Is It a Grant or Is It a Contribution?

By Cindy McGiffin, CPA, LSWG Audit Supervisor

A new FASB Accounting Standards Update may change the way you are recording grants.

FASB Accounting Standards Update (ASU) No. 2018-08, Clarifying the Scope and Accounting for Contributions Received and Contributions Made, is effective for fiscal years ending December 31, 2019, or later.  This ASU addresses when a grant should be treated as a contribution (recognized immediately) and when it is revenue that should be deferred until “earned.”

Follow this three-step process for each of your grants:

1.  Is the grantor receiving something of equal value in exchange for the grant?

This does not include indirect value, as when the general public benefits from a grant awarded by a governmental entity.  If there is no direct benefit to the grantor, move to Step 2.  (If there is a direct benefit to the grantor, the revenue falls under ASU 2014-09 which is a different subject than this article.)

2.  Is the grant conditional?

In order to be conditional, two elements must be present:

  1.  A right of return (or release) clearly identified within the grant document
  2.  A barrier–specific outcome(s) that must be met to earn the grant funds.  Examples of barriers include:
  • Measurable performance (a specific service, units of outcome, matching requirement)
  • Requirements to follow specific guidelines in carrying out the grant purpose
  • A report that summarizes findings or outcomes of the grant-related program.

NOTE:  It is important to understand that a requirement to submit a periodic report on how funds were spent is usually not considered a barrier.  A report that details the outcomes may be considered a barrier.

It can be difficult to determine if a grant is conditional.  Grant agreements don’t always clearly state barriers and right of return in language that’s easy to interpret.  Judgment may be required.  When the terms of a grant are not clearly unconditional, the grant should be treated as conditional.

If you determine a grant is conditional, it is not recognized as revenue until the conditions have been met.  Any grant funds received in advance of meeting the conditions should be recorded as deferred revenue.

If you determine a grant is unconditional, it is recognized as revenue upon receipt or notice of award and you move on to Step 3.

3.  Are there restrictions on the grant?

If there are time or purpose restrictions on grant funds, follow traditional accounting treatment for donor-restricted net assets.

ASU 2018-08 may significantly change the way your organization accounts for grants.  It may wreak havoc on your budget-versus-actual reports since revenue may be recognized earlier than budgeted.  Your LSWG team members are available to help you navigate through implementation of ASU 2018-08.

Cindy McGiffin, CPAis an audit supervisor in LSWG’s Frederick office and has over 25 years of accounting experience–working both as a public accountant and in private industry.  You can reach Cindy at 301.662.9200, or by email at

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