Split Interest Agreement Accounting

Date Posted: April 12, 2021 by admin


Lee T. Sullivan, CPA, CGMA, is a director of Witt Mares plc and leads the company`s emergency profit team. Witt Mares, PLC is a regional accounting and consulting firm that looks after clients throughout mid-Atlantic. Please contact the author at lsullivan@wittmares.com or visit www.wittmares.com. Accounting for liabilities under an irrevocable inter-institutional agreement under the NFP guide could be contrary to accounting in accordance with Artide 133 as amended, if that liability contains an embedded derivative that meets the criteria of paragraph 12 of Statement 133 that require separate accounting of that derivative or if the fair value choice is made in accordance with Statement 155. General structure of a lead trust for an NFP organization: assets such as cash or shares are brought by the donor to control of the NFP organization (either by the role of the NFP organization as a trustee of a trust holding the assets, or directly by the organization NFP, which holds the assets as the general heritage of its organization). The NFP organization receives periodic cash payments (Lead interest) which are either a fixed dollar amount or a certain percentage of the fair value of assets at the beginning of each period. (Note: some of the assets can be liquidated to make the necessary payments.) If the contract is terminated, the remaining assets are reset to the donor`s donor or beneficiary (the rest of the interest). For the duration of the agreement, the NFP organization is responsible for the remaining interests. The responsibility of the NFP organization for its obligation to the donor`s donor or beneficiary is based in part on the fair value of the assets.

The new GASB 81 standard must be implemented retroactively by reassessing the financial statements for all pre-defined periods. If you have split-interest agreements, you may need to go through some old agreements to adopt the standard retroactively. The most important thing for adoption and enforcement to be successful is to conduct an individual review of each agreement to ensure adequate accounting. After the initial registration of irrevocable inter-state interest agreements, an organization must detect different transactions and events during the term of the contract. Where assets brought in under an irrevocable inter-institutional agreement are held or controlled by a third party, the organization should account for changes in the fair value of their economic interests using the same valuation technique it originally used to measure economic interests.





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