Legislative effort in California to change accounting for Gifts in Kind – part 1

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Update – Mark Hrywna (@mhrywna) tweeted on 6/17/19 the Senate Judiciary committee has scheduled a hearing for A.B. 1181 on 7/9/19.

The Assembly of the California legislature has passed Assembly Bill No. 1181 (A.B. 1181) which, if passed by the Senate, would require charities to use overseas valuations for donated items which are restricted by donors for distribution overseas.

As discussed in a series of earlier posts, the Attorney General has lost the substantive issues on cease and desist orders against three charities in a hearing. The Administrative Law Judge in the case found the expert witnesses for the charities was more persuasive that the expert witness for the AG. Thus the ALJ indicate he will decide in favor of the charities’ interpretation of GAAP. I don’t think a written ruling has been issued yet.

Proposed changes in law

The current law with changes made by this legislation are as follows, with red strikeout showing the removed text and blue italic showing new text.

Section 17510.5 of the Business and Professions Code is amended to read:


(a) The financial records of a soliciting organization shall be maintained on the basis of generally accepted accounting principles as defined by the American Institute of Certified Public Accountants, the Governmental Accounting Standards Board, or the  established by the Financial Accounting Standards Board.

(b) The disclosure requirement of paragraph (7) (4)  of subdivision (a) of Section 17510.3 shall be based on the same accounting principles used to maintain the soliciting organization’s financial records.

(c) Notwithstanding subdivision (a), if a noncash contribution received by a charitable organization is restricted by the donor so that it cannot be used in the United States, the contribution shall be valued using the fair value of the end recipient market or a reasonable estimate thereof if the end recipient market value cannot be ascertained following a reasonable inquiry. If the end recipient market is unknown when the noncash contribution is received, the charitable organization shall value the contribution using only those markets in which the contribution is reasonably likely to be distributed or used, taking all facts and circumstances into consideration, and which are consistent with any restrictions, including donor restrictions, and with its mission and charitable purpose.

(d) For the purposes of this section:

(1) “End recipient market” means the market in the country where the noncash contribution is to be ultimately distributed.

(2) “Fair value” means the price that the receiving charitable organization would receive if it sold the noncash contribution.

SEC. 2.

Section 12599.6 of the Government Code is amended to read:


(f) Regardless of injury, the following acts and practices are prohibited in the planning, conduct, or execution of any solicitation or charitable sales promotion:

(13) Reporting noncash contributions in its audited financial statements, reports filed with the Attorney General, or solicitation materials, in a way that is misleading or likely to cause confusion.

Next post: paraphrase of changes, overwhelming approval by Assembly, and speed of approval

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