The Governmental Accounting Standards Board (GASB) on March 29 released recognition and measurement guidance for state and local governments that benefit from irrevocable split-interest agreements.
Under this type of giving arrangement, a donor transfers assets for the shared benefit of at least two beneficiaries: a government (often a public college, university, or hospital) and another beneficiary designated by the donor. The donor transfers the related assets to either the government or to a separate third party, such as a bank.
Examples of such agreements include charitable lead trusts, charitable remainder trusts, charitable annuity gifts, and life interests in real estate.
GASB Statement No. 81, Irrevocable Split-Interest Agreements, addresses when these types of arrangements constitute an asset for accounting and financial reporting purposes when the resources are administered by a third party. Statement No. 81 also provides expanded guidance for circumstances in which the government holds the assets.
The new guidance would require a government that receives resources under an irrevocable split-interest agreement to recognize assets, liabilities, and deferred inflows of resources at the inception of the agreement.
Also, a government would be obligated to recognize assets representing its beneficial interest in such agreements that are administered by a third party if the government controls the present service capacity of the beneficial interests, according to the GASB.
The standard requires that a government recognize revenue when the resources become applicable to the reporting period.
“The types of agreements addressed by Statement 81 can represent significant resources for certain public colleges, universities, and hospitals,” GASB Chairman David Vaudt said in a written statement. “This guidance will lead to more consistent accounting for these agreements, which will allow users access to more comparable information about them.”
The requirements of Statement No. 81 go into effect for financial statements for periods beginning after Dec. 15, 2016, and should be applied retroactively. Earlier application is encouraged.