Accounting and Reporting for Not-for-Profit Organizations

Case Study 15

Programmatic Investments

Learning objectives

• Determine the appropriate accounting for recording and recognizing programmatic investments (PI).
• Identify the meaning of PI.

Background

Instead of making cash grants to their constituencies, some not-for-profits (NFPs) provide benefits in the form of financial instruments. These investments have as their primary purpose the achievement of their programmatic tax exempt mission (in other words, a long-term low interest note to a foundation for the purpose of building a community center). This case discusses the three most common types of PI — loans, equity interests, and guarantees — and the appropriate accounting and reporting treatment.

PI benefit the recipients with access to capital (typically at better terms than the market) while allowing the NFP to achieve its mission.

NFPs must assess the transaction when the initial investment transaction occurs to ensure the investment furthers the NFP’s missions and offers financial returns. Most PIs include an element of a contribution because the main purpose is enhancing the mission. Therefore, the expectation of income is not expected to be significant. However, the investments are subject to the accounting standards for financial instruments (clearly excluding the contributions element). Guarantees are subject to FASB Accounting Standards Codification 460, Guarantees.

Loans may be reported as a loan receivable, contribution, or combination of both depending on the ...