“Gifts-in-kind: What are they worth? How to avoid pitfalls of GIK valuation” discusses the difficulties in valuing GIKs. The article is available online from the Journal of Accountancy.
The author is Jennifer Brenner, CPA, who is the associate director for financial accounting and operations for World Vision.
I heartily recommend the article to you.
I’ll wait a few days before posting my comments.
World Vision, the organization that employs the writer of the article, was for some time one of the world’s biggest puffers of GIK valuations. As late as 2009, it was taking mebendazole pills for deworming that could be bought anywhere in the world for 2 cents each and valuing them at $10.64–a 53,000% mark-up. The last time I looked (for fiscal year 2010), World Vision had lowered its valuation to $2 a pill–but that’s still a 9,900% markup. I note that the author did not mention any of these numbers in her article. It’s not hard to imagine why.
Good point. To refresh some of the relevant information, here’s just two points of reference.
For Feed the Children back in 2009, deworming medicine was 51% of all GIKs and 47% of total revenue. The specific issue here is how to value meds that aren’t allowed in the U.S.
See my post here:
http://nonprofitupdate.info/2012/01/30/impact-on-gik-values-form-change-in-accounting-rules-part-4-a-few-final-observations/
Proforma information from World Vision on the impact of implementing FAS 157 was discussed in my post here:
http://nonprofitupdate.info/2013/02/16/world-vision-posts-pro-forma-adjustment/
In that post I said:
“The pro forma calculation reduces GIK revenue by 30.5% in 2009 and 39.1% in 2008. Total contributions drop by 10.3% in 2009 and 12.9% in 2008.”
The major difference introduced by FAS 157 that is pertinent to this immediate issue is looking to the exit market. To cut a very long discussion very short and add shorthand interpretation & assumptions, I think the difference mentioned in that post shows the impact of using values from outside the U.S. when the meds can’t be distributed inside the U.S.
Ten or twelve percent of revenue for WV and 47% of revenue for FtC hangs on whether to use U.S. or world prices.