Reporting on a Functional Basis

Associations and professional societies can exist only so long as their membership is convinced that the services being rendered justify the dues and other payments being made. The members must see a benefit for their money. This means an association has a real need to communicate with its members. Functional reporting is one of the most effective ways of communicating since it requires the board to identify the association's programs and then to report the cost of each of these programs.

Although GAAP permits the detail of expenses by function to be reported in a footnote (with the primary financial statement showing expenses by natural classification), the authors prefer not-for-profit organizations to present the functional expenses in the primary financial statement where they will be more readily noticed by readers. Information by natural classification (salaries, rent, travel, etc.) can be shown in a footnote if desired.

Reporting of Sections or Groups

Many national and regional professional societies establish separate sections, groups, chapters, or other forms of local units which operate within certain geographical regions or within certain disciplines. These units often operate more or less autonomously, although they are legally part of the main organization. The board of directors of the main organization usually has final legal responsibility for both their activities and their financial affairs. The question is often asked: Should the financial affairs of these sections and groups be reported on a combined basis with those of the main organization? Generally, such combination would not be required.

The most typical situation for associations and professional societies is when the section or group receives part of its funds from the national organization as a dues rebate and part from local assessments and fees for local events. Alternatively, the local organization may collect and process members’ entire dues payments, and remit a portion up to the national organization. While technically the board of the national organization may have final legal responsibility with respect to this local section, the financial interrelationship is usually not analogous to that contemplated in GAAP as warranting consolidated financial statements. Accordingly, combination is not normally required.

Some organizations are structured so that all of the activities of the local organization are financed entirely by the national organization, and on the surface it might appear that the financial interrelationship is such that combination is appropriate. Here is where the element of control becomes critical. If the local section is totally under the control of the national organization, with its activities totally dependent on specific direction from the national organization, and if the activities being performed are a delegated function of the national organization, then—and only then—would combination be required.

Before combination is required, therefore, the national organization must control and provide support to the local unit, and the local activities must be the responsibility of the national organization. Most local sections have their own boards, with considerable flexibility as to program activities and emphasis, and the authors would expect that in most cases combination would not be required.

Nevertheless, there are some advantages of preparing combined financial statements, at least for internal use. Many associations have substantial activity at the local level and a reader can see the total picture only by looking at combined statements.

The major problem with preparing combined financial statements relates to the cost and difficulties of getting the local units to prepare financial statements on a uniform and timely basis. But the association anxious to present a comprehensive view of its activities should consider combined financial statements. One way to do this is to present the combined statements as an exhibit to the primary statements that show only the parent organization.

Use of Appropriation Accounting

For internal budgetary purposes, associations and professional societies often follow appropriation accounting techniques under which an expense is recorded at the time purchase orders are issued for goods or services to be received in future periods. This is not an acceptable method of accounting for external financial reporting purposes.

Some associations and professional societies incorrectly use the term “appropriation” when they really mean “expense.” The use of the term “appropriation” is easily misunderstood and should be avoided.

Separate Charitable Organizations

Most associations are organized as noncharitable, tax-exempt organizations, usually under Section 501(c)(6) of the Internal Revenue Code. As such, contributions received are not tax deductible by the donor (although dues may be deductible as a business expense). Often, an association will set up a second, separate “501(c)(3)” organization that is charitable in nature and can receive tax-deductible contributions. This charitable organization must then carefully conduct its affairs so that all of its activities are for purposes which qualify as charitable or educational. Usually, the boards of both organizations are substantially the same, and both organizations may occupy the same quarters (with appropriate interorganization expense charges).

The reporting question is: Should the financial statements of the two organizations be combined? The answer is almost always “yes” because the distinction between the two organizations is basically a legal and tax distinction, and effectively the combination of the two organizations is what most members think of when the association's name is mentioned. In fact, members will often be unaware that the second organization is a legally separate entity. Members have a right to see the total financial picture of both organizations.

There are two ways to present the financial affairs in such circumstances. The most common is to use columnar statements with a separate column for each organization, with a total or consolidated column. The other approach is to combine the two organizations and present only the combined figures, disclosing the existence of the charitable organization in the footnotes. Either is acceptable, although the authors believe the second approach will usually provide adequate disclosure and be more readily understood.

Cash Basis Accounting

Most churches keep their accounting records on a cash or modified cash basis of accounting, mainly for ease of recordkeeping. This is usually appropriate, at least for interim internal financial statement purposes. However, if there are any material amounts of unrecorded liabilities or assets at the end of the accounting period, these should be reflected on the financial statements. The key word is “material.”

It is not suggested, for example, that uncollected dividends or interest on investments be recorded where such amounts are not, in the aggregate, significant. Perhaps the easiest way to determine whether accruals are needed is to ask whether the board might make different decisions about the governance or management of the organization if it saw financial statements in which all accruals were reported. If the answer is “yes,” then they are material and should be recorded.

Many churches will continue to present cash-basis reports, and there is no reason to change as long as the board recognizes the limitation of this type of reporting. If this is done, we recommend disclosing in a footnote the major items of unrecorded assets and liabilities at year-end. At the same time, it is important to recognize that if the financial statements of the church are audited, the independent accountant will not be able to say that the financial statements have been prepared in accordance with generally accepted accounting principles if they are prepared on a cash basis (unless, in the accountant's view, unrecorded amounts are immaterial).

Fixed Assets and Depreciation

Fixed asset and depreciation accounting is a difficult area for churches because of the complexity of the bookkeeping. Most churches do not capitalize fixed assets and even fewer follow depreciation accounting practices. Nevertheless, fixed assets should be recorded as assets, and GAAP requires that depreciation accounting be followed.

Adequacy of the Bookkeeping Staff

Another problem is that churches often have bookkeeping difficulties. Typically, the treasurer of a small church will be the person actually keeping the records. The quality of the recordkeeping and financial statements is directly related to that individual's competency and availability of time. Also, treasurers come and go and some are more skilled than others. Thus it is important that the system be kept simple or it is likely to fall apart at some time in the future.

Capital Shares and Initiation Fees

Most clubs charge a fee to new members: an initiation fee, or payment for capital shares, or sometimes a combination of the two. Should such amounts be treated as revenue and reported as part of the excess of revenue over expenses for the period? The answer depends on the nature of the payment.

Capital shares. Clubs are normally the only type of not-for-profit organization which have capital shares representing members’ equity in the organization. Normally clubs provide for redemption of capital shares upon termination of membership, or the right of direct transfer of ownership of the shares to others. Thus, payment for capital shares is not revenue and should be reported as a direct addition to the net assets of the organization. This addition would be shown after a caption “Excess of revenue over expenses,” and before the caption “Change in net assets.” Because these payments are not contributions to the club, they cannot be reported as net assets with donor restrictions. Thus, by default, they must be reported as net assets without donor restrictions, even though they are rather in the nature of additions to the capital of the club. The authors recommend that the amount of net assets without donor restrictions attributable to these capital receipts be shown as a separate component of net assets without donor restrictions on the balance sheet. In the statement of cash flows, these cash flows would be financing cash flows. If a club's capital shares are mandatorily redeemable at the option of the member, then the provisions of GAAP in FASB ASC 480-10 may apply and may require the club to record a liability for the share amount.

Initiation fees. Initiation fees are nonrefundable charges which are usually considered more like a contribution and should be reported as revenue. Most clubs with significant turnover look upon initiation fees as additional, spendable income which should be reported as such. Initiation fees would be reported in the unrestricted class of net assets, unless, as is the practice with some clubs, initiation fees are explicitly understood by members to be restricted for capital acquisitions and improvements. In that case, the fees are considered temporarily restricted.

Alternatively, some argue that initiation fees are similar to capital stock payments, which should be reported as a direct addition to net assets, like contributed capital. They argue that such fees represent the new member's share of equity. Initiation fees should be reported as revenue in the Statement of Activities. In this way, the reader sees all the “revenue” the club receives. Since initiation fees are not refundable, clearly such fees represent revenue to the club, albeit revenue of a different type than regular annual revenue from dues or sale of goods.

Some clubs provide for installment payment of initiation fees over a multiple-year period. A club should report initiation fees as the installment payments are due. It is not appropriate to record the entire initiation fee at the time the member joins the club, since, in most instances, the club would not insist on payment if the member resigns prior to the due date of the subsequent installments.

Fixed Asset Accounting

Clubs having buildings and other major fixed assets should capitalize these assets and follow depreciation accounting practices. This is appropriate since clubs need to know the cost of particular services being rendered to ensure that the pricing structure recovers all costs. Fixed assets wear out and depreciation represents the process of allocating the costs of the assets over their useful lives. To do otherwise is to leave the club management and membership with an inadequate understanding of the costs of providing particular services, with a possible need for a special assessment at the time new fixed assets are purchased. Further, if nonmembers are served by the club, with resulting “unrelated business income,” depreciation is an expense which is deductible when arriving at taxable income.

Unrelated Business Income

Many clubs provide services not only to their membership but to guests of members, and in some instances to the public at large. If unrelated business income becomes sizable, it can jeopardize the club's tax-exempt status, as well as creating taxable income. Accordingly, it is very important that clubs keep track of revenue from nonmembers and applicable expenses. This usually involves a fairly elaborate reporting and bookkeeping system, and most clubs are well advised to get competent advice from a CPA.

Recording a Value for Books

Although there is no explicit requirement one way or the other about library books being recorded as an asset on the financial statements, a strong theoretical argument can be made that they should be recorded and there is no objection to doing so. One way to simplify the recordkeeping process for library books is to use a standard amount as the value of each volume, rather than track the actual cost or fair value of every individual book acquired. Then the only information needed is the number of volumes, which is always known.

When library books are recorded as an asset, depreciation accounting practices are normally appropriate since most books are dated. While it is difficult to establish a composite life for all types of books, a three- to ten-year life is not unreasonable. Depreciation practices should not be followed for a collection of rare books which is likely to maintain its value over a considerable period of time. Rare books that increase in value should continue to be recorded at the value on the original date of acquisition and not written up to a higher value.

Valuing the Collection as an Asset

The most controversial question is whether it is meaningful and practical to include on the balance sheet of a museum or similar organization (zoo, arboretum, library, etc.) a value for its permanent collection. Previous accounting literature left such presentation optional. Practice varies; although most museums do not include such an amount (or use a nominal amount such as one dollar), a significant minority do capitalize their collections or parts of them.

Those who favor such capitalization argue that the collection does meet the definition of an asset (in FASB Concepts Statement 6), and therefore should be presented so as not to omit significant valuable resources from the financial statements.

Those who oppose capitalization, including many in the museum community, make several arguments:

• Any value reported subsequent to initial acquisition has no meaning due to wide fluctuations in the markets for such items and the difficulty of disposing of some types of collection items at all.
• It would be virtually impossible for a museum of any size to perform the appraisal work that would be required to establish an initial value for its collection, if not previously capitalized (some museum collections number in the tens of millions of individual objects), nor to maintain the ongoing records that would result.
• Even if accurate values could be obtained, to include them on the balance sheet would be at best meaningless (because most collections cannot or would not ever be sold, nor do lenders look to collections as security for loans), or at worst detrimental (because financial statement readers would be diverted by the huge collection value from focusing on the real operating assets of the institution).

The FASB initially proposed making capitalization mandatory, including retroactive capitalization of existing collections. Because this position met with so much opposition, the FASB essentially continued the prior optional capitalization standard for collection items which meet certain criteria. For those organizations which do not capitalize, purchased acquisitions would be shown as decreases in net assets, and donated items would not be reported as either increases or decreases in net assets. Certain disclosures about the collection would be required. A full discussion of accounting for collections is contained in Chapter 15.

Fixed Asset Accounting

Except for collections, museums should capitalize and depreciate their fixed assets.

Contributed Facilities

GAAP requires that museums receiving rent-free (or reduced-rent) facilities should reflect the value of such facilities both as a contribution and as an expense. This will be applicable to museums that occupy city-owned buildings, except that in some cases where the building is itself virtually a work of art, it may not be possible to objectively determine a rental value.

Recognition of Expenses

A basic reporting problem for many performing arts organizations is the timing of expense recognition for particular productions that have not, as yet, been performed. Should a theatrical company that has incurred costs for the performance of a new play that will not be opening until the following period report such costs in the current period or should they be deferred until the following period? The general rule is that costs should be deferred so as to match the costs with revenues.

The annual reporting period for most performing arts organizations should conclude shortly after the close of the season, to minimize this kind of issue as well as a good number of bookkeeping problems.

Recognition of Ticket Revenue

A related question is when to recognize ticket revenue: when the tickets are sold or on the date of the performance? Ticket revenue income should be recorded when earned; that is, on the date of the performance. This is particularly important for organizations having advance ticket sales for the following season.

The revenue from sales of “season” tickets and subscriptions should be prorated over the performances covered by the subscription. Sometimes ticket prices for special events such as “opening night” or “gala” performances will be higher than normal and include what is, in effect, an element of contribution. Since the contribution element must be disclosed separately to patrons (for tax-deduction purposes), the organization should record this portion of the ticket price as a contribution.

Recording Costumes and Stage Scenery as Fixed Assets

Does the recording of fixed assets apply to costumes and scenery? In principle, the answer is “yes,” but in practice this is rarely done. The implication in recording a fixed asset is that it does have a future value and that there will be revenue that will absorb the costs of such assets. This is probably fine where a performing arts company has a production that is given season after season; in this instance, the costumes and scenery should be recorded as assets and depreciated over their expected useful life.

However, most performing arts companies do not perform the same production on a regular schedule and effectively the costumes and scenery have assured value only for the initial season. If so, they should be expensed currently.

Financial Statement Presentation

Since contributions are usually an essential part of their income, performing arts organizations should consider a statement format that emphasizes the role these gifts play toward keeping the organization solvent. A recommended format is to show first the loss from operations and then the contribution income. Here, in very abbreviated form, is an example.

Timing of Recording Liability for Grants Awarded to Others

While this is not unique to foundations, it is more of an issue to them than to most organizations. Many times foundations will make a grant award payable in installments, often over several years. Typically, subsequent payments are dependent on satisfactory performance or compliance with the original grant agreement, and, as such, the “liability” for future payments is somewhat “conditional.” The accounting question relates to the timing of recording these grant liabilities and the related expense by the foundation.

Historically, three possible approaches have been taken by foundations. Some have preferred to treat payments to grantee institutions on a “cash” basis. That is, they record future grant obligations as an expense only when they are paid (no liability is ever recorded in this case, as the cash payment coincides with the recording as expense).

The second approach was for the foundation to record both as an expense and as a liability the full commitment at the time the grantee institution is informed of the foundation's intention to make specific payments.

A few foundations recorded both as an expense and as a liability amount which the board of trustees “appropriated” for particular areas of interest (e.g., cancer research). This board action usually occurs before grantees have been selected and is a nonbinding action indicating only where the trustees would like to see the foundation spend its money. Where such “appropriations” are recorded, the foundation effectively treats as an expense the amount which the board has concluded it will spend in a given area in the future. This recording is at the time of appropriation, as distinct from recording at the time the grantee is informed or the grant is awarded.

While sound accounting arguments can be cited for both the first and second approaches and a sound business reason advanced for the last approach, the second approach is more appropriate for private foundations that wish to describe their financial statements as being prepared in accordance with generally accepted accounting principles.

The real problem is determining when a grant is subject only to routine performance requirements and not requiring subsequent review and approval. As noted, most multipayment grant awards contain language that requires certain interim reporting by the grantee and review by the foundation. When do these “routine performance requirements” stop being routine and instead become a basis for reevaluation of the foundation's grant commitment every time it receives a report by the grantee?

There is no easy answer to this question, and it is necessary to examine very carefully the wording in the grant notification document. If, from the terms of that document, it is clear that the foundation has made the decision to make future years’ payments conditional only upon the grantee institution doing what it says it will do, and it is reasonably clear that the grantee has the capacity to do so, then the grant is essentially unconditional and the full amount of future payments should be recorded. On the other hand, if the grant document merely indicates the foundation's general intent to consider favorably future requests, subject to a full review at that time, future payments would be conditional, and would not be recorded until the condition is met. This would not constitute the type of grant obligation which should be reported, since the commitment is contingent on a future decision by the foundation. Footnote disclosure of significant unrecorded amounts should be made.

Perhaps key to this discussion is the phrase “subject only to routine performance.” All foundations reserve the right to revoke unpaid grants if the grantee institution fails to live up to its past performance, to submit routine financial reports of the use of such funds, and the like. Grants made subject to these routine performance requirements would not normally constitute language sufficiently restrictive to avoid the recording of the future grant payments. On the other hand, grants containing language such as the following would not be recorded:

The D. E. Martin Foundation Board of Trustees hereby grants to the Karen J. Sylvestre Home for Battered Women the sum of $100,000 to establish a program for runaway teenage girls in the Detroit area. The staff of the Foundation will review carefully the uses made of this money during the first twelve months, and based on their evaluation of the effectiveness of the program will consider additional annual requests for $100,000 to fund the second and third years’ programs.

It is clear that next year the Foundation will investigate the uses made of the money and will then make a decision as to future support. Yet, on the basis of the Foundation's intent, this organization can plan its program on the assumption that it is likely to get the additional support in the following two years.

On the other hand, wording such as the following would appear to require recording in full:

The D. E. Martin Foundation Board of Trustees hereby grants $300,000 to the Karen J. Sylvestre Home for Battered Women, payable $100,000 by check herewith and additional payments of $100,000 in each of the next two years. The payment of these future amounts is contingent upon receipt by the Foundation of a report by the Home which details the uses made of the monies received in the preceding year, an evaluation of the results of the program, and detailed budgets at the beginning of each program year.

In this instance, it appears fairly clear that the Foundation has committed itself for a three-year period and that it should record the full $300,000 (discounted to present value) both as an expense and as a liability at the time the grant is made. (The recipient would record a corresponding asset and revenue.)

There are many gray-area grants where the answer will not be as clear as in these illustrations. The intent of GAAP is for the foundation to record the grant if, in all likelihood, future payments will be routinely made. However, if the foundation has not made a final judgment on future payments, they should not be recorded. Chapter 9 describes the distinction between a conditional pledge and a restricted pledge. The concept applies equally to the maker of the pledge as well as to the recipient of the pledge.

Rationale. Some question why the obligation should be recorded both as a liability and as an expense in the current year. They point out that foundations derive their revenue primarily from endowment income, and that the future years’ payments should be recorded as an expense at the time the income that will be used to pay the grant obligation is generated.

The reason GAAP takes the approach discussed above is that, historically, such amounts are, in fact, paid and are, therefore, obligations. If a foundation that had committed itself to making future payments were not to record such amounts as an obligation, it would be presenting a rosier financial picture than is, in fact, the case. For example, one use of the financial statements is for the board to be aware of how much money is available for future grants. Amounts already committed, even if to be paid in future years, are clearly not available for new grants.

Community Foundations

Community foundations differ from private foundations mainly in that their source of contributions is the community at large rather than one person or family. This gives rise to certain tax and legal considerations that do not really affect financial accounting or reporting. Thus, all of the accounting and reporting principles discussed here are applicable to community as well as private foundations.

Combined Financial Statements

One of the difficult questions for a religious organization is to determine which entities are so financially interrelated that combined financial statements should be prepared as required by FASB ASC 958-810.

The key to determining when combination would be appropriate rests heavily on the financial interrelationship. There is no requirement for preparing combined financial statements unless substantially all of the funds collected by the secondary unit will be transferred to the reporting organization or used for its benefit. Thus, for example, a diocese would not be required to combine the financial statements of the individual church units within its jurisdiction for purposes of its reporting. While the individual church units may raise funds in the name of the church, such funds will largely be used for local purposes, and only a portion transmitted to the diocese.

Allocations from Other Organizations

Religious organizations frequently receive allocations from affiliated local or regional organizations. Usually the allocation is established by the “parent” organization at the beginning of the fiscal year. An accounting question often arises as to timing of income recognition. Should it be at the beginning of the year when the allocation is determined, at the time it is paid, or pro rata throughout the year?

Unless the amount to be paid by the parent organization qualifies as an unconditional pledge, recognition normally should be on a pro rata basis throughout the year, since it is effectively payment for services which are presumably being rendered throughout the year. Where experience shows that the full allocation or assessment will not be paid, only the amount that can reasonably be expected to be paid should be recorded on this pro rata basis. Unpaid collections at the end of the year must be reviewed for collectibility.

Timing of Recording Contract Revenue

The major question most research and scientific organizations have relates to the timing of recording contract revenue. Contract revenue should be recorded as revenue at the time the contract terms are met. In most instances, this occurs when expenses are incurred that can be charged against the contract.

Some research and scientific organizations receive grants unrestricted as to use to assist the organizations in conducting their programs or meeting their general expenses. Usually these organizations submit budgets to the granting organization indicating the time frame and the type of activities that will be carried out with these unrestricted funds. When such grants are tantamount to a purchase of services by the grantor, recognition of such unrestricted grants should be on a time frame basis; that is, pro rata over the period which the grant specifies. Where the research or scientific organization has submitted a budget to the grantor indicating an uneven use of these unrestricted funds, the grant revenue should be recognized in the time period provided in the submitted budget. If the grant amounts to an unconditional gift to the grantee, it should be recognized like all gifts; that is, immediately upon receipt of the gift or pledge.

The recognition of revenue is independent of the actual receipt of cash under the grant. In some instances, grantors pay the entire grant in advance, and in others, in arrears. When a grant which is a purchase of services is paid in advance, it would be reflected as “deferred grant revenue” on the balance sheet. If it is essentially a contribution, it is recorded as revenue immediately upon receipt. When the grant is paid in arrears, a receivable would be set up at the time of revenue recognition.

Chapter 9 provides additional information on ASU 2018-08 Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made, which assists not-for-profit organizations in determining whether governmental and foundation grants are contributions or whether they are considered revenue contracts with customers and subject to the revenue recognition standards. Most of these types of grants will be considered contributions.

Recording Future Grant Awards

A related question arises as to the appropriateness of recording both as a receivable and as deferred grant revenue the amounts which the organization has been told it will receive for future activities—either restricted or unrestricted. Should an organization reflect large future years’ grants on the balance sheet?

This is a difficult question to answer, but the general answer is “no,” unless the grant amounts to an unconditional pledge, and the organization could enforce payment. If the grant has language in it such that the grantor can change its mind, with or without cause, such future grants are conditional and would not be recorded. On the other hand, where a grantor has made the grant unconditional and it is clear that the only condition is the passage of time, there is justification for recording the grant both as a receivable and revenue. The burden, however, is on showing that the grant is unconditional and could be legally enforced. In many ways, such future grants are similar to “pledges.” Unconditional pledges should be recorded. The same applies to future grants. Note that this accounting principle is the same as that discussed previously for foundations making grants.

Depreciation Accounting

Traditionally, private elementary and secondary schools tended to follow the accounting principles in the College and University Audit Guide, which discouraged reporting depreciation. However, GAAP clearly requires that private schools use depreciation accounting.

Unfortunately, most private elementary and secondary schools had not been following depreciation accounting techniques in the past. In the authors’ opinion, one of the reasons many private schools have run into financial difficulties is that boards of trustees have not been fully aware of the true cost of operating their schools, and accordingly have set their tuition fees too low. Depreciation is a cost, albeit not a cash cost, and should be reported as an expense if financial statements are to accurately reflect the actual costs of a school.

Accounting Manual

The National Association of Independent Schools publishes Business Management for Independent Schools, which should be consulted for further guidance.

Other Accounting Guidance

The Corporation for Public Broadcasting (CPB) has issued an accounting guide for public broadcasting stations. Copies are available from CPB (each station should already have a copy).

Grants Received/Program Underwriting

Questions often arise as to whether a grant received to underwrite a particular program is a contribution or an exchange transaction. Promises to make a contribution may be either unconditional or conditional (“You will receive this grant only if you agree to produce this program,” and the station has not yet decided to produce the program, or production of the program is contingent on the ability of the station to attract enough additional funds to cover the anticipated production costs). Grants may be received from the CPB, other public broadcasting stations, business organizations, foundations, individuals, or governments. Some grants are intended to cover the costs of producing a program; others are simply intended to cover broadcast expenses of an existing program. “Community Service Grants” from the CPB are normally considered unrestricted contributions.

Guidance on the contribution versus exchange question can be found in the AICPA Guide, Chapter 5 and Table 5.1, and in Chapter 9 of this book. The authors would anticipate that most grants to public broadcasters would be considered contributions, except in situations where the grantor retains future rights to control use of the finished program. The advertising value of having the underwriter's name associated with the ultimate broadcast of the program would likely be considered de minimis (as it must be under CPB rules).

Guidance on the conditional versus unconditional question can be found in Chapter 9 of this book. Each grant document must be read carefully to determine its substance.

Donated Services of Volunteers

This subject takes on additional importance in the public broadcasting environment because the matching grant rules of the CPB allow stations to use the value of some volunteer services as part of the required matching amount for CPB grants. The normal rules for contributions apply.

Program Production Costs

Not-for-profit broadcasters should follow the normal industry-oriented guidance in FASB ASC Sections 920 to 926.

Fixed Assets

These should be accounted for in the usual manner. Donated assets, including free or reduced-rent use of facilities and equipment, should be accounted for in accordance with GAAP requirements for contributions.

Member Dues/Pledges

The amount in excess of any significant premium provided to the member is normally equivalent to a contribution, since “members” otherwise receive only very limited benefits (e.g., a program guide).

Oral pledges received during on-the-air fundraising campaigns can qualify for recording if verifiable evidence of the pledge exists. The pledge cards filled out by the persons in the studio who receive the telephone calls would normally be considered adequate evidence to permit recording; however, the auditor must consider whether confirmation of selected unpaid pledges as of year-end would be required to obtain audit satisfaction as to the existence criterion. Since most such pledges are short-term, no discounting would be required, but an adequate allowance for uncollectibles should be established.