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Not-for-Profit Guidance in Effect: Services Received from Personnel of an Affiliate

The Financial Accounting Standards Board (FASB) has issued Accounting Standards Update (ASU) 2013-06 Not-for-Profit Entities. ASU 2013-06 provides guidance for not-for-profit entities receiving services from the personnel of an affiliate. The ASU is aimed at reducing the diversity in practice surrounding the recognition of services provided by an affiliate and received by a not-for-profit entity. An affiliate is defined as “a party that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with an entity.”

In some cases, an affiliate charges the recipient not-for-profit entity for the services received. In this case, ASU 2013-06 is not applicable, provided that the services received are charged by the affiliate for at least the approximate amount of the direct personnel costs or approximate fair value of the services provided.

The ASU is applicable when the not-for-profit entity is not charged for the services provided by the affiliate entity. Previously, many not-for-profits had recognized contribution revenue and expense for all services received. Others had recognized contribution revenue and expense under the guidance for contributed services. However, using the contributed services guidance would limit the services recognized to only those that require specialized skills or enhance nonfinancial assets. Furthermore, certain not-for-profits had also elected not to recognize any revenue or expense for the services from the affiliate.

The amendments in ASU 2013-06 now require a recipient not-for-profit entity to recognize all services received from personnel of an affiliate that directly benefit the recipient not-for-profit entity. Services will be measured at the cost recognized by the affiliate for the personnel providing these services. If recognizing the personnel services at cost will significantly overstate or understate the value of the service, the ASU permits the recipient not-for-profit entity to also recognize the fair value of the services. ASU 2013-06 is effective prospectively for fiscal years beginning after June 15, 2014, and interim and annual periods thereafter.

To learn more, visit FASB’s Accounting Standards Updates Issued page offering full text access to all Updates, including ASU 2013-06.