Irrevocable Charitable Trusts
Research Description: The initial objectives of this pre-agenda research are (1) to identify the types of irrevocable charitable trusts encountered in the government environment and (2) to consider whether resources held for the exclusive benefit of governments in these irrevocable trusts meet the definition of an asset of the beneficiary governments. The research should provide the Board with the information necessary to consider whether additional guidance is needed and, if so, support deliberations over developing specific accounting and financial reporting standards.
Status: Added to Research Agenda: December 2013
IRREVOCABLE CHARITABLE TRUSTS—PROJECT PLAN
Background:Questions about the appropriate reporting in irrevocable trust situations occasionally come to the GASB. Discussions with practitioners and auditors suggest that practice varies. Some constituents believe that the recognition criteria in Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, are not met and recognition is not appropriate. Paragraph 22 from Statement 33 states:
Other constituents do not see a substantive difference between permanent endowments received by an institution (and subsequently transferred to independent investment managers) and resources deposited directly into an irrevocable trust.
Private institutions, under the guidance of Financial Accounting Standards Board Statement No. 136, Transfers of Assets to a Not-for Profit Organization or Charitable Trust That Raises or Holds Contributions for Others, recognize the resources held in an irrevocable trust as assets and the contributions into the trust as revenues. Paragraph 15 of Statement 136 states:
Major Research Issues: An irrevocable trust is an arrangement in which contributions of resources, once made by a contributor, can no longer be accessed by that contributor. Further, the trust cannot be altered or terminated without the acquiescence of the beneficiaries of the trust.
The following issues will be considered during the pre-agenda research stage:
- What types of trust arrangements are in used in practice?
- Does the substance of trust arrangements currently used in practice define the resources held and govern their access and use in ways that could meet the definition of an asset and the criteria for revenue recognition?
- If the trust arrangements do not meet the definition of an asset, should the resources be disclosed in the notes to the financial statements?
Research Work Plan: The research will consist principally of a literature review and archival research. The literature review will likely be brief, as the standards are already well understood. The staff will speak with staff of the FASB to explore what issues, if any, have arisen in practice regarding the application of FASB Statement No. 136, Transfers of Assets to a Not-for Profit Organization or Charitable Trust That Raises or Holds Contributions for Others (ASC Topic 958). The archival research will examine the financial reports of governments that have irrevocable trusts.
The research might also include a brief set of interviews with preparers of financial statements for governments with irrevocable charitable trusts and auditors of such governments, as well as with users of those governments’ financial reports. The purpose of these interviews will be to further explore what issues, if any, governments and auditors have had in accounting for irrevocable charitable trusts. Interviews with users will be intended to determine how important information about irrevocable charitable trusts is to them and what information, if any, they require for making decisions or assessing accountability.
|Board Meetings||Research Activities
Archival research; review relevant literature and guidance of other standards setters.
|February–March 2014:||Conduct interviews, if necessary, and draft research memorandum.|
|April 2014:||Review results of research with the Board and consider addition of project to the current agenda.|