Non-profit organizations reminded to follow FIN 45 when making loan guarantees.

Non-profit organizations are reminded that FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, applies to loan guarantees made by NPOs, even guarantees made without receiving commensurate consideration in exchange. For example, NPO Foundation A may guarantee the debt of NPO Cause B, without receiving commensurate consideration in exchange, to assist NPO Cause B in obtaining bank financing at a reasonable cost. NPO Foundation A's accounting for providing such guarantees is covered by FIN 45 (www.fasb.org/pdf/fin%2045.pdf). The interpretation would require NPO Foundation A to recognize a liability for the guarantee, even in circumstances in which it is not probable that payments will be required under the guarantee.

In addition, FIN 45 would require Foundation A to disclose additional information about the guarantee. The amount to be recognized by Foundation A as a liability at inception of the guarantee is not the amount guaranteed, but is the greater of (a) the guarantee's fair value, which is, as a...