When Should a Not-for-Profit Net Special Event Revenue and Expense?
The appropriate presentation depends on whether the special event is a peripheral fundraising activity or an ongoing, major part of the organization’s operations.
Lucas Post, CPA
Manager
Fundraising events can be a meaningful source of revenue for many not-for-profit organizations. However, one area that can create confusion in financial statement preparation is whether special event activity should be presented on a gross basis or a net basis on the statement of activities. While some organizations present a single net amount for special event activity, that treatment is not always appropriate under U.S. GAAP.
What Does the Accounting Guidance Say?
For organizations reporting under ASC 958, the answer depends on whether the special event is considered a peripheral or incidental activity, or whether it rises to the level of an ongoing and major activity of the organization. That distinction can significantly affect presentation.
The first question is not whether the event was a fundraiser. The question is whether the event is a minor side activity of the organization or whether it is a significant recurring part of how the organization operates and raises support.
Net Presentation
When Net Presentation May Be Appropriate
Net presentation may be appropriate when the special event is peripheral or incidental to the organization.
In practice, that often means:
- The event is not an integral part of the organization’s usual activities.
- The event is not a major recurring strategy of the organization.
- The gross revenue and gross expenses from the event are not significant in relation to the organization’s annual budget.
A common example may be an annual gala, golf outing, dinner, or auction that helps support the mission but is not a major central activity of the organization’s operations. In those cases, management may conclude that net presentation is acceptable under GAAP.
Direct costs: Even when net presentation is appropriate, organizations should be careful about what is actually being netted. The costs netted against the event receipts should be limited to the direct costs of the event. Those direct costs often include items such as meals, entertainment, venue rental, and other amounts that directly benefit the attendee.
Gross Presentation
When Gross Presentation Is Required
Gross presentation is required when the special event is an ongoing and major activity of the organization.
That conclusion may be appropriate when:
- The event is part of the organization’s normal strategy and the organization regularly carries on that activity.
- The event’s gross revenue and gross expenses are significant in comparison to the organization’s annual budget.
This is an important point for management and finance teams. If an event has grown over time and now represents a substantial recurring revenue stream, it may no longer be appropriate to continue presenting it on a net basis simply because that is how it has historically been shown.
Revisit the conclusion: The accounting conclusion should be revisited as facts and circumstances change.
Net Presentation Is Allowed In Some Cases, But It Is Not Always Required
GAAP does not force every qualifying fundraising event to be presented net. If the event is peripheral or incidental, net presentation may be used. However, if the event is ongoing and major, gross presentation is required.
Accordingly, management should not treat netting as the automatic default for all fundraising events. Instead, the presentation should follow the nature and significance of the activity.
Why This Matters
This presentation question is more than a formatting decision. It affects how financial statement users understand the organization’s operations, fundraising model, and cost structure. Presenting a major recurring event net may understate the volume of fundraising activity and obscure the economics of the event. Presenting an incidental event gross may be acceptable in some circumstances, but organizations should apply their policy consistently and be prepared to support that presentation.
It is also important to remember that financial statement presentation and internal event reporting are not always the same exercise. Management may prefer to evaluate an event internally based on its net fundraising result, but the audited financial statements still need to follow the applicable GAAP presentation rules.
Management Considerations
If a special event meets the criteria for net presentation, management should consider whether that approach provides the clearest picture of the event’s economic benefit to the organization. Net presentation may be useful where management wants readers to focus on the amount ultimately raised, rather than on the gross inflows and direct costs associated with an incidental fundraising activity. It may also be appropriate where separate gross presentation would make the event appear more significant to the organization’s operations than it actually is. Even so, that decision should be made deliberately, applied consistently, and revisited when the event changes in size, frequency, or strategic importance.
Final Thoughts
Financial statement preparation is often viewed as a black-and-white process, with limited room for customization once the applicable GAAP guidance is identified. Special event presentation is a good example of an area where, assuming the criteria for net presentation are met, management may have a meaningful choice. Rather than treating that choice as merely a formatting decision, organizations can use this flexibility to select the presentation that best fits the needs of their financial statement users and most clearly reflects the role the event plays in the organization’s overall operations. When that judgment is made thoughtfully, documented appropriately, and applied consistently, it allows management to remain within U.S. GAAP while presenting financial information in a way that is most useful to the organization.
Questions About Your Financial Reporting?
Determining whether special event revenue and expenses should be presented gross or net can require judgment. HBE’s Nonprofit Team can help your organization evaluate the role and significance of its fundraising activities and apply the appropriate financial reporting guidance.
