ASC

ASC 450-958

Not-for-Profit Entities

450 Contingencies

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In brief

IntermediateContingencies and guaranteesNot-for-profitRecognitionDisclosure

This Subtopic applies the general loss contingency model of Topic 450 to not-for-profit entities. It identifies two NFP-specific triggers — noncompliance with donor-imposed restrictions on contributed assets and problems with (or absence of a determination letter for) tax-exempt status — that may require accrual of a loss contingency under Subtopic 450-20 and disclosure under Section 450-20-50.

Key points (6)
  • NFPs must comply with the general contingency standards in Topic 450 in addition to this Subtopic (450-958-05-1).
  • A liability may have to be accrued for loss contingencies arising from noncompliance with donor-imposed restrictions on contributed assets or from a problem with the NFP's tax-exempt status or a missing determination letter (450-958-25-1).
  • Section 450-20-25 governs whether an NFP has incurred a loss when one of these circumstances arises (450-958-25-1).
  • Tax positions taken in classifying an entity as tax-exempt are addressed in Subtopic 740-20 when there is a tax-exempt status problem or no determination letter (450-958-25-1).
  • Noncompliance with donor-imposed restrictions must be disclosed if there is a reasonable possibility a material contingent liability was incurred at the financial statement date, or at least a reasonable possibility the noncompliance could cause a material loss of revenue or inability to continue as a going concern (450-958-50-2).
  • If the noncompliance results from failure to maintain an appropriate composition of assets in amounts needed to comply with all donor restrictions, the amounts and circumstances must be disclosed (450-958-50-3).

For students. Remember that this Subtopic adds nothing to the probable/reasonably possible/remote framework — it just names the NFP-specific fact patterns that trigger it. A common misunderstanding is thinking donor-restriction noncompliance is only a disclosure matter; it can require accrual of a liability, and separate disclosure is required when the NFP failed to keep assets composed in amounts needed to satisfy donor restrictions.

loss contingencydonor-imposed restrictionstax-exempt statusdetermination letterreasonable possibilitygoing concerncomposition of assetsaccrual of liability

Machine-generated study aid for ASC 450-958. Check the source paragraphs below.

450-958-00Status

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450-958-05Overview and Background

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450-958-05-1
This Subtopic provides guidance on contingencies for not-for-profit entities (NFPs). NFPs also shall comply with the applicable standards in Topic 450.

450-958-15Scope and Scope Exceptions

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Overall Guidance

450-958-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 958-10-15.

450-958-25Recognition

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450-958-25-1
In conformity with Subtopic 450-20, a liability may have to be accrued for loss contingencies. Examples of circumstances that may result in such contingencies include the following:
  1. a
    Noncompliance with donor-imposed restrictions on contributed assets, which, although rare, does occur, sometimes as a result of events occurring subsequent to receiving a contribution
  2. b
    A problem with the not-for-profit entity's (NFP's) tax-exempt status, or that a determination letter regarding that status has not been received.
Section 450-20-25 applies if one of these circumstances raises the possibility that an NFP may have incurred a loss. Additionally, see Subtopic 740-20 about tax positions taken when classifying an entity as tax-exempt if there is a problem with an NFP's tax-exempt status or if a determination letter has not been received.

450-958-50Disclosure

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450-958-50-1
In conformity with Section 450-20-50, the notes to financial statements may have to include information about loss contingencies.
450-958-50-2
For example, noncompliance with donor-imposed restrictions shall be disclosed if either of the following is true:
  1. a
    There is a reasonable possibility that a material contingent liability has been incurred at the date of the financial statements.
  2. b
    There is at least a reasonable possibility that the noncompliance could lead to a material loss of revenue or could cause an entity to be unable to continue as a going concern.
450-958-50-3
If the noncompliance results from a not-for-profit entity's (NFP's) failure to maintain an appropriate composition of assets in amounts needed to comply with all donor restrictions, the amounts and circumstances shall be disclosed.

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