Nonprofit Accounting Basics

Does Your Organization Own Collections?

Updated: 
May 10, 2019

To align its definition of “collections” with that used by the American Alliance of Museums, the FASB issued Accounting Standards Update (ASU) 2019-03Not-for-Profit Entities (Topic 958): Updating the Definition of Collections. The ASU applies to all entities that maintain collections, but primarily impacts nonprofit entities as collections are typically held by nonprofit organizations, such as museums, libraries, art galleries, science and technology centers, etc.

The current definition of collections is:

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 proceeds of items that are sold to be used to acquire other items for collections

ASU 2019-03 updates the third bullet point only, to allow entities to use proceeds for the care of existing collections as well. The revised wording is:

  • They are subject to an organizational policy that requires the use of proceeds from items that are sold to be for the acquisitions of new collection items, the direct care of existing collections, or both.

ASU 2019-03 also:

  • Issued a technical correction in Topic 360, Property, Plant, and Equipment, to clarify all entities should follow FASB ASC 958-360, Not-for-Profit Entities—Property, Plant, and Equipment, if the entity maintains collections.
  • Requires an entity “disclose its organizational policy for the use of proceeds from deaccessioned collection items, including whether those proceeds could be used for acquisitions of new collection items, the direct care of existing collections, or both. If the collection-holding entity allows proceeds from deaccessioned collection items to be used for direct care, the entity shall disclose its definition of direct care.”

The standard is effective for fiscal years beginning after 12.15.19, and for interim periods within fiscal years beginning after 12.15.20. Early application is permitted and the amendments should be applied prospectively.