Joint Costs

There are many fund-raising activities from which a nonprofit organization may choose to solicit funds.  Depending on the type of fund-raising activity chosen by the organization, the activity may include joint activities that incur costs that would otherwise be associated with program or supporting services.

For organizations that report functional classifications of costs, AICPA Statement of Position (SOP) 98-2 establishes financial accounting standards for accounting for costs of joint activities related to fund-raising in order to provide assurance to external users of financial statements that fund-raising and other functional classifications of costs are stated fairly. If the fund-raising activity is considered a joint activity meeting certain criteria outlined in SOP 98-2, the costs attributable to a particular function should be charged to that function and the remaining joint costs that cannot be attributed to a particular function should be allocated between functional classifications. If the activity does not meet these criteria, all of the costs of the joint activity should be reported as fund-raising, with the exception of costs incurred for exchange transactions. If the joint costs are allocated, the organization should allocate costs using a rational and systematic method that results in a reasonable allocation of costs, applied consistently.

SOP 98-2 also requires financial statement disclosures about the nature of the activities for which joint costs have been allocated and the amounts of joint costs.

See AICPA SOP 98-2, <em>Accounting for Costs of Activities of Not-for-Profit Organizations and State and Local Governmental Entities That Include Fund Raising</em> for more information and specific examples related to this topic.