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Business and Policy Areas
Business and Policy Areas

AICPA Issues Paper on Fair Value for Public Comment

January 14, 2010

The Accounting Standards Executive Committee (AcSEC) of the American Institute of Certified Public Accountants (AICPA) has released a draft issues paper, FASB Accounting Standards Codification Section (ASC) 820, "Fair Value Measurements and Disclosures, for Certain Issues Pertaining to Not-for-Profit Entities." The draft issues paper discusses fair value measurement for certain issues pertaining to not-for-profit entities (NFPs).

NFPs face various challenges in applying the provisions of FASB ASC 820 (which codifies FASB Statement No. 157, "Fair Value Measurements"). Many of these challenges result from the fact that markets don't exist for these assets and liabilities. This draft issues paper discusses the provisions of FASB ASC 820 and provides the AcSEC's nonauthoritative views pertaining to:

  • Unconditional promises to give
  • Beneficial interests in perpetual trusts
  • Split interest agreements

Concerning unconditional promises to give, the paper addresses promises to give cash that are expected to be collected in less than one year and time periods extending beyond one year. The paper discusses valuation techniques that encompass the income approach, cost approach, and the pros and cons of various present value techniques. The paper also analyzes the many cash flow and discount rate considerations used to estimate present value.

Regarding beneficial interests in perpetual trusts, the paper notes that both investment control by trustees and the risk premium related to trust investments have no impact on the estimated fair value of the interest in the trust. Essentially, AcSEC believes that the guidance in FASB ASC 958-605-30-14 (and footnote 17 of chapter 6 in the "Not-for-Profit Organizations Guide") continues to be relevant in measuring a not-for-profit's interest in a perpetual trust in accordance with FASB ASC 820.

Finally, the paper provides information and definitions of the various types of split interest agreements, including charitable remainder trusts, charitable gift annuities, and pooled income funds. AcSEC acknowledges that present value and other valuation techniques are available and acceptable under FASB ASC 820, and delves into the many issues surrounding market and discount rate approaches to fair value measurement. Of interest are valuation discussions concerning liabilities under remainder agreements with both fixed and variable payments.

The issues paper is lengthy, includes exhibits and examples, and is exposed for comment until March 17, 2010. NACUBO urges independent institutions and not-for-profit foundations affiliated with public institutions to comment directly to the AICPA or provide comments to NACUBO for inclusion in an industry comment letter.


Sue Menditto
Director, Accounting Policy