Discussed at the 2014 AICPA NonProfit Conference – Combinations of NonProfit entities

According to the National Center for Charitable Statistics (NCCS), more than 1.5 million nonprofit organizations are registered in the United States.  No wonder that a topic discussed this week during the 2014 National NonProfit Industry Conference was how nonprofit organizations can come together to share resources and increase effectiveness.  Discussed were such diverse ideas as mergers, acquisitions and collaborative arrangements.

In a merger, two or more nonprofit entities come together and create a new entity.  Because this is truly a combination of entities, with none of the entities considered the “survivor” of the transactions, the assets and liabilities from the separate entities are combined as of the merger date.  No goodwill or intangibles are recognized as a result of this transaction.  In addition, accounting policies of the entities need to be conformed into the new entity.

To contrast, an acquisition between entities leaves one of the original entities in control.  If the acquiring entity determines that the operations of the acquiree are expected to be predominantly supported by contributions and return on investments, any excess of value in the transaction is recorded as a contribution.  No change is made to accounting policies as all policies are conformed to those of the acquirer.

A third type of transaction is a collaborative arrangement, which is a contractual arrangement that involves a joint operating activity between two or more nonprofits who are all active participants in the activity and thus are exposed to significant risks and rewards dependent on the commercial success of the activity.  In this situation, no new entity is formed, and each participating nonprofit reports costs incurred and revenue generated from transactions on a gross basis.

If you are contemplating a combining transaction with another nonprofit, please contact an Eide Bailly professional for more information.

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