New Guidance on Recording Services Received from Affiliated Entities

Yesterday, the Emerging Issues Task Force (EITF) reached a final consensus on EITF Issue 12-B, ReachNot-for-Profit Entities: Services Received from Personnel of an Affiliate for Which the Affiliate Does Not Charge the Recipient NFP. Industry practices around this issue have been diverse, with NFPs recording some, all, or none of the services received from an affiliate. One sticking point giving NFPs pause in their determination of which, if any, services to record has been the language in the Accounting Standards Codification itself.

Paragraph 958-605-25-17 states that contributed services (and the related expenses and/or assets created by those services) should be recognized if employees of separately governed affiliated entities regularly perform services (in other than an advisory capacity) for and under the direction of the donee and the recognition criteria for contributed services as defined by 958-605-25-16 are met. That paragraph states that contributions of services are recognized if they either: (a) create or enhance nonfinancial assets; or (b) require specialized skills, are provided by individuals possessing the skills, and would typically need to be purchased if not provided by donation. Oft-quoted services requiring specialized skills are those provided by accountants, architects, carpenters, doctors, electricians, lawyers, nurses, plumbers, teachers, and other professionals and craftsmen. Services not requiring specialized skills should not be recognized. Paragraph 958-605-30-2 states that contributed services recorded should be measured at fair value.

In order to resolve the diversity in practice in the interpretation and application of the above, a final consensus was reached yesterday, as follows:
• The issue applies to services received from personnel of any affiliate that directly benefit the recipient NFP
• The recipient NFP should recognize all services received from personnel of an affiliate that directly benefit the recipient NFP and for which the affiliate does not charge the recipient NFP
• The services should be measured at cost; however, fair value can be elected if cost significantly overstates or understates fair value (election may be made on a service-by-service basis
• A recipient that is a Health Care (as defined under Topic 954, Health Care Entities) that provides a performance indicator analogous to income from continuing operations of a for-profit entity should report the increase in net assets associated with the services received as an equity transfer
• No additional recurring disclosures are required

This final consensus will be considered for ratification by FASB at its March 29 meeting. If ratified, the guidance will be released in a future Accounting Standards Update and will be effective for fiscal years beginning after June 15, 2014, with early adoption permitted. The guidance is to be applied prospectively, with an option to apply it using a modified retrospective approach wherein all prior periods presented would be restated, but not the beginning net asset balances of the earliest period presented.

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