Revenue Recognition
GIK Summit – 2009
Presented by
Gregg Capin, CPA, Partner
CapinCrouse LLP
gcapin@capincrouse.com
Revenue Recognition
• Contributions Made to Third Parties
• Impact of Donor Intent
• Accounting Guidance
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Contributions Received and Made (FASB 116)
Transfers of Assets (FASB 136)
Key terms
Reporting
• AERDO Standard #5
Contributions Made to Third Parties
Examples –
• A federated fundraising organization or
community foundation raises funds for other
NPOs. Donors may direct their gift to a specific
charity
• A supporting foundation, to one charity or a
group of related organizations, raises funds and
receives gifts specified for the individual
organizations
Contributions Made to Third Parties
Examples –
• A food pantry or shelter appeals for support for
an unrelated social service agency that it
believes is worthy of support
• An international organization receives gifts
specified for a school, seminary, or hospital with
which it works
Contributions Made to Third Parties
Concerns • Recipient Organization (Middleman) - Reporting as
contributions and net assets, assets that are held by
the reporting organization but that are not under its
discretion and control
• Beneficiary (Ultimate recipient) - Not reporting net
assets that either benefit the reporting organization,
are under its control, or that it has a right to receive
or direct the use thereof, even though others hold
them
Impact of Donor Intent
• Giving - donors initiate transfers and respond to
appeals resulting in transfers of assets, including
giving, with different terms, conditions, or restrictions
based on their intent
• Gift use – charities assume fiduciary
responsibilities, including the responsibility to use all
contributions exclusively to fulfill their specific
exempt purposes, consistent with their mission, and
to honor donor intent and fulfill donor restrictions
Impact of Donor Intent
• Legal standing - historically, once a gift was
complete, most courts held that donors no longer
had standing to enforce gift terms. However, recent
cases affirm a trend to allow private legal action
when gift use is inconsistent with donor intent and
restrictions (e.g. Princeton case)
Impact of Donor Intent
• Public perception – the trustworthiness of a charity
and the charitable sector in general
A survey authorized in connection with the Princeton
case about use of gifts for purposes other than as
restricted by the donor found:
– 97% consider it “very” or “somewhat” serious if a
charity spends donated money for other purposes
– 78% said they “definitely” or “probably” would stop
giving to a charity that accepts gifts for one purpose
and uses them for another
Impact of Donor Intent
• Understanding between a donor and charity –
whether implicitly derived or explicitly stated
• Responsibility of a charity to fulfill the intended
purpose – whether the charity is acting as an
agent or intermediary or, if a donee, whether the
contribution is limited for a specific purpose or
period of time or available any exempt purpose
Accounting Guidance
• FASB Statement No. 116, Contributions
Received and Contributions Made
• FASB Statement No. 136, Transfers of Assets to
a Not-for-Profit Organization or Charitable Trust
That Raises or Holds Contributions for Others
• AICPA Audit and Accounting Guide for Not-forProfit Entities (NPO Guide)
Transfers of Assets
Some not-for-profits act as agents, trustees, or
intermediaries, helping donors to make a
contribution to another entity or individual. In
general, if a donor specifies a beneficiary, the
recipient organization should not recognize a
contribution. [FASB No. 136]
– Resource provider (original donor)
– Recipient (middleman)
– Beneficiary (ultimate recipient/owner)
Contributions
Paragraph 5 of FASB Statement No. 116,
defines a contribution as:
“… an unconditional transfer of cash or other
assets to an entity or a settlement or
cancellation of its liabilities in a voluntary
nonreciprocal transfer by another entity acting
other than as an owner. Other assets include
securities, land, buildings, use of facilities or
utilities, material and supplies, intangible assets,
services, and unconditional promises to give
those items in the future.”
Contributions
Paragraph 7 of FASB Statement No. 116,
defines a donor-imposed condition as:
“..... a future and uncertain event whose
occurrence or failure to occur gives the promisor
a right of return of the assets transferred or
releases the promisor from its obligation to
transfer assets promised.”
Contributions
Paragraph 7 of FASB Statement No. 116,
defines a donor-imposed restriction as:
“…a donor-imposed restriction limits the use of
contributed assets; it specifies a use that is more
specific than broad limits resulting from the
nature of the organization, the environment in
which it operates, and the purposes specified in
its articles of incorporation or bylaws or
comparable documents for an unincorporated
association.”
Variance Power
• The ability of a recipient organization to exercise
control over the donation to direct or redirect it
without prior consent of the donor to an entity or
individual other than the specified beneficiary or
beneficiaries
Example – donor advised fund with explicit legal
power to redirect despite an expressed donor
request or preference
Refundable Advances
• Transfers represent a refundable advance if any
of the following conditions exists:
– (a)The transfer is subject to the resource
provider’s unilateral right to redirect the use of
the assets to another beneficiary
– (b)The transfer is accompanied by the
resource provider’s conditional promise to
give or is otherwise revocable or repayable
Refundable Advances
• Transfers represent a refundable advance if any
of the following conditions exists:
– (c)The resource provider controls the recipient
organization and specifies an unaffiliated
beneficiary
– (d)The resource provider specifies itself or its
affiliate as the beneficiary and the transfer is
not an equity transfer
Refundable Advances
If determined to be a refundable advance under
the above provisions, transfers are reported as
assets and net assets of the resource provider
and assets and liabilities of the recipient
organization
Agent
• An entity or individual that acts for and on behalf
of another
Although the term has a legal definition, the term
as used in FASB Statement No. 136 has a
broader meaning to encompass not only legal
agency but also the relationships described in
FASB Statement No. 136
Agent
• A recipient organization acts as an agent for and
on behalf of a donor if it:
– Receives assets from the donor and agrees to use
those assets on behalf of or transfer those assets, the
return on investment of those assets, or both to a
specified beneficiary
– agrees to solicit assets from potential donors
specifically for the beneficiary’s use and to distribute
those assets to the beneficiary
Agent
• A recipient organization also acts as an agent if
a beneficiary can compel the organization to
make distributions on its behalf
Intermediary
• An entity or individual that acts as a facilitator for
the transfer of assets between a potential donor
and a potential beneficiary (donee) but is neither
an agent or trustee nor a donee and donor
• An intermediary may or may not charge a
handling fee or commission
Agent and Intermediary Reporting
• Cash and other financial assets held are
reported at fair value as assets and liabilities,
unless there is variance power or the recipient
and beneficiary are financially interrelated
• Nonfinancial assets are permitted, but not
required, to be recognized as assets and
liabilities, unless there is variance power or the
recipient and beneficiary are financially
interrelated [then required to be reported]
Financially Interrelated Reporting
• A recipient and specified beneficiary are
financially interrelated if both of the following
conditions exist:
– Ability to influence the operating and financial
decisions of the other
– Ongoing economic interest in net assets of
the other
Financially Interrelated Reporting
• If financially interrelated and not a trustee, the
recipient recognizes a contribution (for example,
a supporting foundation)
• Specified beneficiaries also recognize their
interest in the net assets of the recipient
Beneficiary Reporting
• A specified beneficiary recognizes its rights to
assets held (financial or nonfinancial) by a
recipient organization as an asset unless the
recipient organization is explicitly granted
variance power
• Such rights to assets are either:
– an interest in the net assets of the recipient
– a beneficial interest
– a receivable
Beneficiary Reporting
• If the recipient and beneficiary are financially
interrelated, beneficiary reports an interest in the
net assets of the recipient, and adjusts for
change
• If there is an irrevocable right to receive future
cash flows, a beneficial interest is reported at fair
value
• Receivable is reported in all other cases
Reporting Fund Raising Efforts
• Permits reporting amounts raised and distributed
on behalf of others in a schedule or in the
statement of activities, provided that amounts
raised in an agent, trustee, or intermediary
capacity are not shown in revenues
AERDO Standard #5
• Accounting standards provide guidance
intended to further consistency in reporting
transactions based on certain criteria and the
underlying attributes
• Accounting standards are not necessarily
designed to preclude abuse or to avoid
transactions that may be structured to meet the
criteria but lack merit
AERDO Standard #5
• Provides that recognition should be limited to
those with essential/critical roles
• Provides that organizations generally should not
accept or recognize GIK unless they:
– Direct role in procurement from the original
donor
– Distribute GIK to final beneficiaries/end users
AERDO Standard #5
• Provides that “other” recipients should only
accept and recognize GIK it they will
– Take physical possession
– Add significant value by increasing utility (not
just by providing storage or transportation)
AERDO Standard #5
• Provides that when multiple organizations are
involved, determinative factors for recognition
include the attributes of:
– Ownership/taking effective title to GIK
– Possession
– Discretion and variance power to determine
the final recipients
Contact Information
Gregg Capin
CapinCrouse LLP
1255 Lakes Parkway, Suite 130
Lawrenceville, Georgia 30043
678-518-5301
www.capincrouse.com
gcapin@capincrouse.com