Finley, a manager in a public accounting firm, has volunteered to audit the financial statements of the Community Chest, a not-for-profit organization that raises funds to assist people in central Illinois who are homeless or have low incomes. In reviewing the statement of activities, Finley he notices the revenue item Auction Extravaganza. The Community Chest treasurer indicates that this amount is the net proceeds for this event, which is the organization’s largest fund-raising event for the year.
The Auction Extravaganza combines a black-tie dinner, entertainment, and an auction of numerous donated items. Supporters buy tickets to the event and bid on the auction items. The treasurer informs Finley that the dollar amount reported in the statement of activities is the total raised from ticket sales and from the auction, net of the expenses incurred for the event. These expenses include advertising and part of the cost of the dinner. The expenses, however, are comparatively low because a local hotel donates the ballroom and part of the cost of the dinner. A local auctioneer volunteers her time for the auction, the state university’s music department provides the entertainment, and local businesses donate all auction items.

Required
Obtain the most current accounting standards for accounting for conditional gifts to not-for-profit organizations. You can obtain access to accounting standards through the Accounting Standards Codification. Finley has asked you, as a staff accountant in the public accounting firm, to research the appropriate accounting for the Auction Extravaganza. Write a memo reporting your research findings. Support your recommendations with citations and quotations from the authoritative financial reporting standards.