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The Revenue Recognition Model: Step by Step Guide for Non-profits

Takeaways from The Bonadio Group’s 2019 Not-for-profit Educational Seminars

Each year, The Bonadio Group hosts seminars throughout New York State to help leaders of non-profit organizations understand the new regulations, laws and policies that must guide their operations. The most recent round of events, in December 2019, included a review of the revenue recognition model that is now in effect for all organizations. Within the scope of this model are exchange transactions. Contributions/pledges, non-exchange government grants, lease contracts and investment returns are not included.

When implementing the revenue recognition model, not-for-profit organizations should take the following steps:

  1. Identify the contract(s) with a customer.
  2. Identify the performance obligations in the contract (the services that are rendered should be detailed in the contract).
  3. Determine the transaction price (contracted price includes net of explicit and implicit concessions).
  4. Allocate the transaction price to the performance obligations in the contract.
  5. Recognize revenue when (or as) the entity satisfies a performance obligation (when services are provided).

In preparation for an audit under the new revenue recognition guidance, not-for-profit leaders should consider the following best practices:

  • Document revenue service lines and how you determine valid contracts exist for each.
  • Document how your organization determines the ability and probability of payment.
  • Determine whether your organization provides bundled services and document your conclusions.
  • Determine the transaction price for each revenue service line, identifying any price concessions.
  • Examine contracts that cross fiscal years and determine whether this will result in deferred revenue.
  • If necessary, update revenue cycle policies to reflect current practice.
  • Expect and prepare to have discussions with your auditors regarding revenue recognition policies.
  • Expect to have several pages of new revenue recognition disclosures in your organization’s financial statements.
  • Draft footnotes with your audit team before the audit – no reason to wait.

To learn more about revenue recognition and other regulations impacting tax-exempt organizations, visit https://www.bonadio.com/industries-served/tax-exempt.

Subscribe to email updates here: https://www.bonadio.com/newsletter-sign to receive information about The Bonadio Group’s 2020 Not-for-profit seminars. You can also contact me directly at: jpeplin@bonadio.com with any questions.