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This proposed statement of position (SOP) amends and makes uniform the guidance concerning reporting related entities in the following AICPA publications: 1. Industry Audit Guide Audits of Voluntary Health and Welfare Organizations; 2. Industry Audit Guide Audits of Colleges and Universities; 3. SOP 78-10, Accounting Principles and Reporting Practices for Certain Nonprofit Organizations; 4. Audit and Accounting Guide Audits of Certain Nonprofit Organizations. The conclusions in this proposed SOP are based on the premise that (1) whether the financial statements of a reporting not-for-profit organization and those of one or more other not-for-profit or for-profit entities should be consolidated and (2) the extent of disclosure that should be required, if any, if consolidated financial statements are not presented should be based on the nature of the relationship between the entities. The guidance in this proposed SOP focuses on (1) investments in for-profit entities and (2) financially interrelated not-for-profit organizations. That guidance includes the following: A. Investments in For-Profit Entities: 1. A reporting not-for-profit organization should include in its consolidated financial statements the financial position and results of operations of a for-profit entity in which it has a majority ownership interest if the guidance in Accounting Research Bulletin (ARB) No. 51, as amended by Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 94, requires consolidation. The manner in which the for-profit entity's financial position and results of operations are presented in the reporting organization's financial statements depends on the nature of the activities of the for-profit entity. 2. Except as specified below, a reporting not-for-profit organization should use the equity method in conformity with Accounting Principles Board (APB) Opinion No. 18 to report an investment in a for-profit entity in whose voting common stock it has a 50 percent or less voting interest, if the guidance in that Opinion would require the use of the equity method. 3. Some AICPA audit guides applicable to some not-for-profit organizations permit investment portfolios to be reported at market value. Not-for-profit organizations that choose to report investment portfolios at market value in conformity with AICPA audit guides may continue to do so instead of reporting those investments by the equity method, which would otherwise be required by this proposed SOP. B. Financially Interrelated Not-for-Profit Organizations: 1. A not-for-profit organization that owns more than 50 percent of the outstanding voting shares of another not-for-profit organization should consolidate that other organization unless control is likely to be temporary or does not rest with the majority owner, as discussed in paragraph 13 of FASB Statement No. 94. 2. A not-for-profit organization should consolidate the financial statements of another not-for-profit organization if the reporting not-for-profit organization has both control of the other not-for-profit organization, as evidenced by either majority ownership or a majority voting interest in the board of the other not-for-profit organization, and an economic beneficial interest in the other not-for-profit organization, unless control is likely to be temporary or does not rest with the majority owner, as discussed in paragraph 13 of FASB Statement No. 94. 3. A not-for-profit organization may exercise control of a separate not-for-profit organization in which it has an economic beneficial interest by means other than majority ownership or a majority voting interest in the board of the other not-for-profit organization. In such circumstances, the not-for-profit organization is permitted, but not required, to consolidate the financial statements of the other not-for-profit organization, subject to the exception in the previous bullet. If consolidated financial statements are not presented, the not-for-profit organization should make the financial statement disclosures specified in paragraph 33. 4. If either (but not both) control or an economic beneficial interest exists, the financial statement disclosures required by FASB Statement No. 57, Related Party Disclosures, should be made. The conclusions in this proposed SOP will be reconsidered when the FASB completes its project on consolidations and related matters, which may affect the definition of control and other related matters. This proposed SOP is effective for fiscal years beginning on or after its date of issuance, with earlier application encouraged. Comparative financial statements for earlier periods included with those for the period in which this proposed SOP is adopted should be restated.
Nonprofit organizations -- United States -- Auditing; Nonprofit organizations -- United States -- Accounting
Accounting | Taxation
American Institute of Certified Public Accountants. Not-for-Profit Organizations Committee, "Proposed statement of position : Reporting of related entities by not-for-profit organizations;Reporting of related entities by not-for-profit organizations" (1993). Statements of Position. 585.