6 Things Not-For-Profits Need to Know about Non-Cash Contributions
Not-for-profits continue to encounter unique measurement challenges for gifts in kind. There are a variety of approaches available for not-for-profits to value GIK, which can result in large disparities between handlings by different not-for-profits and questions about the application of generally accepted accounting practices to GIK. Other issues such as identifying the applicable principle markets and the effect of nominal fees on GIK require not-for-profits to scrutinize their GIK practices to ensure GAAP is being properly applied.
Not-for-profits must measure all non-cash contributions such as items auctioned off for charity; excess or obsolete goods given to charity to help fulfill its mission; free print or web advertising space and even radio advertisement air time. However, measuring these intangible items can be challenging, as not-for-profits who receive such gifts would not otherwise purchase or sell them and not-for-profit administrators simply may not know the fair market value of these gifts or have access to valuation information.
- Intent is vital. While all other facts and circumstances help to determine intent, it is ultimately the donor’s intent that rules the restriction classification. The not-for-profit has a fiduciary, and in most cases, a legal obligation to follow any restrictions donors place on the use of contributed resources and that may affect a not-for-profit's performance and its ability to provide services.
- Focus on discretion. It is important to focus on the discretion a not-for-profit has in determining the intended beneficiary and the extent of variance power the not-for-profit holds. If the original beneficiary no longer needs or cannot accept the goods or, for any reason, the goods are determined to not be acceptable, does the not-for-profit have the authority to redirect the goods to another beneficiary? If so, the not-for-profit likely has variance power.
- Determine who bears the risk. Take a hard look at who bears the risks and rewards of ownership over GIK by determining whether your not-for-profit or your client takes physical or constructive possession of the GIK. (i.e., having physical possession of an item generally means that person is responsible for its risk of loss and has a reward of use).
- Fair value is now based on “exit” price. It’s difficult to find comparable sales data, making it that much more important for not-for-profits to develop a reasonable process for valuing GIK. A not-for-profit’s process might include searching the active and principal market for a measurable exit price determination.
- Understand the differences between asset restrictions and organizational restrictions. Asset restrictions can have an impact on valuation, whereas organizational restrictions do not. Organizational restrictions will have an impact on the net asset classification, but should not impact valuation.
- There is no “one size fits all” approach. For any GIK valuation, there will be judgment in applying indicators and determining the appropriate treatment.
Because there really is no “one size fits all” approach, it’s important for accountants and their auditors to have a go-to guide for questions about non-cash gifts and other complex issues related to not-for-profit accounting. The AICPA’s Financial Reporting Executive Committee has just published the 2013 edition of the AICPA Not-For-Profit Accounting and Audit Guide, which provides expanded guidance on non-cash contributions and includes updated information on how to determine whether an not-for-profit is in fact acting as a recipient or an agent—an integral component of determining how to consider GIK donations. The guide also includes new sections about reporting and measuring non-cash gifts, including gifts-in-kind; contributions of fund-raising materials, informational materials, advertising, and media time or space; below-market interest rate loans; and bargain purchases.
Jennifer Hoffman, CPA, Partner - Not-for-Profit Services, Grant Thornton. Jennifer is a fully dedicated member of Grant Thornton’s Northeast Region Not-for-Profit Practice.