fasb offers new guidance to nonprofits for services received from personnel of an affiliate
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The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2013-06, Not-for-Profit Entities: (Topic 958): Services Received from Personnel of an Affiliate in April. The guidance in the update – effective for fiscal years beginning after June 15, 2014, and for interim and annual periods thereafter – clarifies the guidance related to how not-for-profits should recognize and measure services provided by personnel of an affiliate under direct supervision of the recipient not-for-profit, or shared services of an affiliate group that the recipient would have to purchase if they were not provided.TRANSCRIPT
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The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2013-06, Not-for-Profit Entities: (Topic 958): Services Received from Personnel of an Affiliate in April. The guidance in the update – effective for fiscal years beginning after June 15, 2014, and for interim and annual periods thereafter – clarifies the guidance related to how not-for-profits should recognize and measure services provided by personnel of an affiliate under direct supervision of the recipient not-for-profit, or shared services of an affiliate group that the recipient would have to purchase if they were not provided.
The guidance is applicable to not-for-profit entities (including business-oriented healthcare organizations) that receive services from personnel of an affiliate “that directly benefit the recipient not-for-profit entity and for which the affiliate does not charge the recipient not-for-profit entity.” “Charging” a recipient is defined as requiring payment for the approximate amount of compensation and fringe benefits of the personnel providing the services.
This ASU continues the FASB’s program of working to make not-for-profit financial statements as comparable as possible among different entities. The clarification was necessary because not-for-profits previously used their own judgment regarding how to recognize
December 2013
FASB Offers New Guidance to Nonprofits for Services Received from Personnel of an Affiliate
expenses stemming from such services and often based their determination on whether or not they paid for the service. Typically, if the affiliated not-for-profit entity charged the recipient not-for-profit entity for the services performed, the recipient recognized an expense for these services based upon the amount they were charged.
But in cases where the recipient was not charged, some organizations recognized contribution revenue and expense for all such services performed by affiliates, while others recognized contribution revenue and expense based on contributed services guidance, which states that “contributed services should be recognized for those items that create or enhance nonfinancial assets or require specialized skills, are provided by individuals possessing those skills, and typically would need to be purchased if not provided by donation.” Other organizations have simply elected not to recognize contribution revenue or expense for such services.
The guidance in ASU 2013-06 eliminates any confusion. Under the update a recipient not-for-profit entity “must recognize all services received from personnel of an affiliate that directly benefit the recipient organization.” In terms of adopting this ASU, early adoption is permitted and organizations have options upon adoption. A recipient not-for-profit may adopt the Update prospectively or by using a modified retrospective approach – all prior periods presented upon the date should be adjusted; however, adjustment may not be made to the beginning balance of net assets of the earliest period presented.
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The information in this MHM Messenger is a brief summary and may not include all the details relevant to your situation. Please contact your MHM auditor to further discuss the impact on your audit or audit report.
How those services from affiliates should be measured
According to FASB, services from affiliates should be measured “at the cost recognized by the affiliate for the personnel providing those services.” There is an exception, though. If measuring such a service would “significantly overstate or understate the value of the service received, the recipient not-for-profit entity may elect to recognize that service received at either the cost recognized by the affiliate for the personnel providing that service, or the fair value of that service.” If the cost recognized by the affiliated entity is unknown or difficult to obtain, the recipient not-for-profit may use any “reasonable and verifiable manner” to estimate those costs.
Financial statement presentation
The increase in net assets associated with services provided by personnel of an affiliate for which the recipient not-for-profit is not charged cannot be reported as a contra-expense or contra-asset. While FASB does not mandate presentation guidance for the increase in net assets associated with these types of services, the board expects that most recipient not-for-profits will record the increase in net assets associated with the services received as contribution revenue.
Recipient not-for-profits should report the corresponding decrease in net assets or the creation or enhancement of an asset resulting from the use of services received from personnel of an affiliate similar to how other such expenses or assets are reported.
For more information
If you have any questions related to this guidance, please contact Michelle Spriggs of MHM’s Professional Standards Group or your local MHM office. Michelle can be reached at 774.206.8336 or [email protected].
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