Thursday, September 26, 2013

New Regs to Nonprofits: Recognize Contributed Services

A Financial Accounting Standards Board (FASB) update will soon require nonprofits that receive management and other services without charge from affiliated organizations to recognize the value of the activities.

The NonProfit Times shares this about the development:

The pronouncement, Services Received from Personnel of an Affiliate, was issued in an effort to establish uniform reporting procedures, according to FASB, which noted in the pronouncement that “the amendments will reduce diversity in practice and provide transparency about the extent of the program services, supporting activities and asset creation or enhancement costs incurred by the recipient not for profit entity.”

The amendment plugs a loophole that had existed under Topic 958, Not-for-Profit Entities, Section 605, Revenue Recognition. The existing guidance required nonprofits to recognize contributed services when they create or enhance nonfinancial assets or when they require specialized skills that the recipient nonprofit would otherwise need to purchase. The update, however, clarifies that a recipient nonprofit must recognize all contributed services it receives from an affiliate.

The update to the accounting standard will be effective for fiscal years that begin after June 15, 2014, and for interim and annual periods after that.

Christine Klimek, FASB's senior manager, media relations, opines that the enhanced reporting that is expected to result from the update should benefit donors, creditors, investors and other capital market participants.  Klimek believes that the benefits of the new reporting regime should outweigh any increased costs of compliance.

I gues we'll wait to see what really happens...



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