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Posted by Amanda Jenks on Tue, Jul 21, 2015 @ 02:11 PM
Top_Audit_Risk_Points_for_Not-for-ProfitsUsers of not-for-profit financial statements want transparency, and emerging reporting requirements aim to provide it. Recent updates from the federal government and from Financial Accounting Standards Board (FASB) require more visibility into how not-for-profit organizations manage their resources. Not-for-profits need to monitor these updates and what they mean not only for their current year-ends, but for future reporting practices. Several requirements effective now and with impending effective dates will likely be key points for the auditor of your financial statements.
Consider how your organization addresses the following and whether your practices would stand up to an auditor’s magnifying glass.

Reporting for Federal Awards

The uniform administrative requirements and cost principles apply to awards issued after December 26, 2014, and funding added to past awards after that date.
Title 2 of the Code of Federal Regulations (CFR) creates a comprehensive guide to administrative requirements that supersedes and streamlines requirements from eight federal grant circulars. Of particular note are subpart D, which outlines the administrative requirements related to internal control and subrecipient monitoring, and subpart E, which modifies the cost principles previously found in Circulars A-21, A-87, and A-122. Most of the changes made to the cost principles are not dramatic, but organizations should evaluate how the new requirements will apply to their situation. If changes need to be made to how your organization manages its federal awards, your organization will need to document those changes.

Accounting and Business Considerations

Two recent accounting standards updates may have an effect on your organization’s reporting. Continuing care retirement communities need to monitor their compliance with ASU 2012-01, which amended Health Care Entities Topic 954. The changes ask that organizations recognize refundable advance fees as deferred revenue when organizations' resident contracts allow for a portion of the advance fee to be returned to the resident if the resident reoccupies the facility. It affects not-for-profits in years ending December 31, 2014 or later.
ASU 2013-06, Services Received from Personnel of an Affiliate, affects fiscal years ending on June 30, 2015 or later. The updated accounting requirement requires not-for-profits to recognize service received from personnel of an affiliate that directly benefit the recipient not-for-profit at the cost recognized by the affiliate for the personnel providing those services.

COSO Framework Used for Cyber Risk Management

In January 2015, the Committee on Sponsoring Organizations (COSO) released a thought leadership paper on how the 2013 COSO framework applies to cyber risk management. Although it’s recommended for all organizations, regulators consider it a standard for not-for-profit organizations receiving federal awards.
COSO in the Digital Age expands operations and reporting objectives for an organization’s information technology systems to reflect organizations’ increased dependence on information technology. The paper provides guidance on how organizations can identify critical information systems and understand the risks associated with those systems. It also includes points of focus for how organizations can evaluate the 17 COSO framework principles in light of their information security environment.

Governmental Agencies

In addition to applying the new uniform administrative requirements and cost principles, entities subject to the Governmental Accounting Standards Board (GASB) have several other accounting changes to monitor.
Effective on or after December 31, 2014, GASB Statement 69, Government Combinations and Disposals of Government Operations, requires carrying values to be used to measure the assets and liabilities in a government merger. Once assumed by the acquiring entity, assets and liabilities should generally be measured at their acquisition value.
GASB Statement 68 contains accounting and financial reporting updates for pensions that are effective June 30, 2015 or later. Guidance in the statement relates to measuring and recognizing liabilities, deferred outflow of resources and expenses. For defined benefit pensions, the guidance includes the methods and assumptions that should be used to project benefit payments, discount projected benefit payments to their actuarial present value and attribute that present value to periods of employee service. GASB Statement 71 amends Statement 68 and provides guidance for contributions made after the measurement date of the pension’s beginning net liability. It is also applicable after June 30, 2015.

Items on the Horizon

Organizations should closely monitor the following, which may bring significant changes to their 2016 reporting.
Uniform Grant Guidance Audit Requirements: The uniform grant guidance also made changes to the audit requirements, which become effective for fiscal years ending December 31, 2015 or after. Organizations will have a higher audit threshold, $750,000, which will provide relief for organizations with smaller operations. Changes were also made to major program determination, which may result in fewer programs being audited. The questioned costs triggering a reporting requirement will be raised to $25,000, but additional reporting will be required for these findings.
Not-for-Profit Financial Reporting Model: In April 2015, the FASB released a proposed accounting standard update to the not-for-profit reporting model. Changes include:
  • Reducing the current three net asset classes into two asset classes, those with donor restrictions and those without.
  • Define and present a measure of operations in the Statement of Activities relative to mission and availability. Organizations would need to evaluate which activities are related to the tax-exempt mission and which activities are related to availability.
  • Present expenses by both functional and natural classification.
  • Presentation of the statement cash flows would require the direct method, rather than the more commonly used indirect method. The initial transition would require not-for-profits to map cash information to the new gross reporting of items.
  • Additional transparency would also be required about liquidity, in the form of additional liquidity disclosures.

Organizations will need to revisit their financial statement and footnote data, in particular the roll-up of data and detail in their footnotes. Organizations can review the exposure draft of the reporting model changes on the FASB website.
To learn more about the current and impending changes to your not-for-profit’s financial reporting, contact us here.

Amanda Jenks, CPA is a Supervisor at CBIZ Tofias in Providence, RI. She can be reached at 401.626.3216 or

Tags: audit, Not-for-Profits, audit risk

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