Accounting for Contributions and Collection Items
Glazer, Alan S., Jaenicke, Henry R., The CPA Journal
Here is an accounting matter that is treated differently by different museums and that FASB believes should be the subject of a pronouncement specifying consistency. The authors present the issues involved the arguments for and against the proposal and possible compromises and alternatives. FASB's plans call for a statement in 1992.
In March 1986, FASB added a project to its agenda to establish accounting standards for certain pervasive transactions of not-for-profit organizations. The project evolved into a consideration of three broad issues: accounting for depreciation, standards for financial statement display, and accounting for contributions and for works of art, historical treasures, and similar items ("collection items").
The depreciation issue resulted in SFAS 93, "Recognition of Depreciation by Not-for-Profit Organizations." That statement concludes that not-for-profit organizations should recognize depreciation for all long-term, tangible assets except certain works of art and historical treasures. The financial statement display issue has thus far generated a 1989 Invitation to Comment, "Financial Reporting by Not-for-profit Organizations: Form and Content of Financial Statements." The major matters in the Invitation to Comment concern the scope, form, and content of required financial statements. This article describes the third issue, accounting for contributions and for collection items, and analyzes the impact the project could have on the financial statements of museums and similar institutions, as well as other not-for-profit entities, such as colleges and universities that own collection items.
FASB EXPOSURE DRAFT
In October 1990, the FASB issued an exposure draft, "Accounting for Contributions Received and Contributions Made and Capitalization of Works of Art, Historical Treasures and Similar Assets." In addition to proposing standards for both donor and donee accounting for all cash and noncash contributions and for pledges to contribute those items, the ED proposes standards for recognizing and measuring collection items acquired by contribution, purchase, or other means.
If adopted by the board after public hearings and further deliberations, the new standards would require museums and similar institutions to recognize, with certain limited exceptions, contributions received as revenues or gains. Donees would recognize contributed services if those services create or enhance other assets, are provided by individuals or organizations that normally provide them for compensation, or are substantially identical to services normally purchased by the donee. Contributions of collection items would be recognized if donees intend to sell the items or if markets exist in which they can be sold or exchanged.
The ED would also require museums and similar institutions to capitalize, with the same limited exceptions, current-period acquisitions of collection items, both contributed and purchased. Prior-period acquisitions not previously capitalized as assets would have to be capitalized within three years of the effective date of the statement. The Board believes that collection items are assets and accounting for them should be consistent with accounting for other long-term tangible assets.
Purchased collection items would be recognized as assets at acquisition cost; contributed items would be recognized as assets and as revenues or gains at fair value at date of acquisition. Because the cost or fair value of some items acquired in prior periods may be difficult to obtain, particularly if an organization has not maintained detailed acquisition records since its founding, the ED would permit museums and similar institutions to measure prior-period acquisitions at "cost or fair value at date of acquisition, current cost, or current market value, whichever is deemed most practical." Acknowledging the difficulty of estimating a value for some collection items, the Board suggests the following alternative sources of such information: "quoted market prices, prices in transactions involving the same or similar assets, independent appraisals, and other evidence. …