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From an Expert: Nonprofit Accounting – Services Received from Personnel of an Affiliate

It is common for affiliated nonprofit organizations to share personnel services. The Financial Accounting Standards Board (FASB) believes nonprofit organizations that benefit from unreimbursed personnel services are utilizing differing approaches to account for these services. Therefore, the FASB issued an Accounting Standards Update (ASU) 2013-06 to provide guidance about recognizing and measuring personnel services received from an affiliate.

The ASU requires a recipient nonprofit organization to recognize revenue for all unreimbursed personnel services provided by an affiliate. The revenue recognized should reflect the cost to the affiliate and, at a minimum, should include compensation and payroll-related fringe benefits. However, if measuring the service received from personnel of an affiliate at cost will significantly overstate or understate the value received, the recipient nonprofit organization may elect to recognize the service received at fair value.

To illustrate, assume Nonprofit R (the recipient) and Nonprofit P (the provider) are affiliates under ASU 2013-06. Nonprofit P assigns John to Nonprofit R for calendar year 2016. Nonprofit P pays $50,000 in salaries and fringe benefits for John?s calendar year employment. The new accounting standard will require Nonprofit R to recognize $50,000 in contributed services revenue in its 2016 financial statements for the services provided by John.  Nonprofit R would also recognize an expense of the same amount. The classification of the expense would be determined by the nature of services provided by John to the recipient organization.

The ASU does not mandate how the recipient organization should report the increase in net assets associated with the recording the unreimbursed personnel services. Most recipient nonprofit organizations will recognize the increase in net assets as contribution revenue. ASU 2013-06 is effective for fiscal years beginning after June 15, 2014 (for most organizations, fiscal years ending on or after June 30, 2015), and interim and annual periods thereafter, with early adoption permitted. An organization may adopt ASU 2013-06 prospectively, or by using a modified retrospective approach in which all prior periods are adjusted to reflect the new requirements but no adjustment is made to the beginning balance of net assets of the earliest period presented.

For more information, please contact a nonprofit committee expert at 804-282-6000 (Richmond) or 804-733-5566 (Tri-Cities). You can also visit our website mwcpa.com.


Lea S. Rasmussen, CPA, Senior Manager

Lea Rasmussen joined Mitchell Wiggins & Company in 2004 and provides audit and tax services to a variety of industries and clients. She also works closely with nonprofit clients on accounting and tax issues as well as assisting them through the audit process. Lea serves on the firm?s Accounting and Auditing Committee.

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