2010-11 Notes to Financial Statements

1. Organization

ABET was organized in 1932 and incorporated in 1963. ABET accredits applied science, computing, engineering, and technology programs at colleges and universities throughout the United States as well as internationally. ABET also conducts faculty improvement workshops. ABET is supported primarily by accreditation fees, contributed accreditation services, and membership assessments.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (US GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash Equivalents

ABET considers all highly-liquid investments with an initial maturity of three months or less when purchased to be cash equivalents.

Accounts Receivable

Accounts receivable are reported at their outstanding balances reduced by an allowance for doubtful accounts, if necessary.

Management periodically evaluates the adequacy of the allowance for doubtful accounts by considering ABET's past receivables loss experience, known and inherent risks in the accounts receivable population, adverse situations that may affect a client's ability to pay, and current economic conditions.

The allowance for doubtful accounts is increased by charges to bad debts expense and decreased by charge offs of the accounts receivable balances. Accounts receivable are considered past due and charged off based on management's determination that they are uncollectible.

Property and Equipment and Intangible Assets

Property and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the assets on a straight-line basis ranging from three to 12 years. Acquisitions of property and equipment in excess of $1,000 are capitalized. Amortization of equipment purchased through capital leases has been included in depreciation expense.

In 2011, ABET capitalized the costs of purchased training materials used during workshops as intangible assets. The manuals are being amortized on a straight-line basis over estimated useful lives of five years. ABET periodically reviews the carrying value of this material to determine whether impairment exists. ABET considers relevant cash flow and profitability information from the workshops in assessing whether the carrying value of material can be recovered. Amortization expense related to this intellectual property was $17,250 during 2011.

Temporarily Restricted Net Assets

During the year ended September 30, 2011, ABET received $29,825 in contributions restricted for the Science Screen Report Program. Additionally, net assets of $30,715 related to the Science Screen Report contributions were released from donor restrictions by satisfying the restrictions specified by the donors. Temporarily restricted net assets at September 30, 2011, were $30,653 and were restricted to the Science Screen Report Program.

Revenue, Support, and Expense Recognition

The financial statements of ABET have been prepared on an accrual basis. Revenue from membership assessments is recognized over the period to which the assessments relate, and revenue from fees is recognized when the related services are performed. Accreditation visit revenue is recognized when ABET releases its final reports.

Unless specifically restricted by the donor or the grantor, all contributions and grants are considered to be available for unrestricted use. Unrestricted contributions received for ABET's programs are recognized as support when received.

Income Taxes

ABET is a tax-exempt charitable organization under Section 501(c)(3) of the Internal Revenue Code.

Uncertain Tax Positions

ABET follows the Financial Accounting Standards Board Accounting Standards Codification (FASB ASC), which provides guidance on accounting for uncertainty in income taxes recognized in ABET's financial statements. As of September 30, 2011, ABET had no unrecognized tax benefits related to uncertain tax positions in its tax return that would qualify for either recognition or disclosure in its financial statements.

ABET's policy would be to recognize interest and penalties on tax positions related to its unrecognized tax benefits in income tax expense in the financial statements. Through September 30, 2011, there have been no matters that would have resulted in an accrual for interest and/or penalties.

Generally, the tax years before 2007 are no longer subject to examination by federal, states, or local taxing authorities.

Summarized Comparative Information

The financial statements include certain prior-year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with ABET's financial statements for the year ended September 30, 2010, from which the summarized information was derived.

3. Concentration of Credit Risk

ABET regularly maintains cash deposits at its bank. At September 30, 2011, all of ABET's bank account deposits were fully insured. Additionally, approximately $9,400 was invested in money market funds which were not covered by insurance. The money market funds are invested in government securities or short-term securities which are considered low risk.  

4. Capital Lease Obligation

ABET is obligated under capital lease arrangements for office equipment.

The following is a summary of the minimum rental commitments of long-term leases over the remaining years:

Interest expense for the year ended September 30, 2011, was $12,454.

5. Change in Accounting Estimate

During 2011, ABET revised its valuation of the hourly rates for accreditation services rendered by the volunteer commissioners and program evaluators. ABET currently values the volunteer hours using rates that ABET is charged by professionals for services related to accreditation (training and commission adjuncts). Prior to 2011, ABET valued the volunteer hours using hourly rates that another accrediting organization paid its evaluators. In accordance with accounting principles generally accepted in the United States of America, in-kind services should be recorded at the amount that would have been paid had the services been purchased. Hourly rates used have been revised to reflect what ABET, not the other accrediting organization, would have to pay its volunteers. Although the change in methodology resulted in a change in the estimate of the fair value of the in-kind contributions, there was no change in ABET's increase (decrease) in net assets for the year ended September 30, 2011. The revised valuation increased ABET's in-kind contribution revenue and accreditation expense by approximately $1,800,000. The change in estimate did not affect the carrying value of assets or liabilities. As the change affects revenues and expenses equally, it also did not affect the reported contribution to reserves.

6. Contributed Services

ABET records in-kind contributions for accreditation services rendered by the volunteer commissioners and program evaluators. Contributed services are recognized at fair value if the services received (a) create or enhance long-lived assets or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. During the year ended September 30, 2011, ABET recorded $6,653,135 in in-kind contributions support and accreditation expense in the statement of activities. 

7. Retirement Plan

ABET has a retirement plan open to all employees. Under the plan, ABET makes contributions to TIAA/CREF. Contributions to the plan are at the discretion of management each year and amounted to $119,752 for the year ended September 30, 2011.

8. Operating Lease Obligation

ABET leases its office space under a noncancellable operating lease that expires in September 2014. The lease includes an escalation clause for rental increases every 12 months.

Future minimum rentals are as follows:

Rental expense, which includes maintenance and utilities, amounted to $338,809 for the year ended September 30, 2011.

9. Related Party Transactions

ABET Foundation, Inc., a not-for-profit corporation, is a related party because of common members of administrative management.

As of September 30, 2011, ABET Foundation owed ABET $43,278 for management fees and other reimbursable costs and is included in accounts receivable.

For the year ended September 30, 2011, ABET charged ABET Foundation $26,767 for management fees.

10. Functional Classification of Expenses

The following is the breakdown of expenses by functional classification:

Professional services and planning and operations expenses in excess of associated revenues are allocated to accreditation, governance, and special projects expenses in proportion to their shares of total direct expenses for those programs.

11. Subsequent Events

ABET has evaluated subsequent events through January 13, 2012, the date on which the financial statements were available to be issued.