ASC 958-20: Financially Interrelated Entities

"958-20-15-1 This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 958-10-15, with specific qualifications noted below.

958-20-15-2 The guidance in this Subtopic applies to entities that are financially interrelated. A recipient entity and a specified beneficiary are financially interrelated entities if the relationship between them has both of the following characteristics:

a. One entity has the ability to influence the operating and financial decisions of the other. The ability to exercise that influence may be demonstrated in several ways, including the following:

1. The entities are affiliates.

2. One entity has considerable representation on the governing board of the other entity.

3. The charter or bylaws of one entity limit its activities to those that are beneficial to the other entity.

4. An agreement between the entities allows one entity to actively participate in policymaking processes of the other, such as setting organizational priorities, budgets, and management compensation.

b. One entity has an ongoing economic interest in the net assets of the other. If the specified beneficiary has an ongoing economic interest in the net assets of the recipient entity, the beneficiary’s rights to the assets held by the recipient entity are residual rights; that is, the value of those rights increases or decreases as a result of the investment, fundraising, operating, and other activities of the recipient entity. Alternatively, but less common, a recipient entity may have an ongoing economic interest in the net assets of the specified beneficiary. If so, the recipient entity's rights are residual rights, and their value changes as a result of the operations of the beneficiary."

"958-20-15-3 The guidance in this Subtopic applies to the following types of transactions:

a. Transactions in which an entity—the donor—makes a contribution by transferring assets to a not-for-profit entity (NFP) or charitable trust—the recipient entity—that accepts the assets from the donor and agrees to use those assets on behalf of or transfer those assets, the return on investment of those assets, or both to a financially interrelated entity—the beneficiary—that is specified by the donor

b. Transfers that take place in a similar manner to (a) but are not contributions for either of the following reasons:

1. The entity that transfers the assets to the recipient entity—the resource provider—is related to the beneficiary in a way that causes the transfer to be reciprocal.

2. Conditions imposed by the resource provider or the relationships between the parties make the transfer of assets to the recipient entity revocable or repayable.

958-20-15-4 The guidance in this Subtopic applies to transfers addressed by the preceding paragraph of cash and other assets, including securities, land, buildings, use of facilities or utilities, materials and supplies, intangible assets, services, and unconditional promises to give those items in the future."

"958-20-25-1 Pursuant to paragraph 958-605-25-27, if a recipient entity and a specified beneficiary are financially interrelated entities and the recipient entity is not a trustee, the recipient entity shall recognize a contribution received when it receives assets (financial or nonfinancial) from the donor that are specified for the beneficiary. For example, a foundation that exists to raise, hold, and invest assets for the specified beneficiary or for a group of affiliates of which the specified beneficiary is a member generally is financially interrelated with the not-for-profit entity or entities (NFPs) it supports and recognizes contribution revenue when it receives assets from the donor. See Examples 1 through 3 (paragraphs 958-20-55-3 through 55-17) for illustrations of this guidance."

"958-20-25-2 If a beneficiary and a recipient entity are financially interrelated entities, the beneficiary shall recognize its interest in the net assets of the recipient entity. See Examples 1 through 3 (paragraphs 958-20-55-3 through 55-17) for illustrations of this guidance. Recognizing an interest in the net assets of the recipient entity and adjusting that interest for a share of the change in net assets of the recipient entity is similar to the equity method, which is described in Subtopic 323-10."

"958-20-25-4 A transfer of assets to a recipient entity is an equity transaction if all of the following conditions are present:

a. The resource provider specifies itself or its affiliate as the beneficiary.

b. The resource provider and the recipient entity are financially interrelated entities.

c. Neither the resource provider nor its affiliate expects payment of the transferred assets, although payment of investment return on the transferred assets may be expected.

958-20-25-5 If a resource provider specifies itself as beneficiary, it shall report an equity transaction as an interest in the net assets of the recipient entity (or as an increase in a previously recognized interest) (see paragraph 958-20-25-2).

958-20-25-6 If a resource provider specifies an affiliate as beneficiary of an equity transaction, the resource provider shall report an equity transaction as a separate line in its statement of activities, and the affiliate named as beneficiary shall report an interest in the net assets of the recipient entity (see paragraph 958-20-25-2).

958-20-25-7 If the resource provider specifies itself or its affiliate as the beneficiary and any of the conditions in paragraph 958-20-25-4(b) and 958-20-25-4(c) are not met, the transfer shall be accounted for as an asset by the resource provider and as a liability by the recipient entity, in accordance with paragraph 958-605-25-33."

"958-20-35-1 If the beneficiary has recognized an interest in the net assets of the recipient entity pursuant to paragraph 958-20-25-2, it shall adjust that interest for its share of the change in net assets of the recipient entity."

"Equity Transactions

958-20-45-1 A recipient entity shall report an equity transaction as a separate line item in its statement of activities. Paragraph 958-20-55-2B describes the difference between an equity transfer and an equity transaction. See paragraph 954-220-45-2 for guidance on how to present equity transfers for not-for-profit, business-oriented health care entities that present a performance indicator.

958-20-45-2 A resource provider shall report an equity transaction as a separate line in its statement of activities if it specifies an affiliate as beneficiary. See paragraph 958-20-25-4 for the conditions that determine if a transfer is an equity transaction.

Beneficiary's Interest in the Net Assets of a Recipient Entity

958-20-45-3 If the beneficiary and the recipient entity are included in consolidated financial statements, the beneficiary’s interest in the net assets of the recipient entity shall be eliminated in accordance with paragraph 810-10-45-1."

"958-20-50-1 If a not-for-profit entity (NFP) transfers assets to a recipient entity in an equity transaction (see paragraph 958-20-25-4), it shall disclose the information required by paragraph 958-605-50-6 for each period for which a statement of financial position is presented."