Not-for-profit entities (NFPs) are under continuous press to devote a boosting percentage of their expenditures to accomplishing their mission programs. While this goal sounds appealing, the NFP have to also perdevelop administration tasks to operate the NFP successfully and also maintain sustainable fundincreasing initiatives to assistance the company.

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NFP ratings agencies use the percentage of costs devoted to programming as a vital component in the formulas they usage to monitor, rate, and also compare NFPs. Because of the reliance on and also ease of availability of this information, donors and the push likewise track these percenteras very closely.

NFPs regularly host occasions, create newsletters or videos, or conduct other tasks that both serve their mission programs and carry out fundelevating methods. The prices regarded these joint tasks are accordingly allocated in component to regime prices and also in part to fundelevating or administration and also basic expenses. That allocation deserve to show up rather subjective and also has actually come under raised scrutiny.

Recent media reports have actually questioned the efficacy and also subjective nature of NFPs’ reporting of joint costs. Indeed, the danger of improper allocation makes bookkeeping for prices of activities that include joint costs a complicated location for NFPs and also their auditors.

This is not a new worry for the profession. Industry guidance to deal with criticism in this area days to 1964. In 1998, the AICPA embraced Statement of Position (SOP) 98-2, Accounting for Costs of Activities of Not-for-Profit Organizations and State and Local Governpsychological Entities That Include Fund Raising, which is now part of FASB ASC Subtopic 958-720, Not-for-Profit Entities–Other Expenses. With an enhanced emphasis on the price of fundincreasing being provided as an market benchnote, it is incumbent on monitoring and also auditors of NFPs to understand also and continuously use these rules to accurately report these prices.

As pressures increase for NFPs to be effective and efficient in moving on their missions, combining like tasks can be a effective method of addressing widespread audiences. When appropriately applied, the criteria set forth in the accountancy criteria assistance the identification of joint costs that meet the need for alarea once a fundraising appeal exists. The guidance describes acceptable allocation techniques in order to carry out a regular frame for allocating these expenses and also also details disclosure needs intfinished to promote transparency in this location.


To determine valid activities that would call for the alarea of joint prices, three criteria regarded function, audience, and also content have to be evaluated. Processes for testimonial of these criteria are defined in the Accounting for Joint Activities flowchart in ASC Paragraph 958-720-55-2, Not-for-Profit Entities—Other Expenses—Implementation Guidance and Illustrations—Flowchart of Application of the Criteria for Classification of Joint Costs.

The purpose criterion is met if the objective of the fundelevating task includes accomplishing program or management and general functions and also these attributes satisfy the definitions collection forth in paragraphs 33–37 of ASC Section 958-720-45, Not-for-Profit Entities—Other Expenses—Other Presentation Matters. Program functions have to speak to for a details activity by the audience to assist accomplish the NFP’s mission. Such calls for activity need to advantage either the recipient individually or society in its entirety.

Three tests to evaluate whether the purpose criterion is met are the compensation-or-fees test, the separate-and-similar-activities test, and the other-evidence test:

Compensation-or-fees test. The fundamental premise is that the function criterion is not met if a bulk of compensation or fees for any kind of party’s performance of any kind of component of the discrete joint activity is tied to contributions elevated. For instance, if a commission-based fundelevating consultant is supplied for any type of part of the activity, the activity would certainly fail this test. The compensation-or-fees test is a negative test. It either results in failing the purpose criterion or does not identify whether the purpose criterion is met. Separate-and-similar-activities test. The function criterion deserve to be established to be met under this test if a comparable routine or management and basic activity is carried out independently and on a comparable or better range. These tests might not always be determiaboriginal. Other-evidence test. All easily accessible evidence, both positive and negative, have to be thought about to identify whether, based upon the weight of that evidence, the objective criterion is met under this test.

For the audience criterion, unmuch less sufficient proof to justify other useful classification exists, the activity should be taken into consideration totally fundraising (i.e., the audience criterion is not met) if the audience includes prior donors or is otherwise selected for the likelihood to contribute to the NFP. For instance, a mailing through a fundelevating appeal to a list of prior donors would certainly fail the audience criterion and also be taken into consideration fundelevating costs. ASC Section 958-720-55 gives additional guidance for the audience criterion.

The content criterion is met if the joint activity supports routine or administration and also basic features.

As defined, regime tasks have actually calls for activity that need to either benefit the recipient or advantage culture. A contact for an individual to enhance his or her health and wellness by quitting smoking is an example of a call to action that helps achieve an NFP’s mission that includes improving individuals’ physical health and wellness. Material that simply educates an audience about a cause and fails to contact for a details action is thought about support of fundraising. Specific situations regarded educational institutions are included in the guidance; refer to paragraphs 22–24 of ASC Section 958-720-55 for even more details.

Some fundincreasing activities conducted in conjunction via regime or monitoring and general tasks are incidental to such activities. The guidance permits for, but does not call for, allocation of joint prices in these instances. However, in circumstances in which the program or management and basic tasks are incidental to the fundelevating tasks, it is unlikely that the criteria to permit alplace of joint expenses would certainly be met.


To appropriately alsituate joint prices, the allocation methodology provided need to be rational and also systematic; it must result in an allocation of joint costs that is reasonable; and also it have to be applied repetitively given similar facts and situations. Some examples of alplace ideologies encompass the physical-devices, relative-direct-cost, and also stand-alone joint-cost-alarea approaches. Under the physical-systems method, expenses are proportionally allocated to the number of units of output, such as lines or square inches. The relative-direct-cost strategy supplies the relative direct expenses of each component to alfind instraight expenses. The stand-alone approach determines proportions based on what each component of task would certainly price if carried out individually. Care must be taken with each of these methodologies so that they perform not provide an unreasonable alarea offered the situations.  DISCLOSURES

ASC Paragraph 958-720-50-2, Not-for-Profit Entities—Other Expenses—Disclosure—Accounting for Costs of Activities That Include Fundraising, needs that an NFP that allocates joint expenses discshed the kinds of tasks for which joint costs have actually been incurred, a statement that such expenses have been allocated, the full amount allocated throughout the duration, and also the percentage allocated to each practical cost category. An NFP is also encouraged, but not required, to discshed the amount of joint costs for each type of joint task, if practical.


Several examples that are contained in the FASB Accounting Standards Codification assist to highlight the joint expense concepts and also illustrate the review of the three criteria. Additional examples deserve to be discovered in ASC Section 958-720-55.

Example 1. NFP A’s mission is to proccasion drug abuse, through one of its goals being to aid paleas in preventing their youngsters from abmaking use of drugs. NFP A mails informational materials to the parents of all junior high college students explaining the prevalence and risks of drug abuse. The materials encourage parental fees to counsel kids around the risks of drug abuse and inform them about just how to detect it. The mailing likewise consists of a research for contributions. NFP A also conducts other tasks informing the public about the risks of drug abusage and also encouraging parental fees to counsel their youngsters around drug abuse that carry out not encompass requests for contributions and that are conducted utilizing various media.

In this example, the objective, audience, and content criteria are met, and also the joint expenses have to be allocated. The purpose criterion is met based upon the proof bereason (1) the routine component of this activity calls for particular activity by the recipient (encouraging parents to counsel kids about the risks of drug abuse) that will help accomplish the NFP’s mission, and also it otherwise conducts the regime task in this example without a research for contributions, and (2) percreating such programs helps accomplish the NFP’s mission. The audience criterion is met bereason the audience (parental fees of all junior high school students) is selected based upon its have to use or reasonable potential to usage the action called for by the routine component. Finally, the content criterion is met bereason the activity calls for specific activity by the recipient (encouraging paleas to counsel youngsters about the risks of drug abuse and also informing them around how to detect drug abuse) that will certainly assist accomplish the NFP’s mission (assisting paleas in preventing their youngsters from abutilizing drugs), and also it explains the need for and also benefits of the activity (the ubiquity and also threats of drug abuse).

Example 2. All the facts in Example 1 reprimary the same; however, the audience was selected from a list written of prior donors. In this instance, the objective and content criteria are met; yet, the audience criterion is not met because the audience includes prior donors. Although the audience has a must usage or reasonable potential for use of the program component, that was an inconsiderable factor in its selection. All expenses, including those that might otherwise be considered regimen or management and also basic expenses if they had actually been incurred in a various task, should be charged to fundincreasing.

Example 3. NFP C is a university whose mission is to educate the public (students) in assorted academic searches. The university’s political scientific research department holds a special lecture series in which influential civilization leaders soptimal about current events. Admission is priced at $250, which is above the $50 fair value of the lecture and also, therefore, $200 of the admission price is a contribution. As a result, the audience’s likelihood to add to the university is a significant factor in its selection. The university advertises the lectures by sfinishing invitations to prior attendees and to prior donors who have contributed significant quantities, and also by placing advertisements in neighborhood newsrecords check out by the general public. The university presents equivalent lectures that are priced at the fair worth. In this situation, the objective and content criteria are met. The audience criterion is not met. Because of this, expenses that might otherwise be considered routine or administration and also general costs excluding the expenses of the direct donor benefit (the lecture), have to be charged to fundraising. Keep in mind that the purchase of the tickets is an exchange transaction and also, therefore, is not a contribution.

The function criterion is met bereason (1) the regimen component of the task calls for certain activity by the recipient that will certainly help accomplish the university’s mission (educating the public in various academic pursuits) and also (2) the regime is additionally conducted utilizing the very same medium on a range that is similar to or greater than the range on which it is carried out with the repursuit for contributions (various other lectures in the series are performed on a scale similar to the range of the lecture in this example without including a contribution in the admission price).

The audience criterion is not met because the audience is schosen based on its likelihood to contribute to the university. The reality that the $250 admission price consists of a $200 contribution leads to the conclusion that the audience’s ability or likelihood to contribute is an overwhelmingly substantial aspect in its selection, whereas tbelow is no evidence that the audience is selected for its should use or reasonable potential for usage of the activity referred to as for by the regimen component (attending the lecture).

Finally, the content criterion is met because the activity calls for particular action by the recipient (attending the lecture) that will certainly assist achieve the university’s mission (educating the public in various academic pursuits), and the need for and benefits of the activity are plainly apparent (attfinishing the lecture is a positive educational experience).

Example 4. NFP D’s mission is to administer food, clothes, and clinical treatment to children in occurring nations. NFP D conducts tv broadcasts in the United States that define its programs, show the needy children, and conclude with appeals for contributions. NFP D’s operating policies and also internal management memoranda state that these programs are designed to educate the public about the demands of youngsters in emerging countries and also to achieve contributions. In this instance, the function, audience, and also content criteria are not met. All costs have to be charged to fundelevating. The activity does not include a contact for particular action because it only educates the audience around reasons. The audience criterion is not met because the audience is selected based upon its capability or likelihood to contribute, quite than based upon its should use or reasonable potential for usage of the activity dubbed for by the program component, or its capability to take activity to help the NFP in meeting the purposes of the regimen component of the activity. (The audience is a vast segment of the populace of a country that is not in require of or has no reasonable potential for usage of the regime task.)  CONCLUSION

An NFP’s administration has the obligation to assess joint tasks for these criteria to ensure they are met and also that joint expenses are accounted for under the present accountancy standards. If product, an auditor has the responsibility to perform steps to obtain audit evidence around the quantities and disclosures for joint expenses. With Each Other, scrutiny by NFPs and their auditors have the right to aid boost confidence in using this typical. Properly used, these accounting requirements provide a framework for ensuring that the allocations are continuous and valid.

Editor’s note: This write-up was submitted on befifty percent of the AICPA Not-for-Profit Entities Expert Panel, of which the writer, Joseph Cruitt, is a member.


Not-for-profits (NFPs) often conduct activities that mix regimen activities and fundelevating. Management is responsible for ensuring appropriate cost alarea for these tasks to facilitate specific reporting in NFP financial statements.

Three criteria need to be evaluated to determine valid activities that would require the allocation of joint prices. These criteria are concerned function, audience, and also content.

The alplace methodology have to be rational, systematic, and used repeatedly. Instances of alarea philosophies incorporate the physical-systems, relative-direct-cost, and stand-alone joint-cost-alplace techniques.

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FASB needs NFPs to discshed the forms of activities for which joint expenses have been incurred. Also forced are a statement that such prices have been allocated, the total amount allocated throughout the period, and also the portion alsituated to each functional expense category. If practical, an NFP is additionally encouraged to discshed the amount of joint expenses for each kind of joint task.