The 501 S(c)ene

The latest view on not-for-profit accounting issues

Recognition and Measurement of Debt and Equity Securities

Many not-for-profit organizations receive donations in the form of assets other than cash. Therefore, it’s important to know the proper way to report these donations on your financial statements.

Donated investment assets (such as stock) should initially be recorded at fair value. As long as the securities are an asset of the organization, the value should be adjusted each year based on the change in the market and reported at fair value on your statement of financial position at year end.

Determining the fair value of investments, however, can be tricky if those investments are not traded on an open market. Fair value is defined by the Financial Accounting Standards Board (FASB) as “the price that would be received to sell the asset in an orderly transaction between market participants at the measurement date.” (FASB ASC 958-320-20)

There are situations where it is not simple to determine the price that would be received for an asset. In some cases, it may be necessary to utilize an actuary to determine the value of your investments. In all valuation situations, there are two factors that must be considered: the market and the buyer. Accounting standards clearly define in the factors of determining the value that you must determine the price that would be received in the most advantageous market under current market conditions. In addition, you need to consider the price a market participant would pay acting in their economic best interest.

Having investments is advantageous for any organization because generally, the organization will receive a return not otherwise received when holding cash. In all cases, it’s important to understand how to value your investments to properly report them on your statements.

By Samantha E. Mahlen, CPA