When a private high school receives a donated sculpture and places it in its student center, the gift does more than enhance the space. The school also needs to determine whether the item meets the criteria for accounting collection. While “collections” often bring museums to mind, many not-for-profit organizations, including schools, libraries, and historical institutions, may hold works of art, historical treasures, or similar assets. The classification matters because it affects how the organization reports the item in its financial statements.
Understanding this distinction can help your organization make a more supportable classification decision.
What Qualifies as a Collection Under ASC 958-360
For financial reporting purposes, not-for-profit organizations look to guidance from the Financial Accounting Standards Board (FASB), which establishes U.S. accounting standards. Under FASB Accounting Standards Codification (ASC) 958-360, Property, Plant, and Equipment for not-for-profit entities defines a collection as works of art, historical treasures, or similar assets that meet all of the following criteria:
- Held for public exhibition, education, or research in furtherance of public service rather than financial gain.
- Protected, kept unencumbered, cared for, and preserved.
- 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.
Under ASC 958-360, a not-for-profit organization may elect an accounting policy to either capitalize or not capitalize them. The key distinction is that only works of art, historical treasures, or similar assets that meet these three criteria qualify as collections under ASU 958-360. If an asset doesn’t meet the definition, the organization accounts for it under the general guidance for long-lived assets.
Collection vs. Noncollection Asset Accounting Treatment
The distinction between collection and noncollection assets affects accounting. The table below highlights considerations organizations should review when evaluating works of art, historical treasures or similar assets.
| Issue | Collections | Noncollection Assets |
|---|---|---|
| Scope | Applies only when an asset meets all collection criteria. | Applies when the item doesn’t meet the collection definition or the organization uses it in operations. |
| Capitalization | Organizations may elect to capitalize qualifying collections or not capitalize them. | Capitalized as long-lived assets. |
| Depreciation | Capitalized collections are depreciated only if the items are exhaustible. | Depreciated over the asset’s useful life, unless the life is indefinite or extraordinarily long. |
| Contribution recognition | If capitalized, donated items are recorded at fair value or acquisition-date value, as applicable. If not capitalized, contributed collection items aren’t recognized as revenue. | Donated items are recognized at fair value or acquisition-date value, as applicable, and capitalized. |
| Sale or deaccession | Proceeds are limited by policy to acquisitions, direct care, or both. | Disposal accounting applies; gains or losses are recognized as appropriate. |
| Disclosures | Collection-specific disclosures include the policy, description, direct care definition, deaccession proceeds, and collection activity. | Long-lived asset disclosures apply. |
Classification drives accounting treatment. A work of art, historical treasure, or similar asset doesn’t qualify as a collection simply because an organization display it or values its cultural significance. If the item doesn’t meet all collection criteria, the organization should generally account for it under the guidance for long-lived assets and document the basis for that conclusion.
In accordance with FASB ASC 958-360-45-3, if a not-for-profit organization adopts a policy of capitalizing collections the statement of financial position should include the total amount capitalized on a separate line item, collections or collection items.
Per FASB ASC 958-360-45-4, the amount capitalized for works of art, historical treasures, and similar assets that don’t meet the definition of a collection should be disclosed separately on the face of the statement of financial position or in the notes.
What to Document Before Classifying Donated Art
Before deciding whether donated artwork qualifies as a collection, review the facts and document the basis for their conclusion. That documentation can help support consistent accounting treatment and provide a clear record for auditors, finance committees, and board members.
For example, consider whether it has:
- A formal collections policy: Documentation that governs how the organization acquires, preserves, and disposes of collection items.
- A process for managing collection items: Evidence that you build, preserve, and exhibit artwork as part of an ongoing collection, rather than holding a single item for display.
- Support for the accounting conclusion: A record showing whether the item is part of a managed collection or a standalone asset held for display or operational use.
If those elements aren’t present, the asset must be treated as a noncollection asset and accounted for under the guidance for long-lived assets, based on its nature and expected use.
Support for Donated Accounting Decisions
If your organization receives donated art, historical items, or similar assets and is unsure how to classify them, contact a member of our team. We can help review the facts and reporting considerations to ensure your financial statements reflect the appropriate accounting treatment.
Frequently Asked Questions
Donated art qualifies as a collection only when it meets all criteria in ASC 958-360. The organization must hold the item for public exhibition, education, or research in furtherance of public service; protect and preserve it; and have a policy requiring proceeds from any sale to support new collection items, direct care of existing collections, or both.
Not-for-profit organizations may elect whether to capitalize qualifying collections. If the donated artwork doesn’t meet the collection criteria, the organization should evaluate it under the guidance for long-lived assets and document the accounting treatment.
Schools should document the facts that support their classification decision, including the item’s purpose, how the school will use and preserve it, whether it belongs to a managed collection, and whether the school has a formal policy for sale proceeds. Clear documentation can help support consistent reporting and reduce questions during an audit or board review.
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