AICPA Guide Chapter-by-Chapter: Chapter 7 — Other Assets

As a member of the task force that drove the overhaul of the recently-released AICPA Not-for-Profit Entities Audit and Accounting Guide, I am providing weekly, chapter-by-chapter summaries to help users preview the guide.AICPA guide

Gifts of merchandise inventory for resale and other personal property

In general, donated items have no value unless they can be used internally by the NFP, or for program purposes, or be sold by the NFP.  If recognized, donated items should be measured at fair value, which, according to the Codification definition of fair value, is the estimated selling price of the items.

Sales of inventory or other assets

If part of an NFP’s ongoing major or central operations and activities, sales should be reported separately from, and therefore in addition to, the reporting of the contribution of the inventory items, with a corresponding cost of sales.  As previously noted in Chapter 5, donations of tickets, gift certificates, works of art, and other merchandise contributed for the purpose of being sold at fundraising events are originally recorded at fair value.  When sold, the original contribution amount should be adjusted to reflect the actual amount of the sale.  No gain or loss is recognized.  Other sales resulting from incidental or peripheral transactions should be reported net, similar to gains and losses.

Transactions Typically Reported Gross Less COGS:

  • Items   produced/processed in vocational workshops that are part of the NFP’s mission
  • Items   contributed to the NFP and subsequently sold in its thrift shops that are   operated as part of the NFP’s mission
  • Used cars   contributed and sold  by an NFP that has   a vehicle donation program

Transactions Typically Reported Net:

  • Excess food, medicine, clothing, office equipment, real estate, and cars (if only occasional) received but that are beyond the NFP’s current needs (and  assuming that the transaction is incidental or peripheral)

Prepaid Expenses, Deferred Costs, and Similar Items

Prepaid expenses and deferred costs are typically used up or expire within the normal operating cycle of an entity.  Deferral of costs may be appropriate regardless of whether or not the activity is expected to generate net cash inflows.


  • Production costs relating to upcoming performances or exhibits
  • Catalogues or brochures
  • Fundraising materials and certain advertising costs
  • Internal-use computer software costs

Amortization of prepaid expenses and deferred costs is based on how the economic benefit underlying the asset is used up or lost.

Most Internally Developed Intangible Assets Must Be Expensed When Incurred

Costs of internally developing, maintaining, or restoring intangible assets that are not specifically identifiable, that have indeterminate lives, or that are inherent in a continuing business or nonprofit activity and related to an entity as a whole, should be recognized as an expense when incurred.  This results in many internally developed intangible assets never being recognized as assets.

Collections and Works of Art, Historical Treasures, or Similar Assets

Treatment of collections under generally accepted accounting principles is wide-ranging.  Below are the three options:

  • Capitalize all collection items
  • Capitalize all collection items acquired after a stated date
  • Capitalize no collection items

Capitalization of selected collections or items is precluded.  Readers should refer to paragraphs 7.16 – 7.28 for further information on reporting of collection items.


An NFP recognizes goodwill only when the operations of the acquiree are not expected to be predominately supported by contributions and returns on investments. Goodwill recognized should not be amortized; instead, it should be tested annually for impairment at a level of reporting referred to as a reporting unit.

Implications of FASB’s Proposed Definition of Public Business Entity for Non-Profits

FASB-logoIn a recent article by the Journal of Accountancy, the publication spelled out changes of note in the definition of a “public business entity.” The FASB has proposed a definition for use in future standard setting that would exclude most NFPs from consideration as a public business entity.

The new definition would provide one consistent public business entity definition (versus the current three) for use in U.S. GAAP and would eliminate the public or nonpublic distinction between NFPs in setting future standards. FASB would consider multiple factors in setting each new standard to determine whether some, all or no NFPs would be eligible for alternatives within GAAP for private companies. NFPs and employee benefit plans that fall within the scope of ASC Topics 960 through 965 would be specifically excluded from the definition of public business entity.

However, this could create issues for a non-profit that has conduit debt. If the proposal is accepted as-is, those organizations with conduit debt would then have to follow public company guidance for previously issued standards and private company guidance for any standards created after the new definition takes effect.

If you anticipate this change to create challenges for your organization, take note that the comment deadline for this proposal is September 20, 2013.

You can view the entire document of proposed changes, which also discusses alignment with IFRS, here.