Not-for-profits experienced relatively few changes impacting accounting and tax reporting in 2014. It seems 2015 will not be as quiet based on items proposed and those expected to be proposed for the future. With the consolidation of the OMB Circulars, new revenue recognition standards and FASB’s financial statement project, not-for-profits and educational organizations should keep an eye on how these items may impact measurement, management and disclosures. Some of the key items that should be on your radar are as follows:
ASU 2013-06, Services Received from Personnel of an Affiliate
This accounting update affects fiscal year ends ending June 30, 2015 and later. It requires not-for-profits to recognize services provided by their affiliated entities effectively at the cost of those services. If recognizing at cost will significantly overstate the value of the services received, then the not-for-profit may elect to recognize at either the cost recognized by the affiliate for the personnel providing the service, or the fair value of the service. While this will not affect the bottom line, it will provide more transparency relative to dependence on such services and their magnitude. While many organizations have long billed for such services, this requires those who did not book such to reflect the economics.
Most entities getting such services will increase contribution revenue and a corresponding expense with healthcare organizations taking a somewhat different approach.
See the following for more information:
Uniform Federal Grant Guidance
The Office of Management and Budget released “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards” at the end of 2013. The changes in the guidance effectively combine the administrative, cost and audit requirements from eight existing circulars into one master document. These changes will require all not-for-profits that receive federal grants to follow any changes in the various standards for new awards and additional funding to existing awards made after December 26, 2014. While most leaders do not see epic changes to the requirements, organizations should consider reviewing the contents of the new guidance to ensure that current methods meet the forward requirements as necessary. Further, it is expected that each federal agency will post their own views on how to interpret the guidance, which could further complicate compliance. Organizations should also consider obtaining continued external education to be as informed as possible as to the changes. Organizations formerly subject to OMB Circular A-133 should expect new requirements for Single Audit, Type A/B Major Program determination and Percentage of Coverage, among other items. By and large, the new changes provide for some relief in terms of scopes and dollar amounts that will trigger an audit. This could actually help to streamline certain audits. Organizations should meet with their outside auditors early to determine what the impact is, if any, and to assess any savings that may come from the changes in the requirements.
The following resources provide more detail about the changes:
- OMB Makes Sweeping Changes to A-133 Audit Requirements
- Webinar: Not-for-Profit Annual Accounting and Federal Grant Update - New Rules in Effect Now and Later
- Federal OMB Grant Rules Overhauled
ASU 2014-09, Revenue from Contracts with Customers
Much of the discussion about the new revenue recognition standards unveiled in May 2014 involves the commercial sector, but the accounting update also affects some not-for-profits. Not-for-profits will need to carefully consider the nature of their transactions to determine applicability of the standard to its transactions.
Implementation begins for public entities (generally those with public debt in the not-for-profit world) for year-end December 31, 2017 and for other entities the following year. In the interim, the AICPA continues to examine the new revenue recognition standards for potential implementation challenges, and has created the Not-for-Profit Entities Revenue Recognition Task Force to assist in the review process. The group has marked the following for further consideration:
- Tuition Revenue;
- Tuition Discounts;
- Government Grants with Deliverables;
- Government Grants, Best-Effort;
- Special Events;
- Revenue vs. Agency Transactions;
- Government Grants- Appropriations;
- Membership Dues;
- Service Concession Arrangements; and
- Charitable Remainder Trusts.
Organizations should be mindful that there could be some impact here and thus staying abreast of task force matters will be important.
As the task force continues its discussions, it will update the list of potential problem areas on its web page.
Disclosures for Investments Measured at Net Asset Value
In 2014, FASB released a proposed accounting update to Fair Value Measurement (Topic 820) that would affect disclosures for investments that use the net asset value (NAV) as the practical expedient for recording fair value of certain investments.
Currently, entities classify investments that use the NAV practical expedient within the fair value hierarchy based on whether the investment holder can redeem the investment at its NAV on the date the NAV was measured. Regardless of whether the reporting entity uses the practical expedient, the entity must make disclosures about all of its investments that are eligible to use the NAV practical expedient.
The proposed accounting update would eliminate the requirement to categorize investments that use the NAV practical expedient within the fair value hierarchy. It would restrict the disclosure requirement to include only the investments for which the entity uses the NAV practical expedient.
The comment period for the accounting standard update closes January 15, 2015. See below for more information about the proposed update:
Revised Financial Statement Presentation Requirements
FASB created the Financial Statements of Not-for-Profit Entities project to revamp the not-for-profit reporting process. The project’s primary objectives are to improve financial reporting by including more information about liquidity, financial performance and cash flows.
An exposure draft of FASB’s proposed changes is slated for release during the first quarter of 2015. The big changes are expected to be:
- Direct method cash flow statement would be required compared to the indirect method used currently by most organizations.
- The requirement to present a statement of functional expenses by all organizations rather than just voluntary health and welfare organizations as is currently required.
- The intermediate measure of current operations would reflect whether resources resulted from or were used for the not-for-profit’s mission. The intermediate measure would also reflect the availability of resources including both external and internal limitations.
- Net asset classes would go from three to two categories with unrestricted and restricted being the main focus of the primary statements.
While this is likely a few years away in terms of implementation, organizations should be mindful of the coming changes from a reporting and disclosure point of view. While this will likely not require any organizations to change accounting, charts of accounts and the like, the process to summarize and report data will change and that will likely entail time, effort and some costs.
Keeping You Informed
We will keep you informed as new guidance is released and new regulations are implemented. For further questions about any of these areas, please contact us.