The new GASB 81 standard should be applied retroactively by re-presenting the financial statements for all prior periods presented. If you have split interest agreements, you may need to go online with old agreements to adopt the standard retroactively. The main key to successful acceptance and application is to verify each agreement separately to ensure proper accounting. Chapter 6 of the AICPA Audit and Accounting Guide, a non-profit organization (NFP Guide), discusses the accounting for irrevocable splitting interest agreements entered into by PAMN organizations. In an irrevocable split interest agreement, the giver may give the NFP organization the right to control the contributed assets either by appointing them (1) as trustee of the trust holding the assets, or (2) by giving them the right to hold the assets as general assets of their organization. In both cases, assets are recognised at fair value in the balance sheet of the NFP organisation when they are retained. The obligation for the NFP organisation to make certain cash payments to a designated beneficiary or to transfer the remaining assets to the donor or donor recipient is recognised as a liability1 and measured on the basis of the present value of the expected future payments to the beneficiary. While the PNP entity`s liability may correspond to fair value by chance, this liability is not measured at fair value in accordance with generally accepted accounting principles (GAAP), as the NFP Guide requires that the discount rate used to estimate the present value of expected future payments to the recipient be determined at the time the contribution is first considered and not be revised later. Split interest agreements, also known as planned grants, are contributions that transfer the legal rights of certain assets to a PNR and other beneficiaries. As a general rule, the conditions of these contributions do not allow the donor to revoke the gift and are therefore considered an unconditional instruction.
The most common type of interest rate distribution agreement provides that the donor receives each year, for a given period, a fixed payment (often expressed as a percentage of the initial contribution), either a fixed number of years or the remaining life of the donor. Example 6: Lead Trust (periodic, fixed or variable payments) An NFP organisation receives cash from a donor invested by the NFP organisation in ordinary shares. The donor designates the organization as the primary beneficiary. At the beginning of each fiscal year, the PNN organization receives, for a given period, an annual cash payment corresponding to a fixed amount or a certain percentage of the fair value of the investment. After this period, the remaining assets are returned to the donor or recipient of the donor. During the term of the agreement, the NFP organization has a responsibility that must be divided. According to paragraph 12, liabilities are a hybrid instrument consisting of a sub-host contract and an integrated equity-based derivative that is not clearly and closely linked to the debt host and would meet the definition of a derivative if it were free. In other words, it has an underlying (share price) and a nominal amount (number of shares at the beginning of each financial year), it fulfils the initial non-minor net investment characteristic set out in point (b) of paragraph 6, and that it would meet the net settlement characteristic referred to in point (c) of paragraph 6. Whether the lead interest rate is fixed or variable, the value of the liability that represents the remaining interest rate of the remaining assets paid to the donor or donor`s recipient at the end of the agreement is influenced by changes in the value of equity, so that the equity-based derivative must be divided, unless an election at fair value is made in accordance with declaration 155. . .