Under what condition are donated services recognized on the financial statements of NFP organizations?

Donated services can be recognized in the financial statements of nonprofit organizations if they meet specific criteria concerning the nature and skill level of the services provided. This recognition is consistent with generally accepted accounting principles for nonprofits, particularly as outlined in the Financial Accounting Standards Board (FASB) Statement No. 116.

The criteria set forth include:

1. The donated services must require specialized skills that would otherwise need to be purchased if not donated (for example, legal services, accounting services, or any services requiring professional certification).

2. The services must enhance the value of non-financial assets or support programs that the organization is pursuing.

If these services do not meet both criteria, they are generally not recognized in the financial statements, even though they are beneficial to the organization. Thus, recognition is not granted merely due to the fact that they are donated; rather, it is dependent upon fulfilling the established standards that pertain to the skillset and impact of the donation. This principle reflects the importance of reliable and relevant information in the financial reporting of nonprofit organizations.