EITF 12-B: Interpreted As Dramatic Narrative

Emerging Issues Task Force (EITF) – Issue 12-B has the same dynamic tension as the narrative in The Hunger Games and end with a killer cliff-hanger. This is the set-up:

The Protagonist: Affiliated nonprofits with separate governance.

The Game: Shared employees.

At Stake: Do you recognize contributed services if employees for Player A work for Player B, although Player A pays their compensation and Player B doesn’t have to reimburse Player A? Does Player B recognize contributed services and at what cost?

Deep in the Codification, Player B knows that paragraph 958-605-25-16 says that such services should be recognized if they create or enhance nonfinancial assets, or they require specialized skills that would typically need to be purchased. BUT! If Player A and Player B are affiliated, is it fair for Player B to recognize contributed service revenue? Should it be at fair value or cost? TWIST!

The jury is split because there are conflicting points of view. The tension is palpable.

One view is that ALL services that are regularly performed by employees of an affiliated entity – whether or not they qualify under Paragraph 958-605-25-16 – should be recognized by Player B as contributed service revenue and associated expense at the known cost to Player A. Put it all on the table. Show your resources. Show what your true costs are.

Opponents to this view observe that it’s possible the fair value of the services received might not be the same as the known costs. Services qualified under Paragraph 958-605-25-16 should be recognized at fair value and non-qualifying services should be recorded at cost, according to the opposition. The argument against this mixed-measurement proposal is that it’s going to get complex and overly burdensome.

Rogue players are suggesting it should all hang on whether Player B controls and directs the services performed or if Player A controls them.

The only thing they can all agree on is that there should be no extensive additional disclosures and no retroactive application requirements (although it would be an option).

The Cliff-hanger: They haven’t decided anything. We will stay on the edge of our seats as they duke it out and when they alert us that they’ve come to some decision. Only then will we know the impact on the players.

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