Accounting & Auditing Update For Nonprofits 11/3/2017 Lumsden McCormick Exempt Organizations Conference 1 BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. ACCOUNTING & AUDITING UPDATE FOR NONPROFITS Page 2 Accounting and Auditing Update for NFPs Presenter Lee Klumpp, CPA, CGMA National Assurance Technical Partner, Nonprofit & Education (703) 336-1497 [email protected]
26
Embed
Accounting Auditing Update for Nonprofits Final Klumpp ...
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.
NFP Presentation, ASU 2016-14 • Effective Date: For fiscal years beginning after 12/15/2017• Early Adoption: Permitted
Revenue Recognition from Contracts with a Customer, ASU 2014-09Effective Date: Nonpublic entities, Fiscal years beginning after December 15,2018(Conduit Debt Obligors will be one year earlier)Early Adoption: Permitted but not before years ended December 31, 2017
Leases, ASU 2016-2Effective Date: Nonpublic entities, Fiscal years beginning after December 15, 2019(Conduit Debt Obligors will be one year earlier)Early Adoption: Permitted
• Objective: To develop a single, principle-based revenuestandard for
US GAAP and IFRS
The revenue standard aims to improve accounting for contracts with customers by:
• Providing a robust framework for addressing revenue issuesas they arise
• Increasing comparability across industries and capitalmarkets
• Requiring better disclosure
Substantially converged with IFRS on major provisions
Page 8
Accounting and Auditing Update for NFPs
Scope
All contracts with customers, except• Lease contracts• Insurance contracts• Financial instruments• Guarantees• Non-monetary exchanges in the same line of business to facilitate
sales to customers
Contracts not with customers are excluded: • Contributions• Collaborative arrangements
5. Recognizerevenue when (or as) a performance obligation is satisfied
4. Allocate the transaction price
Recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services
Page 10
Accounting and Auditing Update for NFPs
Revenue from Contracts with CustomersNonprofit Specific Revenue Subject to this ASU
i. Membershipii. Subscriptioniii.Products and Servicesiv.Royalty Agreementsv. Sponsorship
vi.Conferences and Seminarsvii.Tuitionviii.Advertisingix.Licensingx. Federal and State Grants
Grants and Contracts (Currently in Exposure Draft)Unique NFP guidance on contributions, but long-standing diversity in practice in classifying grants and contracts, particularly from governmental entities
Terminology and Transition‐ “Contributions” encompasses both grants and donations‐ A change in classification in connection with
enhanced/clarified guidance would not be the correction of an accounting error
Page 14
Accounting and Auditing Update for NFPs
Grants and Contracts (Currently in Exposure Draft)U.S. GAAP focuses on:
‐ Issue 1: Exchange vs. Non-exchange (contribution)‐ Issue 2: Conditions vs. Restrictions
ASU 2014-09, Topic 606 (Revenue from Contracts with Customers)‐ Heightened this issue; raised question as to whether grants and
contracts are in scope of that guidance‐ Removed limited exchange guidance and focuses on whether or not
Amounts and purposes of governing board designations, appropriations, and similaractions that result in self-imposed limits on the use of resources without donor-imposed restrictions as of the end of the period.
Composition of net assets with donor restrictions at the end of the period and howthe restrictions affect the use of resources.
Additional information related to underwater endowment funds.
Page 22
Accounting and Auditing Update for NFPs
Disclosures Related to Net Assets (Cont’d)
Information about the nature and amounts of different types of donor-imposed restrictions should be reported either on the face of the statements or in the notes. Separate line items that distinguish between the different types of restrictions may be used such as:
• Assets, such as land or works of art, donated with stipulationsthat they be used for a specified purpose, be preserved, and notbe sold.
• Assets donated with stipulations that they be invested to providea permanent source of income.
• Support of particular operating activities.• Investment for a specified term.• Use in a specified future period.• Acquisition of long-lived assets.
NFPs are required to provide the following information that will be useful for a reader to determine how the organization manages its liquid assets to meet cash needs for general expenditures within one year of the Statement of Financial Position (SOFP) date:
Qualitative information on how an NFP manages its liquid availableresources and its liquidity risk (in the notes)
Quantitative information that communicates the availability of an NFP’scurrent financial assets at the balance sheet date to meet cash needs forgeneral expenditures (on the face and/or in the notes)
Availability of financial assets may be affected by the nature of the asset, external limits imposed by donors, laws or contracts with others, or internal limits imposed by governing board decisions.
Quantitative Disclosure of Financial Asset Availability
Financial assets, at year end* 234,410$
Less those unavailable for general expenditures within one year, due to: Contractual or donor-imposed restrictions:
Restricted by donor with time or purpose restrictions (11,940) Subject to apropriation and satisfaction of donor restrictions** (174,700) Investments held in annuity trust (4,500)
Board designations:Quasi-endowment fund, primarily for long-term investing** (36,600) Amounts set aside for liquidity reserve (1,300)
Financial assets available to meet cash needs for general expenditures within one year 5,370$
* Total assets, less nonfinancial assets (e.g., PP&E, inventory, prepaids)
** Excludes amounts that have been appropriated for next 12 months that do not have purpose restrictions
Source: ASU 958-205-55-21
Page 28
Accounting and Auditing Update for NFPs
Quantitative and Qualitative Liquidity and Availability of Resources Disclosure Example
For those NFPs that utilize an operating measure and show governingboard designations, appropriations, and similar actions (internaltransfers) in the measure
These NFPs must report these types of internal transfers appropriatelydisaggregated and described by type (either on the face of thefinancial statements or in the notes)
Report expenses, either on the face of financial statements or in thenotes, by:
• Function *• Natural classification• Analysis (disaggregate function by nature)
* currently required in GAAPNFPs are now required to provide qualitative disclosures about methods
used to allocate costs among program activities and supporting services
ASU 2016-14 also provides enhanced guidance on allocations frommanagement and general (M&G) expenses
• Key concept: direct conduct or direct supervision
Page 34
Accounting and Auditing Update for NFPs
Expense Reporting
Additional Information
• If expenses are reported in other line items within thestatement of activities (e.g., salaries are included incosts of goods sold) they should be included in thefunctional reporting schedule by their naturalclassification.
• External and direct internal investment expenses that arenetted against investment return should not be includedin the functional expense analysis.
Example Disclosure for Expense Allocation DisclosureNOTE X. METHODS USED FOR ALLOCATION OF EXPENSES FROM MANAGEMENT AND GENERAL ACTIVITIES
The financial statements report certain categories of expenses that are attributable to one or more program or supporting functions of the Organization. Those expenses include depreciation and amortization, the president’s office, communications department, and information technology department. Depreciation is allocated based on square footage, the president’s office is allocated based on estimates of time and effort, certain costs of the communications department are allocated based on estimates of time and effort, and the information technology department is allocated based on estimates of time and costs of specific technology utilized.
Net presentation of investment expenses againstinvestment return on the face of the statement ofactivities
‐ Netting limited to external and direct internal expenses
Disclosure of investment expenses no longerrequired, no longer require disclosure of investmentincome components
Page 40
Accounting and Auditing Update for NFPs
Investment Return
Direct internal investment expenses involve the direct conductor direct supervision of the strategic and tactical activitiesinvolved in generating investment return including:• Salaries, benefits, travel, and other costs associated with the
officer and staff responsible for the development andexecution of investment strategy.
• Allocable costs associated with internal investmentmanagement and supervising, selecting, and monitoring ofexternal investment management firms.
Direct internal investment expenses do not include items thatare not associated with generating investment return. Forexample, the costs associated with unitization and other suchaspects of endowment management would not be allocated.
• Fiscal years beginning after December 15, 2018, including interimperiods within those fiscal years (CY 2019; FY 2019-20)
Public Companies*
• Fiscal years beginning after December 15, 2019 and interimperiods beginning after December 15, 2020 (CY 2020; FY 2020-21)
All Other Organizations
• Permitted for all organizations
Early Application
* “Public Companies” refers to the following: (1) public business entities, (2) a not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an-over-the-counter market, and (3) an employee benefit plan that files or furnishes statements with or to the SEC (Same as the Revenue Recognition Standard)