Not-For-Profit Entities: Change Is on the Horizon on the Recognition of Contributed Services


By Jenna Zelenski

Last April, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2013-06 – Not-for-Profit Entities: Services Received from Personnel of an Affiliate.  This ASU will require not-for-profit entities to recognize the value of donated services provided by an affiliate, whether the affiliate is not-for-profit or for-profit.  The FASB defines an affiliate as “a party that controls, directly or indirectly through one or more intermediaries, is controlled by or is under common control with an entity.”  The primary purpose of this ASU is to improve current United States generally accepted accounting principles (GAAP) by increasing comparability among not-for-profit entities.

Currently, GAAP requires contributed services to be recognized as revenue only if they “create or enhance a nonfinancial asset” or “require specialized skills, are provided by individuals possessing those skills and would typically need to be purchased if not provided by donation.”  The ASU provides a methodology for determining the value of the services performed by an affiliate.  If the affiliate does not charge the recipient, the measurement that should be used to recognize the services received is the affiliate’s cost.  However, if using cost will significantly overstate or understate the value of the services received, the recipient entity may use either “(1) the cost recognized by the affiliate for the personnel providing that service or (2) the fair value of that service.”

The increase in net assets related to the receipt of such services should not be presented as a “contra-expense or a contra-asset.”  Furthermore, the “corresponding decrease in net assets or the creation or enhancement of an asset resulting from the use of such services should be presented similar to how other such expenses or assets are presented.”  As a result, these transactions will have a net impact to the bottom line of zero.  Also, since these services are considered to be related-party transactions, disclosure requirements include: the nature of the relationships, a description of the transactions and the dollar amounts associated with the transactions.

This ASU is effective prospectively for fiscal years beginning after June 15, 2014, and interim and annual periods thereafter.  Early adoption is permitted using a modified retrospective approach whereby “all prior periods presented upon the date of adoption should be adjusted; however, no adjustment should be made to the beginning balance of net assets of the earliest period presented.”

The entire update can be found here.  For questions, contact a member of our Not-for-Profit Industry Group.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.


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