Assurance Services • Published 4/01/2020 Not-for-Profit Fundraising Events: Accounting Considerations

Last updated on 4/01/2020

COVID-19 has brought significant disruption to our communities, and our not-for-profit organizations (NFPs) are no exception. Like other businesses, many NFPs had to abruptly shift to remote working arrangements and review operating cash flows, however many NFPs have also had to cancel or delay major fundraising events.

While each NFP will need to review the terms and conditions in agreements signed with vendors, event spaces, sponsors, and donors, we have identified some key accounting guidance you should consider as you prepare to account for canceled and delayed events.

What should I be thinking about in terms of revenue?

Key accounting resource: ASU 2018-08 Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made

A key element of ASU 2018-08 was clarification around the distinction between exchange and non-exchange transactions:

If each party to the transaction does not receive commensurate value in return for resources transferred, the transaction is a non-exchange transaction and should be accounted for using contribution guidance.

An event sponsorship may contain elements of both an exchange and non-exchange transaction, for example:

• Company A sponsors NFP B’s annual fundraising gala as a gold sponsor for $50,000. Gold sponsors receive 5 tickets to the gala, 5 tickets to the patron party, their logo on printed literature for the event, and a verbal “shout out” during the live auction.
• NFP B determines that the $50,000 sponsorship is a mix of both exchange and non-exchange. The value of a gala ticket is approximately $100 each and the value of a patron party ticket is $60 each. Additionally, NFP B estimates that the advertising received from the sponsorship by Company A is approximately $200.
• Thus, $1,000 of the $50,000 sponsorship is an exchange transaction. The remaining $49,000 represents a contribution to NFP B.

Most contributions associated with fundraising events are considered unconditional as, typically, there is not an obligation to return funds to a sponsor should the event not take place.

If you have received cash related to sponsorships for an event you have postponed, you can recognize revenue – you should not defer revenue recognition until the event is held unless you can demonstrate that there was a donor-imposed condition that must be met^[1].

If you have received a signed sponsorship agreement for your postponed event, you should consider whether it is appropriate to recognize revenue and an associated promise to give. In these uncertain economic times, you should consider the likelihood of collectability and may conclude that it is not appropriate to recognize revenue until cash has been received if there is significant uncertainty about collectability.

You may decide, based on the relationship you have with your sponsors and donors, that you wish to reconfirm their sponsorship for the postponed event and that you will honor their request to terminate the agreement or refund amounts received. In these circumstances, it would not be appropriate to recognize revenue and any funds received should be treated as a refundable advance until the sponsor or donor’s wishes have been confirmed.

If you have made the difficult decision to cancel your event, depending on the terms and conditions of your sponsorship agreement, you may not be required to return any cash or other resources received to the sponsor/donor; however, in many instances organizations will reach out to the individual or company to confirm their wishes. Again, you should treat the funds as a refundable advance if you plan to honor a request to return the resources.

If you need assistance evaluating a particular situation or transaction, P&N has a depth of resources to help you navigate the accounting guidance and find the right answer. Contact us to let us know how we can help your organization.

 

[1] As a reminder, a condition exists when these two elements are present:

1. One or more barriers that must be overcome before a recipient is entitled to the assets transferred or promised; and
2. A right of return to the contributor for the assets transferred or a right of release of the promisor from its obligation to transfer assets.