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When to Recognize a Promise to Give as Revenue

By: Stephen Clements, CPA, Senior Manager

For most nonprofit organizations, revenues result from either program revenues, for example, when services are performed to earn revenue, or contribution revenues, such as receipt of a promise to give from a donor. This article will concentrate on the recognition issues involved when receiving a promise to give. The Financial Accounts Standards Board’s Codification topic 958-310 (ASC-958-310) provides general guidance on the accounting for receivables related to non-profit organizations.

Typically, a promise to give is recorded when there is a signed pledge card or award letter stating the amount promised and an approximate time period for when the gift will be paid. Per ASC 958-310 a promise to give may be written or oral, but verifiable documentary evidence must exist before the promise may be recognized as contribution revenue. What is meant by “verifiable documentary evidence” is subject to interpretation but ASC-958-310 provides some examples. Written evidence as previously noted would include pledge cards or award letters. Much more challenging for a non-profit organization is substantiating an oral promise to give. ASC-958-310 provides the following examples: tape recordings, written registers, or other means that permit subsequent verification of the oral communication. As a general rule whatever evidence your organization requires to support an oral contribution should at a minimum include the following elements: Donor’s name, address, and telephone number; the amount of the promise; the date of the promise, and date(s) payments are due; and the name of the individual in your organization to whom the promise was made.

While the evidential requirements remain the same for all promises to give, the recognition guidance in the previous paragraph applies when the only condition upon the promise to give is the passage of time. When a promise to give is conditioned upon some future event (other than transfer of payment by the donor to the organization), this is considered a conditional promise to give. Because the donor is not bound by the promise until some future event occurs, the organization should not recognize the promise to give until those conditions are substantially met or otherwise waived by the donor. Additionally, until the conditions are substantially met any assets received by the organization from the donor would be recognized as deferred revenue (a liability) until the donor’s conditions have been met or again are explicitly waived by the donor.

Sometimes donor-imposed conditions placed on promises to give can be met in stages instead of all at one time. A common example is when a donor promises to match contributions received on a dollar-for-dollar basis up to a maximum amount raised by the organization. As the organization receives qualifying contributions, a corresponding equal amount should also be recognized from the matching gift since the donor’s condition on the matching gift has been met, until the maximum amount is reached or the conditional promise to give otherwise expires.

As a best practice, your organization should consider formally documenting its policy for revenue recognition regarding promises to give, including what documentation must be obtained or maintained in order to substantiate the amount and timing of revenue recognition. This article only touches on some basic recognition issues for promises to give. Examples of other considerations include measuring contributions at fair value and the net asset classification of promises to give as either unrestricted, temporarily, or permanently restricted.

For a more comprehensive discussion regarding this article or any other considerations for revenue recognition affecting your organization, please contact your Blue & Co. advisor.

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