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9.2 Principal sources of NFP-specific GAAP
Publication date: 27 May 2020
us NFP guide
ASC 958 contains extensive NFP-specific guidance on accounting for investments. In certain respects, this guidance differs significantly from the guidance applied by most business entities. This is due in part to NFPs’ use of a single, voting interest model for assessing consolidation of related entities (i.e., NFPs are not subject to the variable interest entity guidance in ASC 810), and due partly to specialized guidance developed for donor-restricted endowment funds (i.e., donor gifts that require investment in perpetuity).
This section provides brief summaries of the investment accounting subsections within ASC 958-810 and ASC 954-810.
9.2.1 Consolidation and equity method for equity interests
ASC 810-10, Consolidation, describes two models used to evaluate relationships for consolidation: the voting interest entity (VOE) model and the variable interest entity (VIE) model. The variable interest entity model is described in the VIE subsections of ASC 810-10, and the voting interest model is described in the “general” subsections.
NFPs apply only the voting-interest model (that is, a model based on voting rights) and, therefore, disregard the guidance in the VIE subsections of ASC 810-10 (see CG 2.3.1). In addition, significant adjustments are required when applying the VOE guidance in the general subsections of ASC 810-10 to NFPs, summarized as follows:
- For business entities, the VOE model described in the general subsections of ASC 810-10 applies only if the VIE model cannot be applied. Said differently, when evaluating consolidation, business entities first consider whether the variable interest model applies and if it does not, they apply the voting interest model. NFPs, on the other hand, disregard any provisions that reference the need to first consider the VIE model.
- NFPs evaluate consolidation of limited partnerships using NFP-specific requirements in ASC 958-810, rather than the VOE guidance in the general subsections of ASC 810-10. Therefore, NFPs apply the guidance in the general subsections of ASC 810-10 only when evaluating potential consolidation of entities other than limited partnerships. References to limited partnerships in the general subsections of ASC 810-10 generally are disregarded, with limited exceptions described in NP 9.8.
These NFP-specific variations of the consolidation guidance are housed in incremental guidance in ASC 958-810, Not-for-profit entities—consolidation, and ASC 954-810, Health care entities—consolidation. The nucleus of this guidance is ASC 958-810-15-4 (and for NFP HCOs, ASC 954-810-15-3) and a companion flow chart in ASC 958-810-55-4, which directs NFPs to appropriate sections of the codification that address consolidation and application of the equity method in various ownership scenarios.
ASC 958-810 also contains an NFP-specific option for electing fair value measurement of certain investments that is widely applied by NFPs other than NFP HCOs, which are not permitted to apply it. This option, often referred to as the portfolio-wide fair value option, facilitates the reporting and administration of investment portfolios for which a total-return investing strategy is used. NP 9.3 explains the portfolio-wide fair value option and the types of investments that are within its scope.
9.2.2 Investments in equity interests
ASC 321, Investments – equity securities, addresses the accounting and reporting for ownership interests in other entities that are not required to be consolidated or reported using the equity method. Equity interests that are not securities (such as investments in partnerships, unincorporated joint ventures, and limited liability companies) are also within its scope and are accounted for as if they were equity securities. The accounting requirements are described in NP 9.7.3.
ASC 958-321, Not-for-profit entities – equity securities, provides incremental NFP-specific guidance regarding:
- equity interests acquired by gift,
- reporting measurement changes under NFP financial reporting requirements, and
- equity interests held in an agency capacity.
9.2.3 Other investments
ASC 958-325 and ASC 954-325 provide guidance on accounting for investments in nonfinancial assets such as real estate, oil and gas interests, or intangible assets when those assets are acquired for purposes of earning investment return. They do not apply to similar assets acquired in connection with carrying out the NFP’s activities, such as financing receivables, programmatic loans (as described in chapter 8 of AAG-NFP) or real estate held within PP&E.
For NFP HCOs, ASC 954-325-35-1 requires subsequent reporting of investments in nonfinancial assets at amortized cost subject to impairment considerations for PP&E, consistent with those in ASC 360-10, Property, plant, and equipment.
For NFPs other than HCOs, measurement of nonfinancial investments that GAAP does not require to be measured at fair value is based on the portfolio-wide accounting policy selected for reporting investments, as explained in NP 9.3. The method selected (carrying value or fair value) must be consistently applied to all alternative investments within a portfolio. ASC 958-325 carries forward guidance from legacy AICPA guidance for different subsets of NFPs, with applicable amendments by subsequent FASB standards.
Figure NP 9-1 summarizes the guidance for various subsets of NFPs.
Figure NP 9-1
ASC 958-325-35 subsequent measurement guidance for investments in nonfinancial assets
ASC 958-325-35 subsequent measurement guidance for investments in nonfinancial assets
NFP subset
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ASC 958-325
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Portfolio-wide measurement options
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Impairment evaluation guidance for cost-based option
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1 Investments in wasting assets are usually reported net of an allowance for depreciation or depletion.
9.2.4 Debt securities
NFPs apply guidance in ASC 958-320, Not-for-profit entities—investments—debt securities, instead of the guidance in ASC 320. ASC 958-320 addresses the accounting and reporting for all investments in debt securities held by NFPs. The scope and definitions are consistent with the guidance for business entities in ASC 320; however, significant differences from the ASC 320 model include:
- NFPs (other than HCOs) are not required to classify debt securities into categories (i.e., trading, available-for-sale, held-to-maturity), and
- all debt securities are carried at fair value; NFPs cannot use amortized cost.
For NFP HCOs, incremental guidance in ASC 954-320 tailors the guidance in ASC 958-320 to describe how debt securities would be classified using “trading” and “other than trading” (i.e., available-for-sale) categories. Other NFPs that desire to more closely parallel business entity reporting may voluntarily classify debt securities into categories using the NFP HCO classification parameters.
NFP HCOs (and other NFPs that voluntarily classify debt securities into categories) should look to ASC 320-10-15-4 for guidance on evaluating impairment.
Paragraphs 320-10-35-17 through 35-34 provide guidance on identifying and accounting for impairment of certain securities and identify the scope application of that guidance to not-for-profit entities (NFPs). No other part of this Topic applies to NFPs. Subtopic 958-320 establishes standards for investments in debt securities by NFPs.
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