A Nonprofit Sector Call to Arms: The Case of Accounting for Contributed Services

By Vargo, Richard J. | Review of Business, Spring 1995 | Go to article overview

A Nonprofit Sector Call to Arms: The Case of Accounting for Contributed Services


Vargo, Richard J., Review of Business


From the days of the American Revolution, commentators on American culture have paid tribute to the spirit of volunteerism in America. Despite the presence of the "me generation" and a large number of two-earner families where time is precious, volunteerism abounds in the United States. Volunteerism seems to exemplify the fundamental commitment of people to responsible citizenship in the community. When individuals volunteer their personal services to nonprofit organizations (NPOs) "without the expectation or receipt of either compensation or economic benefit proportionate to the services provided," they are providing contributed services [1]. Contributed services supplement an NPO's cash resources and allow it to offer more and better programs or services than would otherwise be the case.

In receiving and simultaneously using contributed resources, several accounting issues emerge. Two of the most troublesome issues are 1) the conditions for valuing contributed services and 2) determining a dollar value for such services.

FASB Studies

To assess the practices of accounting for contributed services by NPOs, the Financial Accounting Standards Board (FASB), the accounting rule-making body for NPOs, undertook two surveys in the late 1980s. The first survey was directed to 5,500 preparers of financial statements of NPOs; the second survey was directed to 170 users of financial statements of NPOs such as donors, foundations, lenders, regulators, and accreditation boards.

Questionnaire results from the first survey found that 68% of all respondent organizations received contributed services. Of this recipient group, 86% did not assign any dollar amounts to the contributed services received. An almost identical percentage felt that public disclosure of the value of contributed services is not best provided by dollar amounts [1].

The second survey of users of financial statements found that information about contributed services, when provided, is not a primary consideration when evaluating the financial condition of NPOs. In fact, the study found little evidence of a user demand for dollar measures of contributed services. Most user-respondents felt that the costs of assigning and reporting a dollar value for contributed services would exceed the benefits of providing such information [1].

In summary, the FASB studies found that both the preparers and users of the financial statements of NPO's believed that there is no compelling need to place a value on contributed services for accounting and financial reporting purposes.

Proposed Rules

Contrary to its own findings, the seven-member FASB felt that the accounting rules for contributed services needed to include the measurement and valuation of many of the contributed services received by NPOs and, in 1990, proposed a set of rules. These rules, if enacted, would have been imposed on all NPOs having their financial statements audited by external certified public accountants (CPAs). FASB proposed that contributions of services "shall be recognized if the services received (a) create or enhance other assets, (b) are provided by entities that normally provide those services for compensation, or (c) are substantially the same as services normally purchased by the recipient" [2]. The consequence of these proposed rules would have had most NPOs having to recognize in its accounting records many of the contributed services which it was receiving. For example, the contributed services of a carpenter in building shelves at NPO offices would qualify for recognition because an asset is created and the services are performed by an individual who normally performs those services for compensation. Similarly, if a private university used both paid recruiters and volunteer alumni to generate student enrollment, the value of alumni services would have to be valued for accounting purposes as the alumni provide substantially the same services as those normally purchased by the university. …

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