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1.4 Primary sources of accounting guidance for NFPs
Publication date: 27 May 2020
us NFP guide
NFP-specific accounting and reporting guidance is contained in ASC 958, Not-for-profit entities, and certain subsections of ASC 954, Health care entities. In addition, NFPs must apply guidance in all other FASB Codification Topics and subtopics unless the scope of any individual section explicitly excludes NFPs or the nature of the subject matter would not apply to NFPs (for example, ASC 718, Stock Compensation).
The nonauthoritative AICPA audit and accounting guides discussed in NP 1.4.2 provide helpful background, commentary, and context on the codification’s guidance for NFPs.
1.4.1 Authoritative US GAAP for NFPs
1.4.1.1 ASC 958, Not-for-profit entities
The guidance in ASC 958 applies to all nongovernmental entities that meet the definition of an NFP, as discussed at NP 1.2.1.
As a rule, the FASB has taken a differences-based approach when developing specialized accounting and reporting guidance for NFPs. That is, the guidance developed for NFPs is based on the guidance applied by business entities unless departures are justified by characteristics or transactions unique to NFPs. As can be seen in Figure NP 1-4, while some subtopics within ASC 958 provide core guidance that is unique to NFPs, most subtopics are incremental to the general codification. The incremental guidance is divided into subtopics that mirror the general topic structure and follows the same numbering conventions. For example, ASC 810 contains general guidance on consolidation matters, whereas ASC 958-810 contains incremental specialized NFP consolidation guidance.
Figure NP 1-4
ASC 958’s subtopics
ASC 958’s subtopics
Core guidance unique to NFPs |
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Incremental guidance for NFPs
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1.4.1.2 NFP subsections of ASC 954, Health care entities
The scope of ASC 954, Health Care Entities, is described by ASC 954-10-15-1A and ASC 954-10-05-2. It includes “business-oriented” NFPs whose principal operations consist of providing or agreeing to provide health care services.
The Health Care Entities Topic applies to health care entities, which are the following types of entities:
- Entities whose principal operations consist of providing or agreeing to provide health care services and that derive all or almost all of their revenues from the sale of goods or services
- Entities whose primary activities are the planning, organization, and oversight of such entities, such as parent or holding companies of health care providers
Within the Health Care Entities Topic, health care entities usually can be classified into the following categories on the basis of their operating characteristics:
- Investor-owned health care entities. These are owned by investors or others with a private equity interest and provide goods or services with the objective of making a profit
- Not-for-profit business-oriented entities. These are characterized by no ownership interests and essentially are self-sustaining from fees charged for goods and services. The fees charged by such entities generally are intended to help the entity maintain its self-sustaining status rather than to maximize profits for the owner's benefit. Such entities often are exempt from federal income taxes and may receive contributions of relatively small amounts from resource providers that do not expect commensurate or proportionate pecuniary return.
“Business-oriented” means that the NFP’s primary source of revenues is fees from the sale of goods and services, consistent with the investor-owned health care organizations (HCOs) that are also within the scope of ASC 954. For these NFPs, the amount of contributions received (if any) is relatively small in comparison to the revenues generated from the sale of goods or services. These characteristics distinguish the NFP HCOs within the scope of ASC 954 from NFP HCOs that are primarily supported by gifts and grants (for example, certain research hospitals). The latter are exclusively within the scope of ASC 958 and, if primarily supported by contributions from the general public, are considered voluntary health and welfare entities, as defined in the ASC Master Glossary.
Unless otherwise indicated, the guidance in ASC 958 applies to NFP HCOs within the scope of ASC 954. In areas where the FASB has established accounting or reporting guidance that is unique to NFP organizations, business-oriented NFP HCOs should first look to the guidance in ASC 958, and then consider whether ASC 954 provides incremental guidance.
The incremental guidance within ASC 954 tailors the model in ASC 958 to more closely resemble the accounting and reporting used by investor-owned HCOs. As discussed in NP 1.5.2, this “tailoring” relates primarily to the earnings measure (performance indicator) that is required for NFP HCOs but not for other NFPs. Figure NP 1-5 shows ASC 954’s subtopics that are applicable to NFP HCOs, including those that contain this tailored guidance.
Figure NP 1-5
ASC 954’s subtopics applicable to NFPs
ASC 954’s subtopics applicable to NFPs
954-10 Overall
954-205 Presentation of financial statements
954-210 Balance sheet
954-220 Income statement – comprehensive income
954-310 Receivables
954-320 Investments – debt and equity securities
954-325 Investments – other
954-340 Other assets and deferred costs
954-360 Property, plant and equipment
954-405 Liabilities
954-440 Commitments
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1.4.1.3 Other industry-specific ASC Topics
An NFP that carries out activities addressed in other industry-specific topics of the codification should apply that industry-specific guidance. For example, an NFP public broadcasting television station should apply the guidance in ASC 920, Broadcasters, to its transactions and activities that are unique to the broadcasting industry; similarly, an NFP insurance entity should apply ASC 944, Financial services – insurance, to its insurance activities. If aspects of the ASC 958’s financial statement presentation model discussed in NP 1.5 conflict with financial statement presentation guidance in an industry topic, ASC 958 should be applied. However, because of the inherent flexibility afforded by the NFP financial reporting model, it is likely that many of the industry-specific financial reporting conventions can be accommodated within the parameters of the NFP reporting model.
1.4.2 AICPA audit and accounting guides
For many years, the AICPA’s audit and accounting guides Not-for-Profit Entities (AAG-NFP) and Health Care Entities (AAG-HCO) were the primary sources of industry-specific accounting guidance for those entities. When the FASB codification became the single source of authoritative GAAP for nongovernmental entities in 2009, authoritative guidance contained in AAG-NFP was codified in ASC 958, together with all of the not-for-profit standards previously issued by the FASB. Similarly, the healthcare accounting principles established by the AICPA in AAG-HCO became the basis for ASC 954.
Although no longer considered authoritative from a GAAP perspective, the AICPA guides provide background, commentary, and context on a wide array of transactions that are unique to or prevalent among NFPs and NFP HCOs, and they help preparers better understand the industry-specific accounting requirements set forth in the codification. In certain areas, they provide non-authoritative views of the AICPA’s Financial Reporting Executive Committee (FinREC) as “best practices” in areas where the codification is silent.
The guidance in AAG-NFP is directed towards nongovernmental NFPs except those within the scope of AAG-HCO. AAG-HCO applies to all entities—investor-owned, not-for-profit, or governmental—whose principal operations provide health care services to individuals.
Frequently, an NFP within the scope of one guide will have a subsidiary of the type described within another guide. For example, a university or medical school within the scope of AAG-NFP might have a subsidiary hospital, or a hospital within the scope of AAG-HCO might have a consolidated fund-raising foundation. When preparing standalone financial statements for the subsidiary, the applicable guide is the one aligned with the subsidiary’s operations. To the extent there are measurement or accounting differences, the specialized industry principles applied by the subsidiary are typically retained in consolidation in accordance with ASC 810-10-25-15 (see NP 5).
If an organization has health care as a component of a larger more diversified organization (for example, a hospital as part of a university), per AAG-HCO 1.05, FinREC believes that the recognition and measurement guidance contained in AAG-HCO for those unique transactions would be applicable and that professional judgment should be exercised in making those determinations.
1.4.3 AICPA Technical Questions and Answers (TQAs)
The AICPA provides a Technical Hotline service to its members. Selected questions received by the Hotline and other sources within the AICPA, along with responses prepared by AICPA staff, are organized by topic/industry in the AICPA publication Technical Questions and Answers (TQA). Section 6140 contains TQAs related to AAG-NFP. Section 6400 contains TQAs specific to AAG-HCO. Section 7100 contains TQAs applicable to conduit bond obligors.
Although TQAs are non-authoritative, accounting TQAs are reviewed by FinREC and the FASB staff prior to publication, and the AICPA staff believe they are useful and relevant for users of the AICPA guides.
* Contains tailored guidance related to NFP reporting model
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