Recording Services From An Affiliated Entity
Recording Services From An Affiliated Entity
Currently, some NFPs do not record any affiliate personnel services provided to them in their financial statements if they are not billed for them. Others only include the unbilled services if they meet the criteria for recording donated services, that is the services create or enhance nonfinancial assets or required specialized skills and are provided by individuals possessing those skills and would typically need to be purchased if they are not provided by the affiliate. Other NFPs recognize all contributed services and the related assets and expenses that are paid by the affiliate.
ASU 2013-06 resolves the diversity in practice by requiring all NFP entities that are recipients of unbilled personnel services provided by an affiliate to record those services in their financial statements.
The important requirements of ASU 2013-06 are as follows:
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- This issue applies to services received from personnel of any affiliate that directly benefits the recipient NFP;
- A recipient NFP should recognize all services received from personnel of an affiliate that directly benefits the recipient NFP and for which the affiliate does not charge the recipient NFP;
- The services recorded are to be measured at the cost recognized by the affiliate providing the service unless such measurement significantly overstates or understates the value of the services. In such cases the NFP entity can recognize the value of the services provided based on either the affiliate’s cost or the fair value of the services;
- Healthcare entities that are the recipient of such services and who report a performance indicator in their financial statements will record the increase in net assets associated with the provision of such services as an equity transfer while the decrease in net assets associated with the services is recorded by all NFPs as an expense.
The ASU is effective prospectively for fiscal years beginning after June 15, 2014 and interim and annual periods thereafter. Recipient NFPs may apply the ASU on a modified retrospective basis whereby they present all prior periods presented, as of the date of adoption, without changing the opening balance in net assets for the earliest period presented. Early adoption of the ASU is permitted.
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