Definition
ASC 958-605-25-16 sets two tests for recognizing contributed services. Services are recognized if they create or enhance nonfinancial assets, such as volunteer labor that builds a facility. Services also qualify if they require specialized skills, are provided by individuals who have those skills, and would typically need to be purchased if not donated. Examples include accountants, lawyers, nurses, and electricians. General volunteer time, such as stuffing envelopes, does not meet either test. Recognized services are measured at fair value and recorded as both revenue and expense (or a capitalized asset).
Why it matters in an audit or review
Auditors review the nonprofit's process for tracking donated hours, ask who performed services, and test the rate used to measure fair value against what the organization would pay. Recognized amounts are presented in the separate line for contributed nonfinancial assets and disclosed by category, with the valuation techniques used.
Example
Illustrative: a law firm donates 40 hours of legal advice that the charity would otherwise buy at $250 per hour. The nonprofit records $10,000 of contribution revenue and $10,000 of legal expense.
Common mistakes
- Recording all volunteer hours at a generic hourly rate.
- Forgetting the matching expense.
Sources
- FASB ASC 958-605-25-16, contributed services recognition criteria
- FASB ASU 2020-07, Contributed Nonfinancial Assets (presentation and disclosure): https://storage.fasb.org/ASU_2020-07.pdf
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error