There are only certain situations when the value of donated services should be recorded in the financial statements as income. One of those situations is when the services create or add value to a “non-financial asset”, such as when a building is constructed. In that case, any donated services relating to that construction would be recorded as income and capitalized to the asset. This is regardless of whether or not the services provided are professional or specialized skills.
The other situation where donated services should be recorded is when three criteria are met: (1) the service requires specialized skills; (2) the service is provided by people who possess those skills; AND (3) the service would typically need to be purchased if it wasn’t being donated. There is sometimes some confusion with the second of these criteria- when can we say that the person providing the service possesses the specialized skills? What if extensive training is provided at the nonprofit organization to the volunteers? Does that training result in those volunteers having the specialized skills so that the income and expense should be recorded?
The answer is generally “no”. For volunteers to have the specialized skills that are required in order to be recorded as donated services, they generally would need to possess some type of certification or license in that skill area. For recording purposes, specialized skills usually would be those provided by accountants, lawyers, bankers, investment advisors, architects, doctors, carpenters, plumbers, etc. Individuals with the skills in using technical tools or specialized equipment or possessing specific artistic talent also may qualify as possessing specialized skills where donated services in these areas would be recorded as income.
By Colette Kamps, CPA