Authority:
GASB Statement 33

Effective Date:
7/1/2000

References:
See Federal and State Compliance for more information about legal compliance.
See Financial Reporting for Certain Grants and Other Financial Assistance for related GAAP issues.
See Memorandum # SAD 01-33 (State agencies and other component units)
See Memorandum # SAD 01-58 (Colleges/Universities)

Policy:
In a nonexchange transaction, a government either gives value (benefit) to another party without directly receiving equal value in exchange or receives value (benefit) from another party without directly giving equal value in exchange.  GASB Statement 33 groups nonexchange transactions involving financial or capital resources into four classes, based on their principal characteristics:

• Derived tax revenues - result from assessments imposed by governments on exchange transactions.
• Imposed nonexchange revenues - result from assessments by governments on nongovernmental entities, including individuals, other than assessments on exchange transactions.
• Government-mandated nonexchange transactions - occur when a government at one level provides resources to a government at another level and requires that government to use them for a specific purpose or purposes established in the provider's enabling legislation.
• Voluntary nonexchange transactions - result from legislative or contractual agreements, other than exchanges, entered into willingly by two or more parties.

Eligibility requirements for government-mandated and voluntary nonexchange transactions comprise one or more of the following:

• Required characteristics of recipients - The recipient has the characteristics specified by the provider.
• Time requirements - Those specified by enabling legislation or the provider have been met.
• Reimbursements - The provider offers resources on a reimbursement basis and the recipient has incurred allowable costs under the program.
• Contingencies - The provider's offer of resources is contingent upon a specified action of the recipient and that action has occurred.

• Nonexchange revenues received for purposes normally financed through the general fund may be accounted for within that fund unless the applicable legal requirements cannot be met.
• Some nonexchange revenues may legally mandate the use of a special revenue fund.
• Capital grants or shared revenue restricted for capital acquisition or construction, should be accounted for in the capital project fund unless associated with proprietary funds.
• Grants, entitlements and shared revenues received for proprietary fund purposes should be accounted for in proprietary funds.
• A trust fund should be used for those resources that establish a continuing trustee relationship.
• An agency fund should be used for those resources in which the government serves only as a cash conduit.

Nonexchange revenues recorded in governmental funds should also conform to the modified accrual basis of accounting by satisfying the availability criterion. Careful review of the legal and contractual requirements should be taken into consideration when recognizing revenues. Some resources, usually entitlements and shared revenues are restricted more in form than substance. Only failure to comply with regulations would result in a forfeiture of revenue. Therefore, these resources should be recognized for the full amount of the award when all applicable eligibility requirements are met. For other such resources, usually grants, the expenditure is the prime factor for determining eligibility, and revenue should be recognized when the expenditure is made, provided that other applicable eligibility requirements are met. Similarly, if cost sharing or matching requirements exist, revenue recognition depends on compliance with these requirements. Grants, entitlements, or shared revenues are recorded as deferred revenue if received before the eligibility requirements are met.

Nonexchange revenues are recognized in the proprietary fund on the accrual basis. Those resources in proprietary funds should be recognized as nonoperating revenues in the accounting period in which they are both measurable and earned and the recognition requirements of GASB 33 are met. Nonexchange revenues are recorded as deferred revenue if received before the eligibility requirements are met.

Grants, entitlements, or shared revenues recorded in trust funds should be recognized as revenue on a basis consistent with the funds measurement objective (governmental or proprietary).

Other Definitions

• Grant - A contribution or gift of cash or other assets from another government to be used or expended for a specified purpose, activity or facility.

• Capital grant - Contribution or gift of cash or other assets restricted by the grantor for the acquisition or construction of fixed (capital) assets.
• Operating grant - Grants that are intended to finance operations or that may be used for either operations or for capital outlays at the discretion of the grantee.
• Entitlement - the amount of payment to which a state or local government is entitled as determined by the federal or other government pursuant to an allocation formula contained in applicable statutes.
• Shared revenue - a revenue levied by one government but shared on a predetermined basis, often in proportion to the amount collected at the local level, with another government or class of government.