Not-for-profit organizations that hold collections received some much-needed clarification from the Financial Accounting Standards Board (FASB) that will eliminate a diversity in practice. The clarification arrives in the recently issued Accounting Standards Update 2019-03, Not-for-Profit Entities (Topic 958): Updating the Definition of Collections (ASU 2019-03).

The change will help museums, botanical gardens, libraries, aquariums, arboretums, historic sites, planetariums, zoos, art galleries, educational centers, public service organizations and other not-for-profit organizations with high volumes of collections navigate the accounting for a common collections practice.

Brief Background on Collections

Stakeholders noted that the FASB’s definition of collections does not align with the broader one used by the American Alliance of Museums (AAM), an accreditation body for U.S. museums. Some organizations that are members of AAM were concerned that if they used the AAM’s definition of a collection in preparation of their financial statements, it may be considered a departure from U.S. generally accepted accounting principles (GAAP). Previously, the FASB had used the AAM’s definition when developing Statement No. 116, Accounting for Contributions Received and Contributions Made.

After the FASB issued Statement 116, the AAM updated its definition of collections. In issuing ASU 2019-03, the FASB is once again aligning its definition with the AAM’s definition.


Current U.S. GAAP provides entities that hold works of art, historical treasures or other similar items that meet the definition of a collection with three alternative policies for reporting that collection:

  • Capitalization
  • Capitalization of all collection items on a prospective date
  • No capitalization

Frequently, entities that hold collections follow a no capitalization policy because of the difficulty and cost of obtaining information to recognize the assets. To meet the existing definition of a collection, the works of art and similar assets must meet three conditions:

  • They are held for public exhibition, education, or research instead of financial gain;
  • They must be protected and preserved; and
  • They must be subject to an organization-wide policy that requires the proceeds from sales of collection items to be used to acquire other items for collections.

ASU 2019-03 modifies the third condition to read that proceeds can also be used to support the direct care of existing collections. An entity does not need to adopt a policy to permit the proceeds of the sale of items from a collection to be used for direct care; it can choose to have a narrower policy and still meet the revised definition of a collection. However, ASU 2019-03 clarifies that any entity that holds a collection must disclose a policy for how it uses the proceeds that it receives when it disposes of (deaccessions) an item in a collection. In addition, entities are required to disclose their definition of direct care.

ASU 2019-03 includes a technical correction that modifies an associated provision in ASC Topic 360, Property, Plants, and Equipment to clarify that the accounting and disclosure guidance for collections in ASC Subtopic 958-360, Not-for-Profit Entities—Property, Plant, and Equipment, applies to business entities as well as not-for-profit entities.

Modifying the definition of collections to permit the inclusion of direct care should help eliminate a diversity in practice. Diversity has occurred because not-for-profit organizations may already be following the AAM definition, which is to use the proceeds from the deaccession of one set of collection items to offset the cost of caring for other collection items in the entity’s financial statements.

The requirement to define the definition of “direct care” will also provide financial statement users greater insight into the costs associated with caring for a collection and what the organization considers to be “direct care” expenses.

Effective Date

The changes in ASU 2019-03 will go into effect for fiscal years beginning after Dec. 15, 2019, and interim periods within fiscal years beginning after Dec. 15, 2020. Entities adopt the changes on a prospective basis. Early adoption is permitted.

For more information on how the change to a contribution definition could affect your entity, please contact us.

Published on March 27, 2019