The FASB has issued ASU 2019-03, Not-for-Profit Entities (Topic 958): Updating the Definition of Collections.
Many not-for-profit organizations (such as museums, libraries, art galleries, etc.) maintain artwork or other historical treasures. Under Subtopic 958-360 of the Accounting Standards Codification (ASC), such organizations are not required to capitalize these types of items provided that they meet the definition of collections contained in the Master Glossary of the ASC. The extant definition of collections is as follows:
“Works of art, historical treasures, or similar assets that meet all of the following criteria:
- They are held for public exhibition, education, or research in furtherance of public service rather than financial gain.
- They are protected, kept unencumbered, cared for, and preserved.
- They are subject to an organizational policy that requires the use of proceeds of items that are sold to be used to acquire other items for collections.”
Organizations holding collections meeting this definition have three alternative policies for reporting that collection: capitalization, capitalization of all collection items on a prospective basis (that is, all items acquired after a stated date), and no capitalization. Most such organizations elect not to capitalize their collections.
ASU 2019-03 institutes two changes as it relates to the definition of collections.
First, the ASU modifies the definition of collections for changes that have been made to the American Alliance of Museums’ (AAM) definition as contained in the Code of Ethics for Museums. (The FASB’s original definition of collections was instituted in 1996 based on the AAM’s definition of collections at that time.) Specifically, item c in the definition of a collection as set forth above has been modified as follows:
“c. They are subject to an organizational policy that requires the use of proceeds from items that are sold to be for the acquisition of new collection items, the direct care of existing collections, or both.”
If an organization allows deaccession proceeds to be used for direct care, the organization must now disclose its definition of “direct care”.
Secondly, the ASU clarifies that these provisions related to the accounting treatment for collections apply to for-profit business entities, as well as not-for-profit organizations. FASB Statement No. 116, which originally set forth the guidance related to collections, indicated that these provisions also applied to for-profit business entities. However, when the ASC was drafted, Statement No. 116 was incorporated in such a way as to imply that the guidance regarding collections only applied to not-for-profit organizations. ASU 2019-03 corrects this by amending ASU Topic 360, Property, Plant, and Equipment, to indicate that the guidance in Subtopic 958-360 also applies to for-profit business entities.
The amendments in ASU 2019-03 are effective for annual financial statements issued for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. Early application of the amendments is permitted. The amendments should be applied on a prospective basis.
The full text of ASU 2019-03 is available here.
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