Meeting the New FASB Standards

By Bruce W. Bechtold, M.B.A. and Sharon L. Worley, C.P.A.

If you are with a non-profit organization, you will soon be required to record the value of volunteer service on your corporate financial statements. The Financial Accounting Standards Board (FASB) recently issued two new standards which must be followed by accountants in preparing financial statements for nonprofits, FASB Standard No. 116 & 117. FASB Standard No. 116 covers the specifics for recording the value of volunteer service.

Not all volunteer service meets the requirements of FASB 116. If you have volunteers providing a service that requires certain skills and qualifications, and the volunteers providing the service have those skills and qualifications, then the value of their time may have to be recorded on your organization's financial statements.

Volunteer service is usually not recognized in the financial statements of nonprofit organizations, but the new rules will require such contributed services to be accounted for as income and expenses on an organization's financial statements according to specific criteria.

Currently the standards for recording volunteer service are vague. The Financial Accounting Standards Board is trying to bring some clarity and consistency to recording the value of volunteer service on the financial statements of nonprofit organizations.

FASB No. 116 requires that contributed services be recognized as support if either of the following criteria are being met:

1. The service provided by a volunteer either creates or enhances a nonfinancial asset (nonfinancial assets include such things as buildings and equipment).

2. The service requires specialized skills; the service is provided by individuals with those skills; AND the services would typically need to be purchased if not provided by volunteer donation (examples would include services provided by doctors, lawyers, accountants, teachers, carpenters, and other craftsmen, professionals, or skilled persons in their skilled capacity).

Contributed services that do not meet either of these criteria are not permitted to be recognized on the financial statements except as a footnote. Though organizations are encouraged to disclose (as a note) the existence and value of unrecognized volunteer service time (unrecognized by accounting standards, not by volunteer director standards!).

If you have volunteers that do meet these criteria, you must not only report their time, but the value of that contributed time. How do you value volunteer service? You should use the market value of those contributed services. Try to avoid using minimum or median wage as those figures undervalue most volunteer roles. You may want to meet with a Human Resource professional in your organization or community to determine the going market value of the services that are provided to your organization. In putting a value on volunteer jobs, you want that value to reflect what that service would cost if it was being purchased, either as a service or hourly wage. If you are basing your volunteer job value on a wage comparison, don't forget to include in that figure the costs of fringe benefits. Employees cost an organization more than their gross wages.

FASB No. 116 will take effect for fiscal years beginning after December 15, 1994. Nonprofits with less than $5,000,000 in assets and $1,000,000 in expenses have until December 15, 1995 to implement the statements. Your organization can put volunteer service on its financial statements sooner.

Are you equipped to meet this new reporting requirement? Do you have your volunteer information computerized? Don't wait until the gathering of this required information becomes a problem. Be prepared to manage these new volunteer reporting statistics. Talk to your administration about computerizing your volunteer records. Getting software that will meet your needs today and in the future will greatly enhance your volunteer program.

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Meeting the New FASB Standards By Bruce W. Bechtold, M.B.A. and Sharon L. Worley, C.P.A.

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