ASC 320-958
Not-for-Profit Entities
320 Investments—Debt Securities
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This Subtopic (codified as 958-320) governs how not-for-profit entities account for investments in debt securities and sets disclosure rules for most NFP investments. The core rule is simple and different from the business-entity model: all debt securities held by an NFP are carried at fair value in the statement of financial position, with no held-to-maturity, trading, or available-for-sale classification. Purchased securities are initially measured at acquisition cost (excluding brokerage and other transaction fees); contributed securities and those received in agency transactions are initially measured at fair value.
Key points (7)
- All investments in debt securities held by an NFP, including mortgage-backed securities, shall be measured at fair value in the statement of financial position (320-958-35-1; 320-958-15-2).
- Initial measurement is acquisition cost excluding brokerage and other transaction fees if purchased, and fair value if received as a contribution or through an agency transaction (320-958-30-1).
- A debt security acquired by contribution is recognized as an asset and as revenue or gain in the period received (320-958-25-1, citing 958-605-25-2).
- If the NFP holds the investment as an agent with little or no discretion over how income and gains and losses will be used, the acquisition and subsequent activity are reported as agency transactions—changes in assets and liabilities, not changes in net assets (320-958-25-3; 320-958-35-3).
- Scope excludes equity-method investments and consolidated subsidiaries (958-810-15-4), derivatives under Topic 815, short sales, and investments held by a financially interrelated entity (Subtopic 958-20) (320-958-15-4); an embedded derivative does not remove the host contract from scope (320-958-15-5).
- An entity does not look through the legal form of its investment to the investee's underlying securities—a limited partnership interest meeting the definition of an equity security stays an equity security even if the partnership holds mostly debt securities (320-958-15-6).
- Disclosures: aggregate carrying amount of investments by major type for each statement of financial position presented (320-958-50-2), and the nature and carrying amount of each investment or group representing a significant concentration of market risk for the most recent period (320-958-50-3).
For students. Exam trap: students carry over the 320-10 three-bucket model (trading/AFS/HTM) to NFPs—there is none; every debt security an NFP holds is at fair value, with return reported in the statement of activities per 958-220-45-22 through 45-30. The second common miss is the no-look-through rule in 320-958-15-6, which classifies a partnership interest by its own form, not by the investee's underlying assets.
debt securityfair value measurementnot-for-profit investmentsagency transactioncontributed securitiesconcentration of market riskmajor types of investmentsscope exceptions
Machine-generated study aid for ASC 320-958. Check the source paragraphs below.
320-958-00Status
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320-958-00-1
The following table identifies the changes made to this Subtopic.
320-958-05Overview and Background
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320-958-05-1
The Not-for-Profit Entities Topic contains several Subtopics for investments held by not-for-profit entities (NFPs) because the guidance differs by form of the investment. The Subtopics are:
- aFinancially Interrelated Entities
- bInvestments—Debt Securities
- bbInvestments—Equity Securities
- cInvestments—Other
- dConsolidation.
320-958-05-2
This Subtopic establishes standards of financial accounting and reporting for all investments in debt securities held by NFPs. It also establishes disclosure requirements for those and most other investments held by NFPs.
320-958-15Scope and Scope Exceptions
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Overall Guidance
320-958-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 958-10-15, with specific exceptions noted below.
Health Care Entities
320-958-15-1A
The application of this Subtopic by not-for-profit, business-oriented health care entities, as described in paragraph 954-10-05-2(b), is subject to additional guidance in Subtopic 954-220.
Instruments
320-958-15-2
The measurement standards in Section 958-320-35 apply to all investments in debt securities, including mortgage-backed securities.
- a
- b
320-958-15-3
The reporting standards in paragraphs and Section 958-320-50 apply to all investments held by not-for-profit entities (NFPs), except those described in the following paragraph.
320-958-15-4
The guidance in this Subtopic does not apply to any of the following:
- a An investment in equity securities that is accounted for under the equity method in accordance with paragraph 958-810-15-4 or in accordance with Subtopic 958-321.
- b An investment in a subsidiary that is consolidated in accordance with paragraph 958-810-15-4 or .
- c An investment in a derivative instrument that is subject to the requirements of Topic 815. That is, an investment in an option on securities shall be accounted for under the requirements of Subtopic 815-10 if the option meets the definition of a derivative instrument, including the criteria for net settlement in paragraph 815-10-15-99.
- d Short sales of securities (sales of securities that the seller does not own at the time of sale), because they are obligations to deliver securities, not investments. Short sale obligations are addressed in the guidance for certain industries (see paragraph 940-320-35-1 with respect to broker-dealers and paragraph 942-405-35-1 with respect to depository institutions). For guidance on evaluating whether a short sale transaction involves a derivative instrument, see paragraph 815-10-55-57.
- e Investments held by a financially interrelated entity. See Subtopic 958-20 for reporting interests in the net assets of a financially interrelated entity.
320-958-15-5
If an investment would otherwise be in the scope of this Subtopic and it has within it an embedded derivative that is subject to the requirements of Topic 815, the host contract (as described in paragraph 815-15-05-1) remains within the scope of this Subtopic.
320-958-15-6
When determining whether an instrument is within the scope of this Subtopic, an entity shall not look through the form of its investment to the nature of the securities held by an investee. For example, an entity invests in a limited partnership interest (or a venture capital entity) that meets the definition of an equity security. However, substantially all of the partnership's assets consist of investments in debt securities. In the specific situation described, the investment would be considered an equity security.
Other Considerations
320-958-15-7
This Subtopic does not specify methods to be used for measuring the amount of interest income.
320-958-25Recognition
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320-958-25-1
Pursuant to paragraph 958-605-25-2, if a debt security is acquired by contribution, it shall be recognized as an asset and as a revenue or gain in the period received.
320-958-25-3
If a not-for-profit entity (NFP) is holding an investment as an agent and has little or no discretion in determining how the investment income, unrealized gains and losses, and realized gains and losses resulting from that investment will be used, the investment's acquisition shall be reported as an agency transaction. That is, the NFP agent recognizes the acquisition as an asset and a liability rather than as a change in net assets.
320-958-30Initial Measurement
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320-958-30-1
A debt security shall be initially measured at its acquisition cost (excluding brokerage and other transaction fees) if it is purchased. It shall be initially measured at fair value if it is received as a contribution or through an agency transaction.
320-958-35Subsequent Measurement
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320-958-35-1
All investments in debt securities shall be measured at fair value in the statement of financial position.
Investments Held As an Agent
320-958-35-3
If a not-for-profit entity (NFP) is holding an investment as an agent and has little or no discretion in determining how the investment income, unrealized gains and losses, and realized gains and losses resulting from that investment will be used, those investment activities shall be reported as agency transactions and, therefore, as changes in assets and liabilities, rather than as changes in net assets.
320-958-45Other Presentation Matters
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320-958-50Disclosure
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320-958-50-2
For each period for which a statement of financial position is presented, an NFP shall disclose the aggregate carrying amount of investments by major types, for example, equity securities, U.S. Treasury securities, corporate debt securities, mortgage-backed securities, oil and gas properties, and real estate.
320-958-50-3
For the most recent period for which a statement of financial position is presented, an NFP shall disclose the nature of and carrying amount for each individual investment or group of investments that represents a significant concentration of market risk, such as risks that result from the nature of the investments or from a lack of diversity of industry, currency, or geographic location.
320-958-50-4
Paragraph 825-10-50-21 requires disclosures about all significant concentrations of credit risk arising from all financial instruments, (including significant concentrations of credit risk arising from derivative instruments accounted for under Topic 815), whether from an individual counterparty or groups of counterparties.
320-958-50-5
Information about realized and unrealized gains and losses and about historical costs of investments may be useful in some circumstances. For example, if a state adopted a law that allows an NFP to spend only realized gains or if an NFP pays taxes on realized gains and losses, information that distinguishes between realized and unrealized amounts may be useful. Thus, this Subtopic does not preclude disclosing that information.
320-958-55Implementation Guidance and Illustrations
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Implementation Guidance
320-958-55-1
The term debt security includes any security representing a creditor relationship with an entity. Thus, the term debt security includes all of the following securities, among other items:
- a U.S. Treasury securities
- b U.S. government agency securities
- c Municipal securities
- d Corporate bonds
- e Convertible debt
- f Commercial paper
- g All securitized debt instruments, such as collateralized mortgage obligations and real estate mortgage investment conduits
- h Interest-only and principal-only strips
- i Preferred stock that by its terms either must be redeemed by the issuing entity or is redeemable at the option of the investor
- j A collateralized mortgage obligation (or other instrument) that is issued in equity form but is required to be accounted for as a nonequity instrument regardless of how that instrument is classified (that is, whether equity or debt) in the issuer's statement of financial position.
320-958-55-2
However, the term debt security excludes all of the following instruments:
- a Option contracts
- b Financial futures contracts
- c Forward contracts
- d Lease contracts
- e Swap contracts
- f Receivables that do not meet the definition of security and, thus, are not debt securities, for example:
- 1 Trade accounts receivable arising from sales on credit
- 2 Loans receivable arising from consumer, commercial, and real estate lending activities of financial institutions and not-for-profit entities (NFPs).
However, if those receivables have been securitized, they would meet the definition of a security, and thus be a debt security. Paragraph 320-10-55-3 explains that, even if a loan could readily be converted into a security, the loan is not a debt security until it has been securitized. - 1
Illustrations
320-958-55-4
This Example illustrates the disclosures required by paragraph 958-320-50-2 and a statement of activities that reports investment return in accordance with paragraphs .
320-958-55-6
This Example has the following assumptions:
- aNot-for-Profit Entity A (NFP A) invests cash in excess of daily requirements in short-term investments; during the year, those investments earned $1,275.
- bMost long-term investments of NFP A's endowments are held in an investment pool, which earned income of $11,270 and had net gains of $15,450.
- cCertain endowments are separately invested because of donors' requirements. The investments of those endowments earned income of $1,000 and increased in value by $1,500.
- d
- eNFP A released from restrictions the full amount of net assets with donor restrictions that were appropriated from the donor-restricted endowment fund ($4,500) because the entity spent the funds for the required purpose.
- fNFP A's governing board appropriated for expenditure $1,025 from its short-term investments.
- gNFP A had $25 of gross programmatic investing income. The expenses related to the programmatic activity are included in operating expenses.
320-958-55-7
A statement of activities of NFP A is illustrated as follows.
-
Not-for-Profit Entity A Statement of Activities "Year Ended June 30, 20X1" Without Donor Restrictions With Donor Restrictions Total "Revenues, gains, and other support:" Contributions " $X,XXX " " $ X,XXX " " $XX,XXX " Investment return appropriated from short-term investments " 1,025 " Fees " X,XXX " " X,XXX " Programmatic investing return 25 Other XXX XXX Net assets released from restrictions Investment return appropriated and released for current operations from donor-restricted endowment " 4,500 " " (4,500)" [Other net assets released from restrictions] " X,XXX " " (X,XXX) " "Total operating revenues, gains, and other support" " XX,XXX " " XX,XXX " Expenses: Program A " XX,XXX " Program B " X,XXX " Program C " X,XXX " Management and general " X,XXX " Fundraising " X,XXX " Total operating expenses " XX,XXX " Operating revenues in excess of expenses " XX,XXX " Other changes: "Investment return, net" " 1,275 " " 29,220 " " 30,495 " Investment return appropriated for current operations from short-term investments " (1,025)" [Other items considered to be nonoperating] " X,XXX " " X,XXX " " X,XXX " Change in net assets " $XX,XXX " " $ X,XXX " " $XX,XXX "
320-958-55-8
NFP A would add the following illustrative text to its note to financial statements that describes the measure of operations.
- The board of trustees designates only a portion of NFP A's cumulative investment return for support of current operations; the remainder is retained to support operations of future years and to offset potential market declines. The amount computed and appropriated under the endowment spending policy of the investment pool and the amount appropriated from the investment return associated with the short-term investments are used to support current operations.
320-958-55-11
In accordance with the requirements in paragraph 958-320-50-2, an NFP would disclose the aggregate carrying amount of investments by major types and may choose to combine these disclosure requirements with disclosures about the level in the fair value hierarchy as required in Topic 820 on fair value measurement.
-
20X1 Quoted Prices in Active Markets Significant Other Observable Inputs Significant Unobservable Inputs Measured at Net Asset Value (Level I) (Level II) (Level III) 20X1 Total Investments Cash equivalents held by investment managers " $19,366 " " $19,366 " U.S. common and preferred stocks " 61,190 " " 61,190 " International common and preferred stocks " 71,973 " " 71,973 " Fixed income " $40,920 " " 40,920 " Equity funds " 20,210 " " $10,093 " " $10,068 " " 40,371 " - Hedge funds " 26,248 " " 26,248 " - Private equity " 39,090 " " 39,090 " - Real estate " 33,520 " " 33,520 " Pooled endowment Pooled endowment " 172,739 " " 40,920 " " 43,613 " " 75,406 " " 332,678 " Split-interest agreements U.S. common and preferred stocks " 12,970 " " 12,970 " Fixed income " 6,635 " " 6,635 " Total investments " $185,709 " " $47,555 " " $43,613 " " $75,406 " " $352,283 "
320-958-60Relationships
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Derivatives and Hedging
320-958-60-2
For guidance on recognition by an NFP of the gain or loss on a hedging instrument or a nonhedging derivative instrument, see paragraphs 815-25-35-19 and 815-10-35-3, respectively.
Related subtopics
- 325-958 Not-for-Profit EntitiesInvestments—Other
- 321-958 Not-for-Profit EntitiesInvestments—Equity Securities
- 220-958 Not-for-Profit EntitiesIncome Statement—Reporting Comprehensive Income
- 205-958 Not-for-Profit EntitiesPresentation of Financial Statements
- 210-958 Not-for-Profit EntitiesBalance Sheet
- 220-954 Health Care EntitiesIncome Statement—Reporting Comprehensive Income