Earlier this year, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2013-06, "Not-for-Profit Entities (Topic 958) - Services Received from Personnel of an Affiliate," with the intent to clarify the standards applicable when an affiliate provides services to a not-for-profit entity.
The revenue recognition guidance for not-for-profit entities requires that contributed services regularly performed by employees of separately governed affiliated entities be recognized at fair value. In addition, the guidance indicates that those contributed services should be recognized only if they (1) create or enhance nonfinancial assets or (2) require specialized skills, are provided by individuals possessing those skills, and typically would need to be purchased if not provided by donation. The guidance does not apply to transactions between affiliates where an affiliate charges (i.e., requires payment from) the recipient not-for-profit entity of at least the approximate fair value of the services provided.
The amendments in this update, which apply to all not-for-profit entities, require a recipient not-for-profit entity to recognize all services received from personnel of an affiliate that directly benefit the recipient not-for-profit entity. Those services should be measured at the cost recognized by the affiliate for the personnel providing those services. However, if measuring a service received from personnel of an affiliate at cost will significantly overstate or understate the value of the service received, the recipient not-for-profit entity may instead elect to recognize that service at its fair value.
If related or affiliated nonprofits are not recording intercompany charges and they do not keep time sheets, they will need to interview staff members to determine the approximate percentage of time being utilized by each of the related entities. On an interim basis, accounting records should reflect year-to-date intercompany charges and journal entries will need to be recorded.
The goals of the update are to achieve consistency in treatment; to provide transparency about the extent of program service; supporting activity and asset creation or enhancement costs incurred by the recipient entity; and to enhance the comparability of financial information among not-for-profit entities.
The guidance in ASU No. 2013-06 is effective prospectively for fiscal years beginning after June 15, 2014, and interim and annual periods thereafter.
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