Conditional vs Unconditional Promises to Give

The latest view on not-for-profit accounting issues

By definition, conditional promises to give are donor promises to contribute assets to an organization, assuming a specified future or uncertain event occurs. A condition is not the same as donor-imposed restrictions, but should be considered as a barrier that must be overcome to be considered a contribution. Until the condition is met, the organization does not have an unconditional right to the promised assets. Since the donor is not bound to the promise until the future events occur, the organization should not recognize the conditional promise to give unless the condition is met or is explicitly waived by the donor. Should the condition not be met by the organization (or explicitly waived), the donor has the right of return of any transferred assets and is released from any obligation to transfer promised assets.

For example, in February, Dwayne Johnson promises to give $120,000 paid in equal installments over 12 months to a local theatre, assuming the theatre obtains 120,000 likes on Facebook within 3 months. The theatre will not recognize the conditional promise to give unless they reach 120,000 likes on Facebook within the 3 month timeframe. After 2 months, the theatre was able to meet the condition and recognized the promise to give as $120,000 in March (the month that the condition was met). Dwayne accordingly paid $10,000 every month for a year to the local theatre.

Some promises to give can be considered part conditional and part unconditional. If this occurs, the promises should be accounted for and treated separately.

For example, Henry Horne promises a high school basketball team that he will pay $10,000 on October 10th, 2015, and an additional $200 for each basketball game that the team wins during the 2015/2016 season. The high school has received an unconditional promise to give $10,000, which it would recognize at the time the promise was made by Henry, and a conditional promise to give, for which it would recognize a contribution of $200 each time the basketball team won a game during the 2015/2016 season.

The following factors may help an organization determine if the promise to give is considered conditional: (Please note these factors are not conclusive.

  1. The promise has an explicit matching requirement.
  2. The promise states that specific outcomes must be achieved.
  3. The promise requires that amounts not expended by a certain date must be returned to the donor.
  4. The promise includes words such as “if,” “subject to,” “provided that,” or “when.”
  5. Neither the timing nor the amount of the promise is clearly determinable in advance of the payment.

By Kristian Haralson