{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/720/958/#45-other-presentation-matters","source":"FASB Accounting Standards Codification, Basic View","usage":"Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective.","topic":"720","topic_title":"Other Expenses","subtopic":"720-958","subtopic_title":"Not-for-Profit Entities","section":{"number":"45","label":"45 Other Presentation Matters","anchor":"45-other-presentation-matters","is_sec":false,"groups":[{"block":null,"heading":null,"paragraphs":[{"citation":"720-958-45-1","para":"45-1","html":"This Subsection provides guidance on the reporting of expenses incurred by
not-for-profit entities (NFPs) as follows:
- a
Functional classification of expenses
- b
Analysis of expenses by their nature and function
- c
Classification of particular costs.
For additional guidance on reporting under these classifications see Section
958-205-45.
To help donors, creditors, and others in assessing an NFP's service efforts, including the costs of its services and how it uses resources, a statement of activities or notes to financial statements shall provide information about expenses reported by their functional expense classification, such as major classes of program services and supporting activities, for example: - a
Program services
- b
Supporting activities, which often include one or more of the following:
- 1
- 2
- 3
Activities that represent direct conduct or direct supervision of program or other supporting activities require allocation from management and general activities. Additionally, certain costs benefit more than one function and, therefore, shall be allocated. For example, information technology generally can be identified as benefiting various functions, such as management and general (for example, accounting and financial reporting and human resources), fundraising, and program delivery. Therefore, information technology costs generally would be allocated among the functions receiving direct benefit.
Program services are the activities that result in goods and services being distributed to beneficiaries, customers, or members that fulfill the purposes or mission for which the NFP exists. Those services are the major purpose for and the major output of the NFP and often relate to several major programs. For example, a large university may have programs for student instruction, research, and patient care, among others. Similarly, a health and welfare entity may have programs for health or family services, research, disaster relief, and public education, among others. A federated fundraising entity's programs may include making contributions to NFPs supported by the federated fundraising entity. Paragraphs , although not required of NFPs, may be helpful in determining what constitutes major classes of programs and supporting activities. Information about an NFP's major programs (or segments) can be enhanced by reporting the interrelationships of program expenses and program revenues. For example, a university might report expenses for its instruction and other academic services with related revenues from student tuition and expenses for its housing and food services with related revenues from room and board fees. Related nonmonetary information about program inputs, outputs, and results also is helpful; for example, information about applications, acceptances, admissions, enrollment and occupancy rates, and degrees granted. Generally, reporting that kind of information is feasible only in supplementary information or management explanations or by other methods of financial reporting. The components of total program expenses shall be evident from the details provided on the face of the statement of activities, unless the notes to financial statements provide the information in paragraph 958-720-50-1(b). Supporting activities are all activities of an NFP other than program services. Generally, supporting activities include the following activities: - a
- b
- c
Management and general activities include the following: - a
Oversight
- b
Business management
- c
General recordkeeping and payroll
- d
Budgeting
- e
Financing, including unallocated interest costs pursuant to paragraph 958-720-45-24 - f
Soliciting funds other than contributions and membership dues, for example, the costs associated with: - 1
Promoting the sale of goods or services to customers, including advertising costs
- 2
Responding to government, foundation, and other requests for proposals for customer-sponsored contracts for goods and services
- ff
Administering government, foundation, and similar customer-sponsored contracts, including billing and collecting fees and grant and contract financial reporting
- g
Disseminating information to inform the public of the NFP's stewardship of contributed funds
- h
Making announcements concerning appointments
- i
Producing and disseminating the annual report
- j
- jj
Employee benefits management and oversight (human resources)
- k
All other management and administration except for direct conduct of program services (see paragraphs ), fundraising activities (see paragraphs ), or membership development activities (see paragraphs ). See paragraphs for examples on which activities would constitute direct conduct or supervision of program or support functions and an example footnote disclosure on the cost allocation method used to allocate costs among functions.
The costs of oversight and management usually include the salaries and expenses of the governing board, the chief executive officer of the NFP, and the supporting staff. If such staff spend a portion of their time directly conducting or supervising program services or categories of other supporting services, however, their salaries and expenses shall be allocated among those functions (see paragraph 958-720-45-2A). See paragraphs for examples on which activities would constitute direct conduct or supervision of program or support functions and an example note disclosure on the method used to allocate costs among functions. Fundraising activities include the following: - a
Publicizing and conducting fundraising campaigns
- b
Maintaining donor mailing lists
- c
Conducting special fundraising events
- d
Preparing and distributing fundraising manuals, instructions, and other materials
- e
Conducting other activities involved with soliciting contributions from individuals, foundations, government agencies, and others.
Fundraising activities include soliciting contributions of services from individuals, regardless of whether those services meet the recognition criteria for contributions in the Contributions Received Subsection of Section 958-605-25. Membership development activities include the following: - a
Soliciting for prospective members and membership dues
- b
Membership relations
- c
Similar activities.
If there are no significant benefits or duties connected with membership, however, the substance of membership development activities may, in fact, be fundraising, and the related costs shall be reported as fundraising costs. (See paragraphs
for indicators useful in determining the contribution and exchange portions of membership dues.)
Membership development activities may be conducted in conjunction with other activities. In circumstances in which membership development is in part soliciting membership dues and in part soliciting contributions, the activity is a joint activity, as discussed in the Accounting for Costs of Activities that Include Fundraising Subsections of this Subtopic beginning with paragraph 958-720-45-28. In circumstances in which membership development is conducted in conjunction with other activities but does not include soliciting contributions, the activity is not a joint activity, and the costs shall be allocated to membership development and one or more other functions. For example, if an activity involves costs to solicit new members (membership development) and direct costs of providing goods or services to existing members, in accordance with paragraph 958-720-45-3, an appropriate part of the costs of soliciting members shall be allocated to the membership development function and a part to program services. All NFPs shall report information about all expenses in one location on the face of the statement of activities, as a schedule in the notes to financial statements, or in a separate financial statement, as discussed in paragraph 958-205-45-6. The relationship between functional classification and natural classification for all expenses shall be presented in an analysis that disaggregates functional expense classifications, such as major classes of program services and supporting activities, by their natural expense classifications, such as salaries, rent, electricity, interest expense, supplies, depreciation, awards and grants to others, and professional fees. To the extent that expenses are reported by other than their natural classification (such as salaries included in cost of goods sold or facility rental costs of special events reported as direct benefits to donors), they shall be reported by their natural classification in the analysis of expenses by nature and function. For example, salaries, wages, and fringe benefits that are included as part of the cost of goods sold on the statement of activities shall be included with other salaries, wages, and fringe benefits in the analysis of expenses by nature and function. External and direct internal investment expenses that have been netted against investment return shall not be included in the analysis of expenses by nature and function. Certain items that are typically excluded from net income and that are included in other comprehensive income of business entities such as those items listed in paragraph 220-10-45-10A, are considered gains or losses and, like other gains and losses, shall not be included in the analysis of expenses by nature and function. See Note F in paragraph 958-205-55-21 for an example of how to report expenses by nature and function. This Subsection provides classification guidance for the following specific costs:
- a
Cost of premiums
- b
Cost of sales
- c
Reductions in amounts charged for goods and services
- d
Interest costs
- e
Cost of occupancy and maintenance
- f
Payments to affiliated NFPs
- g
Expenses of federated fundraising organizations.
The cost of premiums (such as postcards or calendars) given to potential donors as part of mass fundraising appeals is a fundraising expense, and the classification of the donations received from the appeal as contributions is unaffected by the fact that premiums were given to potential donors. The premiums are not provided to potential donors in exchange for the assets contributed; they can be kept by all those from whom funds are solicited, regardless of whether a contribution is made.
The cost of premiums (such as coffee mugs) that are given to resource providers to acknowledge receipt of a contribution shall also be reported as fundraising expenses if those costs are nominal in value compared with the value of the goods or services donated by the resource provider. For example, an NFP may provide a coffee mug to people making a contribution of $50 or more; the mug costs the NFP $1. The NFP shall recognize contributions for the total amount contributed and fundraising expense of $1 for each mug provided to donors. The cost of premiums that are greater than nominal in value shall be reported as cost of sales. If premiums are greater than nominal in value, transactions shall be reported as part exchange transaction and part contribution.
The way that costs related to sales of goods and services are displayed depends on whether the sales constitute a major or central activity of the NFP or a peripheral or incidental activity.
For example, a not-for-profit museum that has a store that is a major or central activity shall report and display separately the revenues from the store's sales and the related cost of sales. Cost of sales is permitted to be reported immediately after revenues from sale of merchandise, and may be followed by a descriptive subtotal, or cost of sales may be reported with other expenses. If the store sells merchandise that is related to the museum's program, the store would be a program service and the cost of the store's sales would be reported as a program expense. In other circumstances, cost of sales could be reported as a separate supporting service. For example, if operating a cafeteria is a major or central activity but is not related to the NFP's programs, the cafeteria's cost of sales would be reported as supporting services.
In contrast, a not-for-profit church that occasionally produces and sells a cookbook (considered to be a peripheral or incidental activity) has gains (or losses) from those sales, and the receipts and related costs are permitted to be offset and only the net gains (or losses) are reported.
If a reduction in the amount charged for goods and services is reported as an expense in accordance with paragraph 958-720-25-7, the expense shall be reported in the same functional classification in which the cost of the goods or services provided to the NFP are reported. Interest costs, including interest on a building's mortgage, shall be allocated to specific programs or supporting services to the extent possible. Interest costs that cannot be allocated shall be reported as part of the management and general function.
Occupying and maintaining a building is not a separate supporting service.
Payments to related local and national NFPs shall be reported by their functional classification to the extent that it is practicable and reasonable to do so and the necessary information is available, even if it is impossible to allocate the entire amount of such payments to functions. Payments to those entities that cannot be allocated to functions shall be treated as a separate supporting service, reported on a statement of activities as a separate line item, and labeled unallocated payments to local (or national) organizations.
Federated fundraising entities solicit and receive designated and undesignated contributions and make grants and awards to other NFPs. The fundraising activities of federated fundraising entities, including activities related to fundraising on behalf of others, shall be reported as fundraising expenses.
This Subsection provides guidance on the following:
- a
Classification of the costs of a joint activity
- b
Allocation methods
- c
Incidental activities.
If the criteria of purpose, audience, and content are met, the costs of a joint activity shall be classified as follows: - a
The costs that are identifiable with a particular function shall be charged to that function.
- b
Joint costs shall be allocated between fundraising and the appropriate program or management and general function.
If any of the criteria are not met, all costs of the joint activity shall be reported as fundraising costs, including costs that otherwise might be considered program or management and general costs if they had been incurred in a different activity, subject to the exception in the following sentence. Costs of goods or services provided in exchange transactions that are part of joint activities, such as costs of direct donor benefits of a special event (for example, a meal), shall not be reported as fundraising. In circumstances in which a not-for-profit entity (NFP) that conducts joint activities has a functional structure that includes functional classifications other than fundraising, program, and management and general (see paragraph 958-720-05-6), all costs of those joint activities shall be charged to fundraising (or the category in which fundraising is reported), unless the purpose, audience, and content of those joint activities are appropriate for achieving those other functions. Classification of costs incurred by an NFP for joint activities is based on the following criteria:
- a
The purpose criterion
- b
The audience criterion
- c
The content criterion.
Examples 1 through 16 (see paragraphs
) provide illustrations of the tests and analysis that are used to determine whether the criteria listed in the preceding paragraph are met.
The purpose criterion is met if the purpose of the joint activity includes accomplishing program or management and general functions.
Paragraphs
provide guidance that shall be considered in determining whether the purpose criterion is met, specifically: - a
If program functions are combined with fundraising activities, paragraphs provide guidance pertaining to program functions only. - b
If program functions, management and general functions, or both are combined with fundraising activities, paragraph 958-720-45-38 provides guidance pertaining to both program and management and general functions.
To accomplish program functions, the activity shall call for specific action by the audience that will help accomplish the NFP's mission. Actions that help accomplish the NFP's mission are actions that do either of the following: - a
Benefit the recipient (such as by improving the recipient's physical, mental, emotional, or spiritual health and well-being)
- b
Benefit society (by addressing societal problems).
See paragraphs
, which provide implementation guidance for determining whether an activity includes a call for a specific action.
If the activity calls for specific action by the audience that will help accomplish the NFP's mission, the guidance in paragraph 958-720-45-38 shall also be considered in determining whether the purpose criterion is met. In circumstances in which joint activities are conducted, a presumption exists that expenses shall be reported as fundraising rather than as program or management and general. The following circumstances are insufficient to overcome that presumption: - a
The purpose of the activity includes educating the public about causes. - b
The audience has a need or reasonable potential for use of any educational component of the activity pertaining to causes.
- c
The audience has the ability to assist the NFP in meeting the goals of the program component of the activity by becoming educated about causes.
To conclude that the criteria of purpose, audience, and content are met, program activities shall call for specific action by the recipient (other than becoming educated about causes) that will help accomplish the NFP's mission. The following factors shall be considered, in the order in which they are listed, to determine whether the purpose criterion is met: - a
The compensation or fees test
- b
The separate and similar activities test
- c
The other evidence test.
See Examples 1 through 16 (paragraphs
), which provide implementation guidance for these three tests.
The purpose criterion is not met if a majority of compensation or fees for any party's performance of any component of the discrete joint activity varies based on contributions raised for that discrete joint activity. Some compensation contracts provide that compensation for performing the activity is based on a factor other than contributions raised, but not to exceed a specified portion of contributions raised. For example, a contract may provide that compensation for performing the activity is $10 per contact hour, but not to exceed 60 percent of contributions raised. In such circumstances, compensation is not considered based on amounts raised, unless the stated maximum percentage is met. In circumstances in which it is not yet known whether the stated maximum percentage is met, compensation is not considered based on amounts raised, unless it is probable that the stated maximum percentage will be met.
The compensation or fees test is a negative test in that it either: - a
Results in failing the purpose criterion
- b
Is not determinative of whether the purpose criterion is met.
In considering the guidance in paragraph 958-720-45-38, compensation or fees test is the preeminent guidance. Therefore, if the activity fails the compensation or fees test, the activity fails the purpose criterion and the separate and similar activities test shall not be considered. If the purpose criterion is not failed based on the compensation or fees test, this factor is not determinative of whether the purpose criterion is met, and the factor in the following paragraph and paragraph 958-720-45-46 (the separate and similar activities test) shall be considered. The purpose criterion is met if a similar program or management and general activity is conducted separately and on a similar or greater scale. That is, the purpose criterion is met if either of the following conditions is met: - a
The first condition is met if both of the following are true:
- 1
The program component of the joint activity calls for specific action by the recipient that will help accomplish the NFP's mission (see paragraphs ). - 2
A similar program component is conducted without the fundraising component using the same medium and on a scale that is similar to or greater than the scale on which it is conducted with the fundraising. Determining the scale on which an activity is conducted may be subjective. Factors to consider in determining the scale on which an activity is conducted may include dollars spent, the size of the audience reached, and the degree to which the characteristics of the audience are similar to the characteristics of the audience of the activity being evaluated.
- b
The second condition is met if a management and general activity that is similar to the management and general component of the joint activity being accounted for is conducted without the fundraising component using the same medium and on a scale that is similar to or greater than the scale on which it is conducted with the fundraising.
If the purpose criterion is met based on the separate and similar activities test, the other evidence test shall not be considered. If the separate and similar activities test is not determinative, the other evidence test shall be considered.
The compensation or fees test and the separate and similar activities test may not always be determinative because the attributes that they consider may not be present. If the factors in paragraphs or do not determine whether the purpose criterion is met, other evidence may determine whether the criterion is met. All available evidence, both positive and negative, shall be considered to determine whether, based on the weight of that evidence, the purpose criterion is met. See paragraphs
, which provide implementation guidance for applying the other evidence test.
A rebuttable presumption exists that the audience criterion is not met if the audience includes prior donors or is otherwise selected based on its ability or likelihood to contribute to the NFP. That presumption can be overcome if the audience is also selected for any of the reasons in the following paragraph. In determining whether that presumption is overcome, an NFP shall consider the extent to which the audience is selected based on its ability or likelihood to contribute to the NFP and contrast that with the extent to which it is selected for one or more of the reasons in the following paragraph. For example, if the audience's ability or likelihood to contribute is a significant factor in its selection and it has a need for the action related to the program component of the joint activity, but having that need is an insignificant factor in its selection, the presumption would not be overcome.
In circumstances in which the audience includes no prior donors and is not otherwise selected based on its ability or likelihood to contribute to the NFP, the audience criterion is met if the audience is selected for any of the following reasons: - a
The audience's need to use or reasonable potential for use of the specific action called for by the program component of the joint activity
- b
The audience's ability to take specific action to assist the NFP in meeting the goals of the program component of the joint activity
- c
The NFP is required to direct the management and general component of the joint activity to the particular audience or the audience has reasonable potential for use of the management and general component.
The content criterion is met if the joint activity supports program or management and general functions, as follows: - a
Program. The joint activity calls for specific action by the recipient that will help accomplish the NFP's mission (see paragraph 958-720-45-35). If the need for and benefits of the action are not clearly evident, information describing the action and explaining the need for and benefits of the action is provided. - b
Management and general. The joint activity fulfills one or more of the NFP's management and general responsibilities through a component of the joint activity.
Information identifying and describing the NFP, its causes, or how the contributions provided will be used is considered in support of fundraising.
Activities that are undertaken as a result of receiving contributions are management and general activities. For example, activities conducted to comply with requirements of regulatory bodies concerning contributions that have been received are management and general activities. Activities that are undertaken in order to solicit contributions are fundraising activities. For example, activities conducted to comply with requirements of regulatory bodies concerning soliciting contributions, such as the requirement by some states or other regulatory bodies that certain disclosures be included when soliciting contributions, are fundraising activities. For purposes of applying this guidance, communications that include such required disclosures are considered fundraising activities and are not considered management and general activities.
The cost allocation methodology used shall be rational and systematic, it shall result in an allocation of joint costs that is reasonable, and it shall be applied consistently given similar facts and circumstances. See paragraphs
, which provide explanations and illustrations of some acceptable allocation methods.
The allocation of joint costs shall be based on the degree to which costs were incurred for the functions to which the costs are allocated (that is, program, management and general, or fundraising). For purposes of determining whether the allocation methodology for a particular joint activity is consistent with methodologies used for other particular joint activities, facts and circumstances that may be considered include factors related to the content and relative costs of the components of the activity. The audience shall not be considered in determining whether the facts and circumstances are similar for purposes of determining whether the allocation methodology for a particular joint activity is consistent with methodologies used for other particular joint activities. A change in cost allocation methodology shall be evaluated in accordance with Topic 250 to determine if it is a change in accounting principle. Some fundraising activities conducted in conjunction with program or management and general activities are incidental to such program or management and general activities. In circumstances in which a fundraising, program, or management and general activity is conducted in conjunction with another activity and is incidental to that other activity, and the criteria in paragraph 958-720-45-29 for allocation are met, joint costs are permitted but not required to be allocated and may therefore be charged to the functional classification related to the activity that is not the incidental activity. However, in circumstances in which the program or management and general activities are incidental to the fundraising activities, it is unlikely that the criteria in that paragraph to permit allocation of joint costs would be met. See paragraphs
958-720-55-161,
958-720-55-163, and
958-720-55-165 for implementation guidance for incidental activities.
The increase in net assets associated with services received from personnel of an affiliate that directly benefit the recipient not-for-profit entity (NFP) and for which the affiliate does not charge the recipient NFP shall not be presented as a contra-expense or a contra-asset. The corresponding decrease in net assets or the creation or enhancement of an asset resulting from the use of services received from personnel of an affiliate that directly benefit the recipient NFP and for which the affiliate does not charge the recipient NFP shall be presented similar to how other such expenses or assets are presented. See paragraph 958-220-45-21 for presentation guidance on services received from personnel of an affiliate.