Accounting Standards Codification® (ASC) did not agree with the definition used in the American Alliance of Museums’ Code of Ethics for Museums (the Code). The Code had been revised after the issuance of a prior FASB statement, which served as the basis for the definition of collections in the ASC. ASU No. 2019-03, Not-for-Profit Entities (Topic 958): Updating the Definition of Collections, was issued to realign the definition used in the Master Glossary of the ASC with the definition used in the Code.

This ASU primarily impacts not-for-profit entities, but it is applicable to all entities, including business entities, that maintain collections.


The ASC currently states that an entity does not need to recognize contributions of works of art, historical treasures, and similar assets if the donated items are added to collections and meet three conditions, including that an entity must be subject to an organizational policy that requires the proceeds from sales of collection items to be used to acquire other items for collections. ASU No. 2019-03 modifies this condition to also allow the proceeds to be used to support the direct care of existing collections.

ASU No. 2019-03 results in the application of the same definition for reporting under GAAP as is used for operability and accreditation purposes, and it aligns with many entities’ missions to maintain their collections. The care and preservation of collections is the basis for permitting entities to not recognize contributed collections, and the modified definition is considered consistent with the basis for conclusions in the previous FASB statement.

The ASU also requires entities to disclose their policy for the use of proceeds when collection items are removed from a collection. If that policy allows proceeds to be used for direct care, the entity should also disclose its definition of direct care.

Effective Date and Transition

ASU No. 2019-03 is effective for annual financial statements issued for fiscal years beginning after Dec. 15, 2019. Early application is permitted. The amendments should be applied on a prospective basis.

Definition of “Direct Care” of Collection Items

The American Institute of Certified Public Accountants (AICPA) has issued a technical question and answer related to the determination of whether an expense should be considered “direct care” under ASU No. 2019-03. In its answer, the AICPA references the Background and Basis of Conclusions section of the ASU, which indicated that the FASB purposely did not define direct care in ASU No. 2019-03 and that instead an industry should be able to determine what constitutes direct care.

According to the AICPA’s response, characteristics that should be considered to determine if costs are related to direct care include whether the costs:

  • Enhance the life, usefulness, or quality of a collection
  • Provide a benefit to collections (and not the entity as a whole or other areas of the entity beyond the collections)
  • Exclude expenditures that are regular and ongoing in nature (such as routine maintenance of the collection)

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