What is a “collection” in accounting terms? The FASB recognized that there were some conflicting definitions out there and issued a new ASU to get it straightened out. The new definition of collection is:
Works of art, historical treasures or similar assets that meet all of the following criteria:
- (a) they are held for public exhibition, education or research in furtherance of public service rather than financial gain;
- (b) they are protected, kept unencumbered, cared for and preserved; and
- (c) 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.
Why do we need to know this? Because if an entity does hold a collection, it is required to disclose its policy on the use of the proceeds from collection items sold (deaccessioned) as noted above. If part of the policy is to use proceeds for the direct care of the collection, the entity is also required to disclose what types of expenses it considers to include “direct care.” Also, if this policy is in line with (c) above, contributions of collection items are not required to be recognized.
As far as purchases of collection items, entities have some options for how to record them. The items can be capitalized, or they can just be expensed (the more common approach).
Types of organizations that hold collections include:
- Art galleries
- Botanical gardens
- Historic sites
- Nature/science/technology centers
If you have questions about how this may affect your entity, be sure to reach out to your Henry+Horne advisor.
Colette Kamps, CPA