FASB Standards Overview Essay Example | Topics and Well Written Essays - 1250 words

FASB Standards Overview - Essay Example The essay "FASB Standards Overview" talks about the FASB, and particularly Statement No. 116, in which over the vociferous objections of many of its constituent not-for-profit organizations, decided that unrestricted pledges should be reported as revenue in the period received. They should measure the pledges at â€Å"the present value of estimated future cash flows using a discount rate commensurate with the risks involved†. They should take into account both anticipated bad debts and the time value of money. If they establish an allowance for uncollectible(s), then they should use a risk-free discount. If not, then they should use a higher rate-one that takes into account the risk of being unable to collect the pledge. They should not both establish an allowance for uncollectible(s) and adjust the discount rate for risk. That would cause the default risk to be accounted for twice. Entities need not discount pledges to be collected within one year. To avoid recognizing contri butions as revenue before they are available for expenditure, not-for-profits should consider pledges of cash to be received in future period as subject to time restrictions. The FASB concluded that by promising to make payments in the future, donors implicitly restrict the donated resources to support of future, not current, activities. The recipient organizations should classify them as temporarily restricted. When the cash is received and available for expenditure, they should release resources from the temporarily restricted category.... Contributions also include unconditional promises-that is, pledges- to give those items in the future. Thus, pledges are regarded as contributions, although they exclude conditional promises to give these items in the future. A conditional promise depends on a specified future and uncertain event to bind the donor. For example, a university alumnus may pledge funds to construct a new physics laboratory if the university is successful in winning a government research grant. Contributions must be distinguished from exchange transactions. A contribution is a transfer of assets in which the donor does not expect to receive equal value in return. An exchange transaction is a reciprocal transfer in which each party receives and gives up resources of commensurate value. For example, if a private corporation were to give a not-for-profit research foundation funds to study the cause of a disease with the expectation that the results would be published in a scientific journal, the transaction would be considered a contribution. If, on the other hand, it gave the funds with the contractual agreement that it would have the rights to resultant patents, then the transaction would be an exchange transaction. The difference between the two is not always obvious. When people join the local Friends of the Library Association, do they do so to support the library's scholarly activities or to benefit for the right to attend member-only lectures Do they join the American Automobile Association to promote auto safety and good roads or to obtain emergency road service and travel directions Do they join the AARP to advance the interests of senior citizens or to take advantage of low-cost life and auto insurance