The worth of an item or service is clear in the business world: whatever people will pay for it.
In the nonprofit sector, however, the value of donated goods, rather than money, can be a source of problems.
During the American Institute of CPAs (AICPA) Not-for-Profit Industry Conference, Jennifer Brenner and Gregg Capin said that one especially troublesome area with gifts in kind (GIK) is that of valuation. What is it worth?
Brenner and Capin offered the following thoughts about GIK valuation:
- A nonprofit’s management should be aware of material value issues.
- A nonprofit should develop a consistent, reasonable process to assess and record the fair value of GIK.
- Management should document its assessments and conclusions around material issues.
- Management’s choses methodology will have varying levels of effort. It should consider whether incremental effort has advanced benefit.
- Independent auditors will assess the methodology used to value GIK, but the burden of valuation rests with management, not the auditors.
- Auditors should review a client’s documentation in addition to preparing their own analysis.
- Nonprofits should identify adequate minimum standards over the GIK supply chain.
- Nonprofits should engage and monitor GIK partners.
Nonprofits should enhance key disclosures for GIK to allow readers to discern significant assumptions and compare organizations.