Omission of Material Assets on the Balance Sheet of

Zoological Not-For-Profit Organizations

Abstract
Zoological, aquarial, botanical and conservationist societies in the United States have

created a customary practice of recording animal and horticultural collections on their balance

sheet at the nominal amount of one dollar. These not-for-profits state that there is no objective

basis for establishing value of the collection, therefor they believe that these material assets need

not be reported on the balance sheet. The belief stems from the idea that these animal and

horticultural collections have numerous attributes, including species, age, sex, relationship, value

to other animals, endangered status and breeding potential that make it impractical to assign

value.

Auditors of these organizations include KPMG, PwC and Ernest & Young. These

auditors support the industry standard of leaving the value of the collections off the balance sheet

by giving an unmodified opinion. This means that the auditors believe the financial statements

have been prepared in accordance to Generally Accepted Accounting Principles. Cohn Reznick,

auditor of the San Diego Zoo, gave the following audit opinion “In our opinion, the combined

financial statements referred to above present fairly, in all material respects, the financial

position of SDZ Global as of December 29, 2013 and December 30, 2012, and the changes in its

net assets and its cash flows for the years then ended in accordance with accounting principles

generally accepted in the United States of America.”

We provide evidence supporting the premise that these animal and horticultural

collections are revenue producing assets and, in accordance with the standards set by the

Financial Accounting Standards Board, need to be recorded on the balance sheet. We do this by

investigating how publicly traded companies account for zoological collections, researching
rulings, standards and codifications on the topic as well as studying the relationship between the

size of the zoological collection and the revenue produced by the zoo. The findings of this study

will provide guidance in how these not-for-profit organizations should record their animal

collections.
Introduction
The Financial Accounting Standards Board (FASB) is the organization tasked to establish

standards of financial accounting that governs non-governmental entities. Both the American

Institute of Certified Public Accountants (AICPA) and the Securities and Exchange Commission

officially recognized standards set by FASB as authoritative. FASB’s Statement of Financial

Accounting Concepts No. 6 defines elements of both business enterprises and not-for-profit

organizations. They define an asset as “probable future economic benefits obtained or controlled

by a particular entity as a result of past transactions or events.” The statement confirms

conclusions in paragraph 2 of Concepts Statement 3 that assets and liabilities are common to all

organizations and can be defined the same for business and not-for-profit organizations.

FASB states that assets are

“Central to the existence and operations of an individual entity. Both business

enterprises and not-for-profit organizations are in essence resource or assets

processors, and a resource's capacity to be exchanged for cash gives it utility

and value (future economic benefit) to an entity.”

And that

“Assets are the lifeblood of a not -for-profit organization, and an organization

cannot long continue to achieve its operating objectives unless it can obtain at

least enough resources to provide goods or services at levels and of a quality

that are satisfactory to resource providers.”

 According to FASB assets have three essential characteristics that make them an asset.

The first is that the item “bodies a probable future benefit that involves a capacity, singly or in

combination with other assets, to contribute directly or indirectly to future net cash inflows.”

Zoological collections fit the criteria, as our research will show the size of a zoological

collection has a direct relationship with the admissions and membership revenue the zoological

organization is able to produce. Furthermore, these zoological organizations sell and buy

specimens from one another, creating a market and value for the transfer of the animals between

zoos.

The second essential characteristic of an asset, according to FASB is “a particular entity

can obtain the benefit and control others' access to it.”

Zoos are able to obtain the benefit of their collection by charging admissions for the

general public to view said collections. Furthermore, zoos are in full control of their collections,

as confirmed in the notes to the financial statement of the Atlanta Zoo which reads “Zoo Atlanta

has the right to acquire, borrow, sell, loan or otherwise transfer and convey animals as

considered reasonable and proper for the operation and maintenance of Zoo Atlanta.”

FASB’s third essential characteristic of an asset is “the transaction or other event giving

rise to the entity’s right to or control of the benefit has already occurred.”

Zoos purchase their animals and expense acquisition costs when incurred, as found in the

notes to the financial statement of the San Diego Zoo which reads “Expenditures related to

animal and horticultural acquisitions are expense in the period of acquisition.” This means that

there is a transaction that gives rise to the zoo’s right to control their own collection.
 Furthermore, FASB goes on to address assets contributed without cost, in which they

state “Assets may be acquired without cost, they may be intangible, and although not

exchangeable they may be usable by the entity in producing or distributing other goods or

services.”

Based on this information provided, it can be concluded that zoological collections are, in

fact, assets held by zoos for revenue producing activity and need be reported on the balance

sheet.

FASB 116 establishes accounting standards for not-for-profit organizations. The

statement reads:

“Collection items, although generally held for long periods of time and seldom

sold, are assets that continue to provide economic benefit or service potential

through their use. In a not-for-profit organization, that service potential or

future economic benefit is used to provide desired or needed goods or services

to beneficiaries. Those items also provide future cash flows from admissions,

rentals, and royalties, and often are the reason for contributions in support of

the entity's mission. The Board concluded that collection items have the

common characteristics possessed by all assets—the scarce capacity to

provide services or benefits to the entity that uses those items (Concepts

Statement 6, paragraph 28).”

Furthermore, FASB 116 also states:

 “The Board concluded… that holders of collection items continue to reap

economic benefits from those assets and it would be inappropriate to preclude

their recognition and capitalization as assets.”

The statement expressly includes zoos, aquariums and nature centers as holders of

the above mentioned collections. The collections, even without intention to sell, provide future

economic benefit to the not-for-profits in the form of admissions and furthermore it would be

near impossible for such entities to create a market to sell bonds without holding the collections.

The San Diego Zoo, privately operated by the nonprofit Zoological Society of San Diego,

is the largest zoological membership association in the world. In the nonprofits 2012 audited

financial statement there lacks an asset classification for the collection. Instead the Zoological

Society of San Diego provides a note to the financial statement that reads

“In accordance with customary practice among zoological organizations,

animal and horticulture collections are recorded at the nominal amount of one

dollar, as there is no objective basis for establishing value. Additionally,

animal and horticultural collections have numerous attributes, including

species, age, sex, relationship and value to other animals, endangered status

and breeding potential, whereby it is impracticable to assign value.

Expenditures related to animal and horticultural acquisition are expensed in

the period of acquisition.”

This accounting treatment, practiced by the Zoological Society of San Diego and given an

unqualified audit opinion by Cohn Resnick goes against the guidelines set forth in FASB 116.
 Further research finds that the ten largest zoos in the United States similarly report their

collections as an off-balance-sheet note to the financial statement rather than an asset on the

balance sheet. Some of these not-for-profits go as far as to provide their species and specimen

counts as well as acquisition and disposition costs off balance sheet while providing zero

economic valuation for the collection.

Research

Thorough investigation has found that there is currently no reasonable research in the

area of zoological collection accounting. FASB codification exists for treatment on collections,

including museums, galleries and zoo, however no direct requirements have been set forth and

no research has been conducted in this arena. We will research how for-profit firms account for

their animal collections and how tax auditor’s value animal collections to find insight in the

commonplace practice of recording these collections at zero value.

SeaWorld Entertainment, Inc is widely recognized as the leading marine-life theme park

brand in the world. As a publicly traded company, they are required to file a form 10-k annually

pursuant to section 13 / 15 of the securities exchange act of 1934. The company boasts 11

locations that are home to 86,000 marine and terrestrial animals and refers to itself as “one of

the world’s foremost zoological organizations and a global leader in animal welfare, training,

husbandry and veterinary care.” in 2013 SeaWorld Entertainment, Inc was host to 23.4 million

guests with admissions revenue of approximately $920 million.

Unlike most zoological parks, which are not-for-profit, SeaWorld Entertainment Inc, as a

publicly traded company, must record its animal collections as an asset on its balance sheet.

Animals are recorded at cost and depreciated based the average life time of the animal, between

1 and 50 years. Material costs to purchase animals exhibited in the theme parks are capitalized

and amortized over their estimated lives (1-50 years). All costs to maintain animals and animal

collections are expensed as incurred, including in-house animal breeding costs, as they are

insignificant to the consolidated financial statements.

 SeaWorld Entertainment, Inc records its Animal collection in its Property and

Equipment. In 2013 these animals were valued at $157,160,000 which is approximately 10% of

all PP&E.

Similar to SeaWorld Entertainment, the New England Aquarium is widely considered

one of the ten best aquariums in the United States. The aquarium is home to 20,000 animals

from over 660 species. According to the most recent annual report released by the New England

Aquarium attendance is approximately 1.4 million visitors accounting for $18 million in

revenues.

The difference in the two reports is how the for-profit SeaWorld Entertainment reports its

animal collection. The New England Aquarium records no useful life of its collection as well as

reports zero value associated with the collection on its balance sheet. In the disclosure notes we

find “Additions to the animal collections, which are purchased, are expensed when acquired.

Additions to these collections acquired other than by purchase are not assigned a value and are

not accounted for in the accounts of the Zoo.”

In conducting research, I attempted to reach out to controllers at publicly traded

companies that own animal collections including The Walt Disney Company, operator of Animal

Kingdom, SeaWorld Entertainment, Six Flags Entertainment, operator of Safari Off-Road

Adventure. I also contacted several smaller privately held zoos. I received one response from

Nancy Krejsa, Senior Vice President of Investor Relations at Six Flags Entertainment Corp. She

informed me that “If we acquire them, they are recorded at acquisition cost. If they are born at

our facility, they have no value on our balance sheet.” This accounting is similar to SeaWorld,

as the animal collections are recorded at acquisition cost, however the zero value of birthed

animals should be examined.

 An article published in the Los Angeles Times in 1993 gives further insight into

accounting at the zoo. The article covers the San Diego Zoo’s tax bill handed out by the state of

California for $3.5 million in sales tax from the transfer of an estimated $19 million worth of

animal collections. The article reports that auditors for the state found zoo records listing trades

and assigning values for each animal including in the database each animals international species

number, scientific name and “per unit” price for all known zoo animals. In contrast, the Phoenix

Zoo reports in its notes to financial statement that “In accordance with industry practice, the

animal collection is not recorded, as there is no objective basis for establishing value.

Additionally, the animal collection has numerous attributes, including species, age, sex,

relationship and value to other animals, endangered status, and breeding potential, whereby it is

impossible to assign value. Acquisitions and sales of animals are recorded as operating expense

or revenue in the year of purchase or sale.”

The financial statements of the Milwaukee Zoo adds to the question of a zoos ability to

establish value of their animal collection. The statement includes a note that reads “The ZIMS

information includes primary data such as common and taxonomic name, parents (whether at our

Zoo or at another facility), date and place of birth, gender and the circumstances of acquisition

such as birth, loan, purchase or donation. Similar facts are recorded when the animal leaves the

Zoo, such as the name of the recipient zoo, the date of transfer and terms of the contract or the

circumstances of death. Identifiable characteristics or marks, all background information,

measurements, behavior, breeding management, enclosure information, behavioral enrichment,

training, diet/feeding, development and medical notes and procedures all are data recorded in the

animal’s record. Animal medical information also is vital to the care of the animal collection.

The Medical Animal Records Keeping System, known as MedARKS, is used to create a detailed
medical record for each animal containing clinical notes, prescriptions, treatments,

cryopreservation records and necropsy details.”

The ZIMS database, also known as the Zoological Information Management System, is

capable of and used for tracking all attributes the zoo claims are including species, age, sex,

relationship and value to other animals, endangered status, and breeding potential which the zoo

states in its disclosure note that make assigning value impossible. ISIS, the not-for-profit

collaboration that created the ZIMS database system, lists all the zoos in the world that utilize

ZIMS. Of the 30 zoos we reviewed, 16 currently utilize the ZIMS database system and 2 are

pending deployment. This means that 60% of zoos researched have the ability to track attributes

of their animal collection which they deny the ability of having in the notes to their financial

statement. Furthermore, Disney’s Animal Kingdom, a subsidiary of a publicly traded company,

relies on their ZIMS database to establish the value of their collection asset on their balance

sheet. Furthermore ZIMS users can search other databases for information about holdings at

other zoological locations, enabling smoother transactions between zoos.

Internationally, an article written by London based Incisive Financial Publishing Limited

titled “So just how will zoos fit a hippo on the balance sheet?” raises questions about how the

London Zoo will react to the Accounting Standards Board’s 2009 guidelines which required

museums and galleries to place value on precious artifacts and collections. While this is an

international case that does not reflect United States Generally Accepted Accounting Principles it

can be included in the discussion to see how the international community is handling collection

assets. The Accounting Standards Board’s statement reads “‘The disclosures should provide

readers with an understanding of the asset values being reported as well as the entity’s policies

for managing its total holding of assets.” Since 2009, the time the new standards were set and
the article written, the London Zoo has not heeded the requirements set forth by the Accounting

Standards Board. The zoo continues to report its zoological collection at no value.

FASB 116 states the following requirements for non-for profits. An entity that does not

recognize and capitalize its collections shall report the following on the face of its statement of

activities, separately from revenues, expenses, gains, and losses:

“Costs of collection items purchased as a decrease in the appropriate class of

net assets. Proceeds from sale of collection items as an increase in the

appropriate class of net asset. Proceeds from insurance recoveries of lost or

destroyed collection items as an increase in the appropriate class of net assets.

Similarly, an entity that capitalizes its collections prospectively shall report

proceeds from sales and insurance recoveries of items not previously

capitalized separately from revenues, expenses, gains, and losses.”

“An entity that does not recognize and capitalize its collections or that

capitalizes collections prospectively shall describe its collections, including

their relative significance, and its accounting and stewardship policies for

collections. If collection items not capitalized are deaccessed during the

period, it also shall (a) describe the items given away, damaged, destroyed,

lost, or otherwise deaccessed during the period or (b) disclose their fair value.

In addition, a line item shall be shown on the face of the statement of financial

position that refers to the disclosures required by this paragraph. That line

item shall be dated if collections are capitalized prospectively, for example,

"Collections acquired since January 1, 1995 (Note X)."

 FASB 116 does allow non-capitalization of assets by zoological societies as part of

Section 40a which reads:

“Works of art, historical treasures, and similar items need not be

capitalized if they are added to collections that are held for public exhibition,

education, or research in furtherance of public service rather than financial

gain. Disclosures about collections that are not capitalized are required.”

However financial gain is being made from the zoological collections at these parks. The

Columbus Zoological Park Association had net expense for animal care, research and

conservation of $19.5mm while realizing net revenue from gate admissions and memberships of

$24.8mm, equaling net income from their zoological collection of $5.3mm. Because of the

financial gain the zoological park association can credit to its zoological collections, they should

not be able to avoid capitalization of their collections.

Analysis and Hypothesis

FASB states that financial reports should provide all relevant and useful information on a

firm in the firm’s financial statement. FASB even goes as far to state that collections, including

zoological collections, need to be capitalized on the face of the balance sheet. For-Profit

companies currently follow this standard and are able to assign value to their animal collections.

Tax collectors have found a database held by the San Diego Zoo placing value on each animal in

its collection. Furthermore, with the advent of ZIMS, a database that tracks every characteristic

of each animal held in collection, the zoo is able to assign a relative value based on all

comprehensive characteristics.

We will run a multiple regression analysis on the amount of admissions revenue a not-

for-profit zoo earns using the independent variables of the amount of animals the zoo holds

(collection size), the amount of visitors the zoo receives annually, the size of the city the zoo

resides within and the amount of governmental contributions the zoo receives a year. We

hypothesize that this analysis will show a relationships between collection size and revenue,

proving that the animal collections are the main revenue producing asset of the organization.

Using this regression we will form an opinion about zoological societies long standing

customary practice to record their collections at the nominal amount of one dollar.
Methodology

According to the Association of Zoos & Aquariums there are 213 accredited zoos and

aquariums in the United States. Of these, 54% are non-profit organizations. Therefore there are

115 non-profit zoological and aquaria organizations in the United States.

Of the 115 non-profit zoos and aquariums, we randomly select 30 (sample size 26% of

population) and research the correlation between admissions revenue and independent variables

of size of animal collections, city size, annual visitors and government contributions.

Model:

R = a0 + a1(C) + a2(P) + a3(V) + a4(G)

Variables:

R = Annual revenue from admissions and membership sales

C = Collection size, defined as number of animals that call the zoo home

P = Population of the city in which the zoo is located, based on the 2010 census data

V = Number of annual visitors reported by the organization

G = Government grants provided to the organization

 Results

This section analyzes the results of the test. The regression shows an R-Square of 0.8658

and an adjusted r-square of 0.8443. With these results of the model we can, with 84% certainty,

predict revenues of a zoo based on its collection size, contribution size, annual visitors and city

size.

All independent variables have low p-values, indicative of information that is important

in creative the model. The p-value of contributions, annual visitors and city size all are below

0.005 while the p-value of the collection size variable is 0.0166. These results are below the

significance level of 0.05 but above 0.01, therefor the results indicate that the observations are

highly unlikely under the null hypothesis. This means there is a strong presumption against the

neutral hypothesis and therefore we can reject the null hypothesis.

Using the regression model we can create an equation that, with 84% certainty, can

predict a zoo’s annual revenue using the size of its animal collection, number of annual visitors,

amount of government grants and population size. The equation we return is revenue is equal to

-684663 + (1.24 * Government Contributions) + (778.21 * Collection size) + (5.52 * Annual

Visitors) + (-5.7 * City Population).

In our scatter plot we see two major outliers. The first is a result from the New England

Aquarium. This creates an outlier as aquarial collections are typically much larger than

zoological collections (20,000 animals at the New England Aquarium versus an average of

approximately 2,600 animals at zoos). This is because many species of aquatic animals, such as

fish, are easier to keep, easier to reproduce and require smaller housing units. The second such

outlier is the Memphis Zoo, which does not participate in free zoo days like many other zoos on
the list. This results in zero visitors paying zero dollars, and skews their revenue per visitor

upwards.

Our regression returned an f-ratio of 40.3055 which is high, meaning there is a great

number of unexplained data results. Because this f-ratio is greater than 1.0, the linear fit gives a

very large f-ratio, indicating that it may not be a good fit to the data. We also have a standard

error of estimate of 5,892,912 which is high.

Interestingly, city size is negatively correlated to revenue productions. This may be

because larger cities have more leisure activities to offer, thus the zoos in larger cities may have

more competition requiring lower admissions costs.

Our data covered thirty AZA accredited zoos in the United States, while there are four

hundred total zoos in the United States. Our sample size, about 7.5% of the total population of

United States zoos, may not be significant enough to uncover the actual relationship between a

zoos collection size and its ability to produce revenue.

The data we used in conducting our research may be inaccurate. Of the thirty zoological

and aquarial societies researched, 13 provided consolidated financial statements with an

independent auditor’s report. The remaining 17 reported their financials as unaudited figures in

their annual report. Furthermore collection size data was not audited in any report so we were

required to rely on information provided by the zoos which may not be an accurate reflection on

actual collection size due to rounding and other inconsistencies.

Very little research has been conducted in this obscure area of accounting, thus

there is not much literature to use in formulating results. This may result in less reliable results.
Recommendation

We believe we have been successful in proving that zoological and aquarial collections

are revenue generating assets in fact. Furthermore we have cited research from zoological

societies, tax law and the public sector which proves evidence that these collections are

measurable. Lastly, our model proves that the size of a zoos animal collection directly correlates

to its ability to generate revenue. We believe that a zoo without an animal collection would be

unable to generate admissions revenues in the millions of dollars as we have found in our

research.

Based on the above mentioned results, and in accordance to FASB 116, zoological and

aquarial not-for-profit organizations should report their animal and horticultural collections on

their balance sheet at acquisition cost. Any animals born on the property should be recorded at

the cost of raising the animal into adulthood. These organizations should depreciate these assets

over the average life for their species.

Audit firms should not have given unmodified opinions on their audit reports of these

zoological organizations, as they do not comply with GAAP. As zoological societies deem it

appropriate in accordance with customary practice to record collections at the nominal amount of

one dollar, auditors should give a modified opinion with an additional paragraph highlighting the

zoos practice of not reporting important assets.

Results

Scatterplot of Fit vs Collection Size

80000000.0

70000000.0

60000000.0

50000000.0

40000000.0
Fit

30000000.0

20000000.0

10000000.0

0.0
0.0 5000.0 10000.0 15000.0 20000.0 25000.0
-10000000.0
Collection Size

Scatterplot of Residual vs Collection Size

10000000.0

5000000.0

0.0
Residual

0.0 5000.0 10000.0 15000.0 20000.0 25000.0

-5000000.0

-10000000.0

-15000000.0
Collection Size