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					GIK Accounting for Accountants
     GIK Summit – December 7th-8th, 2009
             Washington DC
                   Panel Introduction


• Mary Vojtko – Food for the Hungry

• Katharina Stokes – MAP International

• Doug Risser – World Vision

• Benjamin Menenberg – World Vision
                Overview of Presentation


• Changes to AERDO Standard #5

• FAS 157 – Application to GIK Valuation

• PQMD Initiative update on pharmaceutical
  valuation

• GIK Financial Statement Disclosures
                    Changes to AERDO
                       Standard #5

• Recap from Morning Session

• Standard #5 Decision Tree

• GIK Transaction Scenarios




                               Changes to AERDO Standard #5
                 Recap from Morning Session

• 1999: 200% shared among partners, value added to
  shipment
• 2009: Requirements for revenue recognition:
   – Variance power – “the ability of the recipient organization to
     exercise control over the GIK donation to direct or redirect it
     without prior consent of the donor…When a donor specifies a
     beneficiary but does not provide an organization variance power, the
     organization is an Agent.”
   – Title and ownership, preferably in writing by donor
   – Organizations generally cannot co-own an asset and declare a
     percentage of the revenue for that asset. However, organizations
     can receive an allocation from a donor (in writing preferable).


  Note: please see ASC 958-605-25-25, 26 or the AERDO Standards appendix on page 30 for FASB
  definition of Variance power

                                                                   Changes to AERDO Standard #5
         Recap from Morning Session

• 2009: NPOs to evaluate: if NPO is an
  organization other than the initial recipient or
  end-use charity, should that NPO be involved in
  the transaction? Does that NPO add utility to
  the GIK donation? If the NPO does not increase
  the utility of the donation, the NPO should
  consider removing itself from the transaction.




                                     Changes to AERDO Standard #5
Standard #5 - Decision Tree




                      Changes to AERDO
                         Standard #5
                Transaction Scenarios


• Food for the Hungry

• MAP International
                       FAS 157 – Application to
                           GIK Valuation
Objectives
• A “follow-up” to Andrew Prather‟s FAS 157 discussion
  during the morning session
• Discuss supplemental Fair Value guidance
   – FASB Feedback Document – October 2008
   – FAS 157 Generic Document developed by World Vision
• Practical valuation tips
   – Finding “like-kind” inputs for valuation
   – Other factors to consider
• Contribution vs. exchange – donative intent

                                                FAS 157 - Application to GIK Valuation
                     Sources of Fair Value
                          Guidance
Primary Source
• FAS 157 (now included within Topic 820 in FASB
  Codification)
Secondary Sources
• FAS 116 (now included within Topic 958-605 in FASB
  Codification)
• AERDO Standards – Valuation Standard #3
• AICPA NPO Guide
• FASB Feedback Document – October 2008
• FAS 157 Generic Document developed by World
  Vision

                                    FAS 157 - Application to GIK Valuation
              FASB Feedback Document

Background
• July 2007 – NPO community began to realize
  that FAS 157 would have GIK implications
• October 2008 – FASB responded to various
  questions posed by NPO letter




                                  FAS 157 - Application to GIK Valuation
                  FASB Feedback Document

Summary of FASB Feedback Document
• Important clarifications provided by FASB
   – Market participants
   – Entity level versus asset level restrictions
   – Bulk discounts considerations




                                             FAS 157 - Application to GIK Valuation
                    FASB Feedback Document

Market Participants
Who are the market participants?
• Market participants – those who are able to transact for
                          the goods in reciprocal
  transactions
   – Donors/beneficiaries not included – non-reciprocal
      transactions
   – Commercial entities included – reciprocal
      transactions
Common Question: Are NPOs market participants?
• Answer: it depends on the NPO‟s role
   – NPOs can participate in a transaction as a donor, beneficiary, or
     a commercial entity
• NPOs are not a separate group of market participants
                                                    FAS 157 - Application to GIK Valuation
                  FASB Feedback Document

Entity-level versus asset-level restrictions
• Entity-level restriction – applies to entity, not
  asset itself
   – Example: NPO may be unable to sell GIK received
     due to IRC 170(e)(3)
• Asset-level restriction – applies to specific asset
   – Example: NPO receives a piece of property zoned for
     specific use
      • FV must reflect zoning restriction


                                             FAS 157 - Application to GIK Valuation
               FASB Feedback Document

Bulk Discount Considerations
• NPOs often receive large quantities in GIK
  donations
• FASB affirms AERDO recommendation that
  bulk discounts should be considered when
  determining value of GIK donations
  – See AERDO guidance in Standard #3




                                        FAS 157 - Application to GIK Valuation
               FAS 157 Generic Document

Accounting Considerations, Market and Valuation
• World Vision prepared a generic document for
  consideration by other NPOs
• Purpose of document:
   – To perform an analysis of FAS 157 and it‟s GIK
     implications
   – To synthesize FAS 157 implementation requirements
     with FASB Feedback Document responses, as well
     as various other accounting literature (AERDO
     Standards, FAS 116, etc.)

                                        FAS 157 - Application to GIK Valuation
              FAS 157 Generic Document

Organization of Document
• Analysis of FAS 157
• Application of Guidance
• Valuation Hierarchy and Procedures




                                   FAS 157 - Application to GIK Valuation
           FAS 157 Generic Document

Valuation Hierarchy and Procedures
Common Question: Can NPOs use donor-
 provided values to determine fair value?
  – Answer: Donor-provided values can be
    used as one input for valuation
  – However, NPOs have a responsibility to
    make an independent determination of
    fair value

                             FAS 157 - Application to GIK Valuation
             FAS 157 Generic Document

Opportunity to address questions regarding:
• Andrew Prather‟s presentation
• FAS 157 Generic Document




                                FAS 157 - Application to GIK Valuation
                 Practical Valuation Tips

How to Perform a “Like-kind” Valuation
• Like-kind valuation: find prices of similar/
identical products and apply to GIK being valued
• Potential Sources
   – Published catalog prices
   – Industry pricing guides
   – Inactive markets (i.e. eBay, specific retailers‟
     websites)
                                     FAS 157 - Application to GIK Valuation
                        Practical Valuation Tips

How to Perform a “Like-kind” Valuation (cont‟d)
Example policies:
• World Vision policy
   – Look for published/quoted price for identical product
   – If unavailable, find 5-7 published prices or quotes for similar
     products, eliminate high and low values, and use average of
     remaining values
   – Reduce this “retail” value to “wholesale” by % deemed
     appropriate for the industry
• Other NPO‟s policy – research a “discount store” value,
  no “wholesale” adjustment
• Key consideration: Each NPO must determine its own
  appropriate “like-kind” valuation policy
   – materiality considerations will differ for each NPO

                                                    FAS 157 - Application to GIK Valuation
                      Practical Valuation Tips

Other Valuation Factors to Consider
• Utility – consider when determining fair value
   – Question: how will GIK product be used?
       • Value based on intended usage
   – Lack of marketability should not eliminate the reasonable value
     recorded as revenue
       • Example – swimsuit donation received in winter would not
         necessarily be valued using winter prices

• Amount recorded by donor for tax purposes may differ
  from the amount recorded by the NPO for fair value
  purposes
                                                FAS 157 - Application to GIK Valuation
                       Contribution versus
                      Exchange Transaction
• AERDO Standard #5: “Under certain circumstances,
  it may be appropriate for an organization to record a
  transaction which is in part an exchange and in part a
  contribution. FASB ASC 958-605-55-6 says, „for
  example, if a donor transfers a building to an entity at
  a price significantly lower than its market value and
  no unstated rights or privileges are involved, the
  transaction is in part an exchange of assets and in part
  a contribution.‟”


                                       FAS 157 - Application to GIK Valuation
                       Contribution versus
                      Exchange Transaction
• For each transaction, it is necessary to assess the
  “donative intent” of the donor
• Ask the question: does the donor intend to give value
  beyond any handling/transaction fees?
• A transaction may be a contribution, exchange, or
  combination of the two




                                     FAS 157 - Application to GIK Valuation
                   PQMD Initiative Update on
                    Pharmaceutical Valuation
• In September of 2009, an advisory group was
  formed by the Partnership for Quality Medical
  Donations (PQMD), along with InterAction,
  AERDO, and various industry experts and NPOs
• PQMD‟s goals:
  – Review common practices in medical product/pharmaceutical
    donations and determine the impact of FAS 157 on these types
    of donations
  – Develop a common understanding and rational approach for
    NPOs working in this unique area of practice


                                          PQMD Initiative Update on Pharm. Valuation
                   PQMD Initiative Update on
                    Pharmaceutical Valuation
• Expected Deliverables:
  – Guiding principles for FAS 157 application to medical product/
    pharmaceutical donations
  – Recommended valuation decision tree
  – Sample disclosures and case studies
• Regardless of outcome: NPOs are responsible for
  exercising due professional care and judgment
  when determining fair value of medical product/
  pharmaceutical donations


                                          PQMD Initiative Update on Pharm. Valuation
                    GIK Financial Statement
                          Disclosures

• AERDO Standards Appendix – sample footnote
  disclosure
Forthcoming Guidance
• 2010 AICPA NPO Guide – will contain suggested
  footnote language to reflect FAS 157 requirements
• PQMD Initiative will suggest sample footnote disclosure




                                         GIK Financial Statement Disclosures
Questions?




      GIK Financial Statement Disclosures

				
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