Academic journal article Journal of Accountancy

Raising or Holding Contributions for Others

Academic journal article Journal of Accountancy

Raising or Holding Contributions for Others

Article excerpt

FASB Statement no. 136 offers new rules to clear up old confusion.

Despite the best intentions, standards sometimes create more confusion than they resolve. For example, not-for-profit organizations that collect or solicit contributions on behalf of other NPOs have had difficulty determining when they are donors or donees or agents, trustees or intermediaries.

Accordingly, it has been difficult for them to decide what to report as assets, liabilities, contribution revenues and donation expenses. This confusion is largely a result of paragraph 4 of FASB Statement no. 116, Accounting for Contributions Received and Contributions Made, issued in 1993. That paragraph says the statement does not apply to asset transfers in which the reporting entity acts as an agent, trustee or intermediary rather than as a donor or donee.

Community foundations and other interested parties asked FASB to provide an interpretation of paragraph 4. Other NPOs, including institutionally related foundations and federated fundraising organizations, asked FASB to expand the scope of its project to describe the circumstances under which they could report assets received as contributions. Some entities expressed concern that a broad interpretation of paragraph 4 would require them to not account for many of their activities as contributions received and made, resulting in understated revenues and expenses. Recording only some fundraising activities as contributions could understate the amounts raised and make many key financial ratios that NPOs use meaningless, resulting in misleading financial statements.


In September 1996 FASB issued Interpretation no. 42, Accounting for Transfers of Assets in Which a Not-for-Profit Organization Is Granted Variance Power. The interpretation says an organization that receives assets acts as a donee and donor if the resource provider (the donor) specifies a third-party beneficiary and explicitly grants the recipient organization variance power (defined below).

FASB considered other situations in a second phase of the project, which became Statement no. 136, Transfers of Assets to a Not-for-Profit Organization or Charitable Trust That Raises or Holds Contributions for Others. Issued in June 1999, it establishes accounting standards for transactions in which a donor (the resource provider) makes a contribution by transferring assets to an NPO or charitable trust (the recipient organization), which accepts those assets and agrees to use them on behalf of an entity the donor specifies (the beneficiary) or to transfer the assets--plus any investment returns--to that entity. The standard also covers transactions that are not contributions because the transfers are reciprocal, repayable or revocable.

Appendix A of Statement no. 136 includes a flowchart that illustrates the decision-making process an NPO will follow in implementing the statement and outlines journal entries the resource provider, the recipient organization and the specified beneficiary will make. The flowchart is excerpted in the exhibit on pages 50-51. Since it is effective for fiscal years beginning after December 15, 1999, most NPOs will implement Statement no. 136 in the fiscal year that begins in July. As a result, understanding how it resolves past confusion is critical for NPOs and their CPAs.



Asset transfers from a resource provider to a recipient organization are not contributions if one or more of these conditions exist:

* The transfer is subject to the resource provider's unilateral right to redirect use of the assets to another beneficiary.

* The transfer is accompanied by the resource provider's conditional promise to give or is otherwise revocable or repayable.

* The resource provider controls the recipient organization and specifies an unaffiliated beneficiary. …

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