The Nonprofit FAQ

Guidance on accounting for equity investments by nonprofits

Sara Olsen wrote on June 15, 2001: I am a corporate librarian and have been asked to find out how non-profit groups and foundations handle private equity investments. Is this something you have investigated in the past? Any information or advice you could provide me with would be greatly appreciated. Rob Fleming, who heads up the nonprofit group at the Bellevue, WA, accounting firm Clark, Nuber (http://www.cnuber.com), provided this reply: There are two pieces of accounting literature that provide guidance on accounting for equity investments by nonprofit organizations. The Financial Accounting Standards Board (FASB), the rule making body for accounting standards, has issued FASB Statement 124, "Accounting for Certain Investments Held by Not-for-Profit Organizations". It provides guidance for valuation of, and reporting for, all investments with a readily determinable fair values (i.e. publicly traded stock) and investments in debt securities (i.e. bonds). These type of investments are reported at market value, not cost. Each year the np would have unrealized gains and losses reported in its income statement resulting from adjusting investments to market. Guidance for reporting for other types of investments, such as investments in real estate, venture capital funds, partnership interests, and private (nonpublic) equity investments, which I believe is what you are asking about, is covered by the American Institute of CPAs Audit and Accounting Guide for Not-for-Profit Organizations, Chapter 8. It says that these types of investments may be reported at either original cost or at market value, but the same method should be used for all of the same type of investments. As a practical matter, we usually recommend that private equity investments be carried at original cost because periodically determining fair market value is too difficult. Posted 6/29/01 -- PB