Accounting and Reporting for Not-for-Profit Organizations

Case Study 13

Relationships With Other Entities

Learning objectives

• Identify the rules for consolidation when a not-for-profit (NFP) has a relationship with another NFP entity.
• Identify the rules for consolidation when an NFP has a relationship with a for-profit entity.

Relationships with other NFPs

Background

NFPs can have a relationship with another NFP and that relationship can take a variety of various forms:

• A controlling financial interest through direct or indirect ownership of a majority voting interest or sole corporate membership in the other NFP
• Control of a related but separate NFP through a majority voting interest in the board of that NFP by means other than ownership or sole corporate membership and an economic interest in that other NFP
• An economic interest in the other NFP combined with control through means other than those listed already
• Either an economic interest in the other NFP or control of the other NFP, but not both

Definitions

Control:

Control can be either the direct or indirect ability to determine the direction of management and policies through ownership, contract, or otherwise.

Economic interest:

Economic interest represents an NFP’s interest in another entity that exists if any the other entity holds or uses significant resources that must be used for purposes of the NFP, either directly or indirectly by producing income or providing services, or the NFP is responsible for the liabilities of the other entity.

Examples of economic ...