Measurement of Fair Value for Certain Transactions of Not-for-Profit Entities

Not-for-profit entities (NFPs) face various challenges in applying the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurement, which codifies FASB Statement No. 157, Fair Value Measurements.

To assist practitioners, the AICPA has issued a whitepaper, Measurement of Fair Value for Certain Transactions of Not-for-Profit Entities. The whitepaper discusses fair value measurement for the following types of transactions:

  • Unconditional promises to give cash or other financial assets
  • Beneficial interests in trusts
  • Split interest agreements

Many of the challenges that NFPs encounter result from the fact that markets do not exist for these assets and liabilities. The white paper addresses, among other things, the following:

  • Valuation approaches and techniques, including variations of the income approach using probability-weighted cash flows or a single set of cash flows model that uses a risk-adjusted discount rate
  • Considerations for determining an appropriate valuation technique based on facts and circumstances, as well as considerations for the related inputs to the valuation model
  • Determination of an appropriate discount rate when using present value techniques
  • Use of market inputs when valuing split-interest obligations, including use of actuarial data and prices for annuity contracts
  • The unit-of-account for unconditional promises to give that are expected to be collected in one year or more and for beneficial interests in a trust
  • Disclosure considerations
Also, the AICPA Governmental Audit Quality Center (GAQC) held a Web event, Challenges with Fair Value Measurements for Not-for-Profits, that discusses the white paper and the underlying concepts covered in the paper. This Web event has been archived on the GAQC Web site and is open to the public.