favorite music” is conditional but unrestricted (the donor has not said the gift must be used to pay for the performance), whereas “I pledge $20,000 for [the cost of] playing my favorite piece of music” is restricted, but unconditional. In the latter case, the donor has said the pledge will be paid but can only be used for that performance. The difference in wording is small, but the accounting implications are great. The conditional pledge is not recorded at all until the condition is met; the unconditional restricted pledge is recorded as revenue (in the temporarily restricted class) upon re- ceipt of notification of the pledge. Appendix 33.4 contains a checklist to help readers determine whether an unconditional pledge actually exists. Appendix 33.5 contains a checklist to help distin- guish conditions from restrictions. D ISCOUNTED TO PRESENT VALUE. Prior to SFAS No. 116, pledges were recorded at the full amount that would ultimately be collected. None of the accounting literature for not-for-profit organizations talked about discounting pledges to reflect the time value of money. There had been for many years an accounting standard applicable to business transactions that does require such discounting (APB No. 21), but not-for-profit organizations universally chose to treat this as not applicable to them, and accountants did not object. SFAS No. 116 does require recipients (and donors) of pledges payable beyond the current ac- counting period to discount the pledges to their present value, using an appropriate rate of interest. Thus, the ability to receive $1,000 two years later is really only equivalent to receiving about $900 (assuming about a 5% rate of interest) now, because the $900 could be invested and earn $100 of in- terest over the two years. The higher the interest rate used, the lower will be the present value of the pledge, since the lower amount would earn more interest at the higher rate and still be worth the full $1,000 two years hence. The appropriate rate of interest to use in discounting pledges will be a matter of some judg- ment. In many cases, it will be the average rate the organization is currently earning on its investments or its idle cash. If the organization is being forced to borrow money to keep going, then the borrowing rate should be used. Additional guidance is in SFAS No. 116 and APB No. 21. As the time passes between the initial recording of a discounted pledge and its eventual collec- tion, the present value increases since the time left before payment is shorter. Therefore, the discount element must be gradually “accreted” up to par (collection) value. This accretion should be recorded each year until the due date for the pledge arrives. The accretion is recorded as contribution income. (This treatment differs from that specified in APB No. 21 for business debts for which the accretion is recorded as interest income.) P LEDGES FOR EXTENDED PERIODS. There is one limitation to the general rule that pledges be recorded as assets. Occasionally, donors will indicate that they will make an open-ended pledge of support for an extended period of time. For example, if a donor promises to pay $5,000 a year for 20 years, would it be appropriate to record as an asset the full 20 years’ pledge? In most cases, no; this would distort the financial statements. Most organizations follow the practice of not recording pledges for future years’ support beyond a fairly short period. They feel that long-term open-ended pledges are inherently conditional on the donor’s continued willingness to continue making payments and thus are harder to collect. These arguments have validity, and organizations should consider very care- fully the likelihood of collection before recording pledges for support in future periods beyond five years. A LLOWANCE FOR UNCOLLECTIBLE PLEDGES. Not all pledges will be collected. People lose interest in an organization; their personal financial circumstances may change; they may move out of town. This is as true for charities as for businesses, but businesses will usually sue to collect unpaid debts; charities usually will not. Thus another important question is how large the allowance for uncol- lectible pledges should be. Most organizations have past experience to help answer this question. If over the years, 10% of pledges are not collected, then unless the economic climate changes, 10% is probably the right figure to use. 33 • 24 NOT-FOR-PROFIT ORGANIZATIONS R ECOGNITION AS I NCOME . The second, related question is: When should a pledge be recognized as income? This used to be a complicated question, requiring many pages of discussion in earlier edi- tions of this Handbook. Now, the answer is easy: immediately upon receipt of an unconditional pledge. This is the same rule that applies to all kinds of gifts under SFAS No. 116. Conditional pledges are not recorded until the condition is met, at which time they are effectively unconditional pledges. Footnote disclosure of unrecorded conditional pledges should be made. Under the earlier Audit Guides/Statement of Position, pledges without purpose restrictions were recorded in the unrestricted fund. Only if the pledge has a purpose restriction would it be recorded in a restricted fund. Even pledges with explicit time restrictions were still recorded in the unrestricted fund, to reflect the flexibility of use that would exist when the pledge was collected. Under SFAS No. 116, all pledges are considered implicitly time-restricted, by virtue of their being unavailable for use until collected. Additionally, time-restricted gifts, including all pledges, are now reported in the temporarily restricted class of net assets. They are then reclassified to the unrestricted class when the specified time arrives. This means that even a pledge not payable for 10 years or a pledge payable in many install- ments is recorded as revenue in full (less the discount to present value) in the temporarily restricted class in the year the pledge is first received. This is a major change from earlier practice, which generally deferred the pledge until the anticipated period of collection. Sometimes a charity may not want to have to record a large pledge as immediate revenue; it may feel that its balance sheet is already healthy and recording more income would turn away other donors. If a pledge is unconditional, there is no choice: The pledge must be recorded. One way to mitigate this problem is to ask the donor to make the pledge conditional; then it is not recorded until some later time when the condition is met. Of course, there is a risk that the donor may not be as likely ever to pay a conditional pledge as one that is understood to be absolutely binding, so nonprofit organizations should consider carefully before requesting that a pledge be made conditional. SFAS No. 116 requires that donors follow the same rules for recognition of the expense of mak- ing a gift as recipients do for the income: that is, immediately on payment or of making an uncon- ditional pledge. Sometimes a charity will find a donor reluctant to make a large unconditional pledge but willing to make a conditional pledge. Fund raisers should be aware of the effect of the new accounting principles in SFAS No. 116 on donors’ giving habits as well as on recipients’ bal- ance sheets. Bequests. A bequest is a special kind of pledge. Bequests should never be recorded before the donor dies—not because death is uncertain, but because a person can always change a will, and the charity may get nothing. (There is a special case: The pledge payable upon death. This is not really a bequest, it is just an ordinary pledge, and should be recorded as such if it is unconditional.) After a person dies, the beneficiary organization is informed that it is named in the will, but this notification may occur long before the estate is probated and distribution made. Should such a be- quest be recorded at the time the organization first learns of the bequest or at the time of receipt? The question is one of sufficiency of assets in the estate to fulfill the bequest. Since there is often uncertainty about what other amounts may have to be paid to settle debts, taxes, other bequests, claims of disinherited relatives, and so on, a conservative, and recommended, approach is not to record anything until the probate court has accounted for the estate and the amount available for distribution can be accurately estimated. At that time, the amount should be recorded in the same manner as other gifts. Thus, if an organization is informed that it will receive a bequest of a specific amount, say $10,000, it should record this $10,000 as an asset. If instead the organization is informed that it will receive 10% of the estate, the total of which is not known, nothing would be recorded yet although footnote disclosure would likely be necessary if the amount could be sizable. Still a third possibility exists if the organization is told that while the final amount of the 10% bequest is not known, it will be at least some stated amount. In that instance, the minimum amount would be recorded with foot- note disclosure of the contingent interest. 33.2 NOT-FOR-PROFIT ACCOUNTING PRINCIPLES 33 • 25 SPLIT-INTEREST GIFTS. The term “split-interest” gifts is used to refer to irrevocable trusts and sim- ilar arrangements (also referred to as deferred gifts) where the interest in the gift is split between the donor (or another person specified by the donor) and the charity. These arrangements can be divided into two fundamentally different types of arrangements: lead interests and remainder in- terests. Lead interests are those in which the benefit to the charity “leads” or precedes the benefit to the donor (or other person designated by the donor). To put this into the terminology commonly used by trust lawyers, the charity is the “life tenant,” and someone else is the “remainderman.” The reverse situation is that of the “remainder” interest, where the donor (or the donor’s designee) is the life tenant and the charity is the remainderman, that is, the entity to which the assets become available upon termination (often called the maturity) of the trust or other arrangement. There may or may not be further restrictions on the charity’s use of the assets and/or the income therefrom after this maturity. Under both types of arrangement, the donor makes an initial lump-sum payment into a fund. The amount is invested, and the income during the term of the arrangement is paid to the life tenant. In some cases, the arrangement is established as a trust under the trust laws of the applicable state. In other cases, no separate trust is involved, rather the assets are held by the charity as part of its general assets. In some cases involving trusts, the charity is the trustee; in other cases, a third party is the trustee. Typical third-party trustees include banks and trust companies or other charities such as com- munity foundations. Some arrangements are perpetual, that is, the charity never gains access to the corpus of the gift; others have a defined term of existence that will end either upon the occurrence of a specified event such as the death of the donor (or other specified person) or after the passage of a specified amount of time. To summarize to this point, the various defining criteria applicable to these arrangements are: • The charity’s interest may be a lead interest or a remainder interest. • The arrangement may be in the form of a trust or it may not. • The assets may be held by the charity or held by a third party. • The arrangement may be perpetual or it may have a defined term. • Upon termination of the interest of the life tenant, the corpus may be unrestricted or restricted. L EAD INTERESTS. There are two kinds of such arrangements as normally conceived. 2 These are: 1. Charitable lead trust 2. Perpetual trust held by a third party In both of these cases, the charity receives periodic payments representing distributions of income, but never gains unrestricted use of the assets that produce the income. In the first case, the payment stream is for a limited time; in case two, the payment stream is perpetual. A charitable lead trust is always for a defined term, and usually held by the charity. At the termi- nation of the trust, the corpus (principal of the gift) reverts to the donor or to another person specified by the donor (may be the donor’s estate). Income during the term of the trust is paid to the charity; the income may be unrestricted or restricted. In effect, this arrangement amounts to an unconditional pledge, for a specified period, of the income from a specified amount of assets. The current value of the pledge is the discounted present value of the estimated stream of income over the term of the trust. Although the charity manages the assets during the term of the trust, it has no remainder inter- est in the assets. 33 • 26 NOT-FOR-PROFIT ORGANIZATIONS 2 It is also possible to consider both a simple pledge and a permanent endowment fund as forms of lead in- terests. In both cases, the charity receives periodic payments, but never gains unrestricted use of the assets that generate the income to make the payments. A pledge is for a limited time; an endowment fund pays forever. A perpetual trust held by a third party is the same as the lead trust, except that the charity does not manage the assets, and the term of the trust is perpetual. Again the charity receives the income earned by the assets, but never gains the use of the corpus. In effect, there is no remainderman. This arrangement is also a pledge of income, but in this case the current value of the pledge is the discounted present value of a perpetual stream of income from the assets. Assuming a perfect mar- ket for investment securities, that amount will equal the current quoted market value of the assets of the trust or, if there is no quoted market value, then the “fair value,” which is normally deter- mined based on discounted future cash flows from the assets. Some may argue that since the charity does not and never will have day-to-day control over the corpus of this type of trust, it should only record assets and income as the periodic distributions are re- ceived from the trustee. In fact, that is the way the income from this type of gift has historically been recorded. In the authors’ view, this is overcome by the requirement in SFAS No. 116 that long-term unconditional pledges be recorded in full (discounted) when the pledge is initially received by the pledgee. Since SFAS No. 116 requires that the charity immediately record the full (discounted) amount of a traditional pledge, when all the charity has is a promise of future gifts, with the pledgor retaining control over the means to generate the gifts, then the charity surely must record immediately the entire amount (discounted) of a “pledge” where the assets that will generate the periodic payments are held in trust by a third party, and receipt of the payments by the charity is virtually assured. A variation of this type of arrangement is a trust held by a third party in which the third party has discretion as to when and/or to whom to pay the periodic income. Since in this case the charity is not assured in advance of receiving any determinable amount, no amounts should be recorded by the char- ity until distributions are received from the trustee; these amounts are then recorded as contributions. R EMAINDER INTERESTS. There are four types of these arrangements. These are: 1. Charitable remainder annuity trust 2. Charitable remainder unitrust 3. Charitable gift annuity 4. Pooled income fund (also referred to as a life income fund) These arrangements are always for a limited term, usually the life of the donor and/or another person or persons specified by the donor—often the donor’s spouse. The donor or the donor’s designee is the life tenant; the charity is the remainderman. Again, in the case of a trust, the charity may or may not be the trustee; in the case of a charitable gift annuity, the charity usually is the holder of the as- sets. Upon termination of the arrangement, the corpus usually becomes available to the charity; the donor may or may not have placed further temporary or permanent restrictions on the corpus and/or the future income earned by the corpus. In many states, the acceptance of these types of gifts is regulated by the state government—often the department of insurance—since, from the perspective of the donor, these arrangements are partly insurance contracts, essentially similar to a commercial annuity. A charitable remainder annuity trust (CRAT) and charitable remainder unitrust (CRUT) differ only in the stipulated method of calculating the payments to the life tenant. An annuity trust pays a stated dollar amount that remains fixed over the life of the trust; a unitrust pays a stated percentage of the then current value of the trust assets. Thus, the dollar amount of the payments will vary with changes in the market value of the corpus. Accounting for the two types is the same except for the method of calcula- tion of the amount of the present value of the life interest payable to the life tenant(s). In both cases, if current investment income is insufficient to cover the stipulated payments, corpus may have to be in- vaded to do so; however, the liability to the life tenant is limited to the assets of the trust. A charitable gift annuity (CGA) differs from a CRAT only in that there is no trust; the assets are usually held among the general assets of the charity (some charities choose to set aside a pool of as- sets in a separate fund to cover annuity liabilities), and the annuity liability is a general liability of the charity—limited only by the charity’s total assets. 33.2 NOT-FOR-PROFIT ACCOUNTING PRINCIPLES 33 • 27 A pooled income fund (PIF, also sometimes called a life income fund) is actually a creation of the Internal Revenue Code Section 642(c)(5), which, together with Sec. 170, allows an income tax de- duction to donors to such funds. (The amount of the deduction depends on the age(s) of the life ten- ant(s) and the value of the life interest and is less than that allowed for a simple charitable deduction directly to a charity, to reflect the value which the life tenant will be receiving in return for the gift.) The fund is usually managed by the charity. Many donors contribute to such a fund, which pools the gifts and invests the assets. During the period of each life tenant’s interest in the fund, the life tenant is paid the actual income earned by that person’s share of the corpus. (To this extent, these funds function essentially as mutual funds.) Upon termination of a life interest, the share of the corpus at- tributable to that life tenant becomes available to the charity. A CCOUNTING FOR SPLIT-INTEREST GIFTS. The essence of these arrangements is that they are pledges. In some cases, the pledge is of a stream of payments to the charity during the life of the arrangement (lead interests). In other cases, the pledge is of the value of the remainder interest. Calculation of the value of a lead interest is usually straightforward, as the term and the payments are well defined. Cal- culation of remainder interests is more complicated, since life expectancies are usually involved and the services of an actuary will likely be needed. SFAS No. 116 gives very little guidance specific to split-interests. Chapter 6 of the new AICPA Audit Guide for not-for-profit organizations discusses in detail the accounting for split-interest gifts. Briefly, the assets contributed are valued at their fair value on the date of gift (the same as for any donated assets). The related contribution revenue is usually the present value of the amounts expected to become available to the organization, discounted from the expected date(s) of such availability (in the case of a remainder interest, the actuarial death date of the last remaining life tenant.) The difference between these two numbers is, in the case of a lead interest, the present value of the amount to be distributed at the end of the term of the agreement according to the donor’s directions, and, under a remainder agreement, the present value of the actuarial liability to make payments to life tenants. (iv) Transfers of Assets to a Not-for-Profit Organization or Charitable Trust that Raises or Holds Contributions for Others. An intermediary, as defined in SFAS No. 116, that receives cash or other financial assets, as defined in SFAS No. 125, should report the assets received and a liability to the specified beneficiary, both measured at the fair value of the assets received. An intermediary that re- ceives nonfinancial assets may but need not report the assets and the liability, provided that the inter- mediary reports consistently from period to period and discloses its accounting policy. A specified beneficiary of a charitable trust agreement having a trustee with a duty to hold and manage its assets for the benefit of the beneficiary should report as an asset its rights to trust assets—an interest in the net as- sets of the recipient organization, a beneficial interest, or a receivable—unless the recipient organiza- tion is explicitly granted variance power in the transferring instrument—unilateral power (power to act without approval from any other party) to redirect the use of the assets to another beneficiary. If the beneficiary and the recipient organization are financially interrelated, the beneficiary should report its interest in the net assets of the recipient organization and adjust that interest for its share of the change in the net assets of the recipient organization, similar to the equity method. They are financially interrelated if both of the following are present: 1. One has the ability to influence the operating and financial decisions of the other. That may be demonstrated in several ways: • The organizations are affiliates. • One has considerable representation on the governing board of the other. • The charter or bylaws of one limit its activities to those that are beneficial to the other. • An agreement between them allows one to actively participate in policy making of the other, such as setting priorities, budgets, and management compensation. 33 • 28 NOT-FOR-PROFIT ORGANIZATIONS 2. One has an ongoing economic interest in the net assets of the other. If the beneficiary has an unconditional right to receive all or a portion of the specified cash flows from a charitable trust or other identifiable pool of assets, the beneficiary should report that beneficial interest, measuring and subsequently remeasuring it at fair value, using a technique such as present value. In all other cases, a beneficiary should report its rights to the assets held by a recipient organi- zation as a receivable and contribution revenue in conformity with the provisions of SFAS No. 116, paragraphs 6, 15, and 20, for unconditional promises to give. If the recipient organization is explicitly granted variance power by the donor, the beneficiary should not report its potential for future distributions from the assets held by the recipient organization. In general, a recipient organization that accepts assets from a donor and agrees to use them on behalf of them, or transfer them, or both to a specified beneficiary is not a donee. It should report its liability to the specified beneficiary and the cash or other financial assets received from the donor, all measured at the fair value of the assets received. In general, a recipient or- ganization that receives nonfinancial assets may but need not report its liability and the assets, as long as the organization reports consistently from period to period and discloses its ac- counting policy. A recipient organization that has been explicitly granted variance power acts as a donee. A resource provider should report as an asset and the recipient organization should report as a liability a transfer of assets if one or more of the following is present: • The transfer is subject to the resource provider’s unilateral right to redirect the use of the assets to another beneficiary. • The resource provider’s promise to give is conditional or otherwise revocable or repayable. • The resource provider controls the recipient organization and specifies an unaffiliated benefi- ciary. • The resource provider specifies itself or its affiliate as the beneficiary and the transfer is not an equity transaction, as discussed next. A transfer of assets to a recipient organization is an equity transaction if all of the following are present: • The resource provider specifies itself or its affiliate as the beneficiary. • The resource provider and the recipient organization are financially interrelated. • Neither the resource provider nor its affiliate expects payment of the assets, though payment of return on the assets may be expected. A resource provider that specifies itself as beneficiary should report an equity transaction as an interest in the net assets of the recipient organization or as an increase in a previously re- ported interest. If a resource provider specifies an affiliate as beneficiary, it should report an eq- uity transaction as a separate line in its statement of activities, and the affiliate should report an interest in the net assets of the recipient organization. A recipient organization should report an equity transaction as a separate line item in its statement of activities. A not-for-profit organization that transfers assets to a recipient organization and specifies it- self or its affiliate as the beneficiary should disclose the following for each period for which a statement of financial position is presented: • The identity of the recipient organization • Whether variance power was granted to the recipient organization and, if so, its terms • The terms under which amounts will be distributed to the resource provider or its affiliate 33.2 NOT-FOR-PROFIT ACCOUNTING PRINCIPLES 33 • 29 • The aggregate amount reported in the statement of financial position for the transfers and whether it is reported as an interest in the net assets of the recipient organization or as another asset, such as a beneficial interest in assets held by others or a refundable advance Exhibit 33.1 demonstrates the process that should be followed to decide how to account for such transfers and the related accounting for them. (k) RELATED ORGANIZATIONS. Practice has varied regarding when not-for-profit enti- ties combine the financial statements of affiliated organizations with those of the central orga- nization. Part of the reason for this is the widely diverse nature of relationships among such organizations, which often creates difficulty in determining when criteria for combination have been met. (i) Definition of the Reporting Entity. There are two issues here, but they involve the same concepts. First is the question of gifts to affiliated fund-raising entities and whether the affiliate should record the gift as its own revenue, followed by gift or grant expense when their money is passed on to the parent organization, or should record the initial receipt as an amount held on be- half of the parent. Such gifts are often called pass-through gifts since they pass through one en- tity to another entity. Second is the broader question of when the financial data of affiliated entities should be combined with that of a central organization for purposes of presenting the central organization’s financial statements. If the data are combined, the question of pass-through gifts need not be addressed since the end result is the same regardless of which entity records gifts initially. The concept underlying the combining of financial data of affiliates is to present to the fi- nancial statement reader information that portrays the complete financial picture of a group of entities that effectively function as one entity. In the business setting, the determination of when a group of entities is really just a single entity is normally made by assessing the extent to which the “parent” entity has a controlling financial interest in the other entities in the group. In other words, can the parent use for its own benefit the financial resources of the oth- ers without obtaining permission from any party outside the parent? When one company owns another company, such permission would be automatic; if the management of the affiliate re- fused, the parent would exercise its authority to replace management. In the not-for-profit world, such “ownership” of one entity by another rarely exists. Affiliated organizations are more often related by agreements of various sorts, but the level of con trol em- bodied in such agreements is usually far short of ownership. The “Friends of the Museum” may exist primarily to support the Museum, but it is likely a legally independent organization with only infor- mal ties to its “parent.” The Museum may ask, but the Friends may choose its own time and method to respond. Further, the Museum may have no way to legally compel the Friends to do its bidding if the Friends resist. The issue for donors is, if I give to the Friends, am I really supporting the Museum? Or if I am as- sessing the financial condition of the Museum, is it reasonable to include the resources of the Friends in the calculation? Even though the Friends is legally separate, and even though the Friends does not have to turn its assets over to the Museum, isn’t it reasonable to assume that if the Museum got into financial trouble, the Friends would help? Examples of other types of relationships often found among not-for-profits include: a national organization and local affiliates; an educational institution and student and alumni groups, re- search organizations, and hospitals; a religious institution and local churches, schools, seminaries, cemeteries, broadcasting stations, pension funds, and charities. Since each individual relationship may be different, it requires much judgment to decide which entities should be combined and which should not. Existing accounting literature includes some guidance, but more is needed. The basic rules for businesses are: 33 • 30 NOT-FOR-PROFIT ORGANIZATIONS Exhibit 33.1 SFAS No. 136, “Transfers of Assets to a Not-for-Profit Organization or Charitable T rust that Raises or Holds Contributions for Others.” 33 • 31 (Continued) Exhibit 33.1 Continued. 33 • 32 • ARB Opinion No. 51, “Consolidated Financial Statements” • APB Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock” • SFAS No. 94, “Consolidation of All Majority-Owned Subsidiaries” While, strictly speaking, these rules apply to not-for-profits only in the context of a for-profit sub- sidiary, the concepts embodied therein and the related background discussions are helpful to someone considering the issue. Rules for not-for-profits are in the AICPA SOP 94-3. These rules focus largely on the question of whether one not-for-profit controls another. Exhibit 33.2 is designed to help not-for- profits and their accountants decide whether sufficient control exists to require combination. In 1994, the AICPA issued a new statement of position (SOP 94-3) on combining related entities when one is a not-for-profit organization. This SOP requires: • When a not-for-profit organization owns a majority of the voting equity interest in a for-profit entity, the not-for-profit must consolidate the for-profit into its financial statements, regardless of how closely related the activities of the for-profit are to those of the not-for-profit. • If the not-for-profit organization owns less than a majority interest in a for-profit but still has significant influence over the for-profit, it must report the for-profit under the equity method of accounting, except that the not-for-profit may report its investment in the for-profit at market value if it wishes. If the not-for-profit does not have significant influence over the for-profit, it should value its investment in accordance with the applicable audit guide. • When a not-for-profit organization has a relationship with another not-for-profit in which the “parent” both exercises control over the board appointments of and has an economic interest in the affiliate, it must consolidate the affiliate. • If the not-for-profit organization has either control or an economic beneficial interest but not both, disclosure of the relationship and significant financial information is required. • If the parent controls the affiliate by means other than board appointments, and has an eco- nomic interest, consolidation is permitted but not required. If the affiliate is not consolidated, extensive footnote disclosures about the affiliate are required. (ii) Pass-Through Gifts. When one organization (C, in the following exhibit) raises funds for an- other organization (R, in the exhibit), and either C is not required to be consolidated into R under the above rules, or C is consolidated into R, but C also issues separate financial statements, the question of whether C should record amounts raised by it on behalf of R should be reported by C as its rev- enue (contribution income) or as amounts held for the benefit of R (a liability). If such amounts are reported by C as a liability, C’s statement of revenue and expenses will not ever include the funds raised for R. This issue is of considerable concern to organizations such as federated fund-raisers (such as United Ways), community foundations, and other organizations such as foundations affili- ated with universities, which raise (and sometimes hold) funds for the benefit of other organizations. Paragraphs 4 and 53 of SFAS No. 116 indicate that when the pass-through entity has little or no dis- cretion over the use of the amounts raised (i.e., the original donor—D in the exhibit—has specified that C must pass the gift on to R), C should not report the amount as a contribution to it. FASB In- terpretation No. 42 clarifies that if a resource provider specifies a third-party beneficiary or benefi- ciaries and explicitly grants the recipient organization the unilateral power to redirect the use of the assets away from the specified beneficiary or beneficiaries—grants it variance power—the organiza- tion acts as a donee and a donor rather than as an agent, trustee, or intermediary and should report the amount provided as a contribution. Exhibit 33.3 is a list of factors to be considered in assessing whether a pass-through entity should record amounts raised for others as revenue or as a liability. “Economic interest” generally means four kinds of relationship: an affiliate that raises gifts for the parent, an affiliate that holds assets for the parent, an affiliate that performs significant functions assigned to it by the parent, or the parent has guaranteed the debt of or is otherwise committed to pro- vide funds to the affiliate. 33.2 NOT-FOR-PROFIT ACCOUNTING PRINCIPLES 33 • 33 [...]... J., Jr., Museum Accounting Handbook American Association of Museums, Washington, DC, 1978 Evangelical Joint Accounting Committee, Accounting and Financial Reporting Guide for Christian Ministries,” Revised edition Christian Management Association, Diamond Bar, CA, 1997 Financial Accounting Standards Board, Norwalk, CT: Statements of Financial Accounting Concepts: No 4, “Objectives of Financial Reporting... No 92-9, 1992 ———, Committee on Not-for-Profit Organizations, “Audit and Accounting Guide, Not-for-Profit Organizations,” 1996 ———, Health Care Committee, “Health Care Organizations Audit and Accounting Guide, 1996 Anthony, R N., Financial Accounting in Nonbusiness Organizations: An Exploratory Study of Conceptual Issues Financial Accounting Standards Board, Norwalk, CT, 1978 Anthony, R N., and Young,... single set of accounting principles, or to have all types of governmental entities do so This matter was resolved by conferring on GASB jurisdiction over all governmental entities 33.3 SPECIFIC TYPES OF ORGANIZATIONS In 1993, the Financial Accounting Standards Board issued two new accounting pronouncements, SFAS No 116, Accounting for Contributions Received and Contributions Made, and No 117, Financial. .. 1980 No 6, “Elements of Financial Statements,” 1985 Statements of Financial Accounting Standards: No 93, “Recognition of Depreciation by Not-for-Profit Organizations,” Norwalk, CT, 1987 No 95, “Statement of Cash Flows,” 1987 No 116, Accounting for Contributions Received and Contributions Made,” 1993 No 117, Financial Statements of Not-for-Profit Organizations,” 1993 No 124, Accounting for Certain Investments... Certified Public Accountants, Accounting Standards Division, Accounting for Joint Costs of Informational Materials and Activities of Not-for-Profit Organizations that Include a Fund-Raising Appeal,” Statement of Position No 87-2, 1987 (In process of revision.) ———, Accounting Standards Division, “The Application of the Requirements of Accounting Research Bulletins, Opinions of the Accounting Principles Board,... authoritative pronouncement on accounting principles and reporting practices for colleges and universities With the issuance of FASB Statement Nos 116 and 117, some of the accounting and reporting rules for colleges and universities have changed, as discussed elsewhere in this chapter (i) Fund Accounting Fund accounting is a prominent element of college and university accounting Colleges and universities... Larkin, R F., Accounting, ” Chapter 31 of The Nonprofit Management Handbook—Operating Policies and Procedures New York, John Wiley & Sons, 1993; and 1994 Supplement ———, Accounting Issues Relating to Fundraising,” Chapter 2 of Financial Practices for Effective Fundraising San Francisco, Jossey-Bass, Inc., 1994 National Association of College and University Business Officers, Financial Accounting and... following the example in the Statement, is illustrated in Exhibit 33.4 (m) GOVERNMENTAL VERSUS NONGOVERNMENTAL ACCOUNTING In 1989, the Financial Accounting Foundation, overseer of the FASB and its counterpart in the governmental sector, the GASB (see discussion in Chapter 32, “State and Local Government Accounting ) resolved the question of the jurisdiction of each body A question related to several types... Interpretations of the Financial Accounting Standards Board to Not-for-Profit Organizations,” Statement of Position No 94-2, 1994 ———, Accounting Standards Division, “Reporting of Related Entities by Not-for-Profit Organizations,” Statement of Position No 94-3, 1994 ———, Auditing Standards Division, “Compliance Auditing Considerations in Audits of Governmental Entities and Recipients of Governmental Financial Assistance,”... 1993 No 124, Accounting for Certain Investments Held by Not-for-Profit Organizations,” 1995 FASB Interpretation No 42, Accounting for Transfers of Assets in Which a Not-for-Profit Organization Is Granted Variance Power,” 1996 Gross, Larkin, Bruttomesso, and McNally, Financial and Accounting Guide for Not-for-Profit Organizations, 5th ed New York, John Wiley & Sons, 1995 Holder, W W., The Not-for-Profit . 1, 466 Rent 19,000 3,000 6, 800 5 ,60 0 15,400 3,000 60 0 3 ,60 0 Telephone 5 ,61 5 895 400 1,953 3,248 2,151 2 16 2, 367 Outside art 14, 865 3, 165 11,700 — 14, 865 — — — Local travel 1,741 — 165 915 1,080 66 1 — 66 1 Conferences. 33,5 16) 33,5 16 Fund raising 5, 969 ) 5, 969 Total supporting services 39,485) 39,485 Total expenses 391 ,66 7) 391 ,66 7 Excess (deficit) of revenues over expenses 114,555) 12,2 36) 34,525 161 ,3 16 Other. payable $0 54,181 $ 0 54,181 ) $ 0 25,599 ) Deferred income 2,5 16 2,5 16 ) 2,333 ) Total current liabilities 56, 697 56, 697 ) 27,932 ) Net assets: Unrestricted 135,5 16 $ 0 93 ,67 0 ) 229,1 86 ) 124 ,63 1 ) Temporarily restricted $18,151 18,151 ) 5,915 ) Permanently