Not-For-Profit Accounting Update

Transcription

1 Not-For-Profit Accounting Update Boldt Financial Solutions, LLC Tim Boldt, Partner April 25, 2014

2 Today s Presenter Tim Boldt, CPA Boldt Financial Solutions, LLC Partner Tim.Boldt@boldtfinancial.com

3 Polling Question #1 Which best describes your organization type? A. Professional/membership/trade association B. Charitable organization C. Social services (e.g. United Way, Red Cross, Salvation Army, etc.) D. Health care organization E. Educational institution F. Museum/cultural organization G.Other

4 Agenda Current Projects of the FASB Not-for-Profit Advisory Committee (NAC) Active FASB Projects Standards Issued 2013 and 2014 Earlier Standards Becoming Effective FASB IASB Joint Projects AICPA Not-for-Profit Audit Guide Q&A

5 Current Projects of the FASB Not-For- Profit Advisory Committee (NAC) Not-for-Profit Financial Reporting: Financial Statements Not-for-Profit Financial Reporting: Other Financial Communications

6 NAC Projects Not-For-Profit Financial Reporting: Financial Statements Reexamine existing standards, focusing on improving: Net asset classification requirements Information about liquidity, financial performance and cash flows Timing: Exposure Draft 2 nd Half 2014 (maybe summer)

7 NAC Current Decisions Net Asset Classification Two classes of net assets: With donor-imposed restrictions Without donor-imposed restrictions End of permanently and temporarily restricted Disclose board designations of net assets without donor-imposed restrictions

8 NAC Current Decisions Statement of Activities Operating measure to be based on Mission dimension Availability dimension Decisions on presentation of functional expenses All entities will present expenses both by natural and functional classification. Presentation in statement of activities, separate statement of functional expenses or in schedule in notes.

9 Polling Question #2 What do you think about presenting expenses by both natural and functional classification? 1. Unnecessary additional information 2. It s already on our Form 990, so why not 3. We already present it that way

10 NAC Current Decisions Statement of Cash Flows Require direct method of reporting cash flows Remove requirement to reconcile change in net assets to net cash flows from operating activities Better align categories with intermediate measure of operations Cash gifts to purchase long-lived assets for operating purposes would be operating, not financing Cash payments to purchase long-lived assets for operating purposes would be operating, not investing Cash dividends and interest income investing Interest payments - financing

11 Polling Question #3 Do you find that your current statement of cash flows provides useful information? 1. Yes 2. No 3. Not sure, or sometimes yes, sometimes no

12 NAC Financial Statements Next Steps Complete Board deliberations (first half of 2014) Topics include: Format(s) for operating activities and other changes, including application to specific industries (e.g., C&Us, HC, Fdns.) Liquidity and financial flexibility Notes to financial statements Transition

13 NAC Financial Statements Next Steps (continued) Exposure Draft (ED) proposed ASU for comments (est. mid-2014) Comment period: more outreach, field visits, testing, roundtables, etc. Re-deliberations followed by final ASU issuance (est. mid-2015)

14 What is NAC considering? Format Alternatives How important is comparability versus flexibility in presenting activities of the period? Advantages/disadvantages single all-inclusive page Shows all types of gift revenue on one page Shows gift revenue and fund-raising expense on same page Lacks focus on current operations Impedes multi-year comparisons

15 What is NAC considering? Format Alternatives (continued) Advantages/disadvantages two-page formats Places emphasis on current operating activities Facilitates multi-year comparisons of operating activities Movements between operating and non-operating resources may lack transparency and impede understandability

16 What is NAC considering? Liquidity and/or Financial Flexibility Net asset classifications alone are insufficient Requires information for both assets and liabilities Considering requirements for healthcare providers: Classified statement of financial position Breakout assets limited as to use Notes to financial statements might be feasible but... Some needed information may be forward-looking May raise audit issues Other financial communications may be best

17 Polling Question #4 Do you believe that presenting a classified statement of financial position provides better liquidity information? 1. Yes 2. No 3. Not sure

18 What is NAC considering? Improvements to Notes How might we improve NFP unique notes to financial statements? Coordinate and build on what is learned through disclosure framework project NFP participation in field study application of relevance and materiality notions Focus on most important information Seek opportunities to streamline disclosures Investment assets, including: fair value requirements (e.g., leveling) limitations imposed by donors and laws

19 NAC Projects Not-for-Profit Financial Reporting: Other Financial Communications CANCELED FASB REMOVED FROM AGENDA IN JANUARY 2014 Objective to study communications other than financial statements Management discussion and analysis Board decided to cancel this project and encourage another entity to take up To be considered at next NAC meeting

20 Active FASB Projects Reporting Discontinued Operations Technical Corrections and Improvements Development Stage Entities Project 1H 2H Transfers and Servicing: Repurchase Agreements and Similar Transactions Disclosure Framework Investment Companies: Disclosures about Investments in Another Investment Company Accounting for Goodwill for Public Business Entities and Not-for-Profits F = Final E = Exposure Draft F F F F E

21 Active FASB Projects (continued) Project 1H 2H Accounting for Government Assistance Clarifying the Definition of a Business Consolidation: Principal versus Agent Analysis Going Concern F = Final E = Exposure Draft

22 Going Concern - Background Going Concern (GC) presumption is critical to financial reporting; it informs measurements Today, auditors are responsible for assessing uncertainties about the GC presumption U.S. GAAP has no guidance on management s disclosures of GC uncertainties Objective Provide guidance in U.S. GAAP, thereby reduce diversity, standardize disclosure timing & content Proposal issued in June 2013

23 Management s Assessment of GC Uncertainties Proposed guidance: Management at each reporting period would assess an entity s potential inability to meet its obligations Start disclosures if it is more-likely-than-not (MLTN) that an entity will not meet obligations in 12 months, or known/probable that it will not meet obligations in 24 months Do not consider mitigating impact of plans outside the normal course of business If likelihood reaches probable (considering all plans), declare substantial doubt (SEC filers only)

24 GC: Feedback Received Most agree disclosures are management s responsibility, thus guidance should exist in U.S. GAAP Concerns raised: Aspects of the proposal too complicated Preparers: MLTN threshold and 24-month look-forward period will lead to disclosures too early, increase legal liability, create redundancy with MD&A Auditors: MLTN may not be operable, or may lead to disclosures too late Not enough guidance about what is outside the ordinary course of business

25 GC: Next Steps Re-deliberations began January 2014 No date for final standard

26 Accounting for Goodwill for Public Business Entities and Not-for-Profits New FASB project in November 2013, outgrowth of PCC project Considering four alternatives: The PCC alternative Amortization of goodwill over its useful life not to exceed a maximum number of years Direct write-off of goodwill Simplified impairment test

27 Active FASB Projects Activities of Private Company Council PCC proposes changes in GAAP for private companies that require endorsement by FASB PCC does not apply to not-for-profit organizations Three PCC issues have been accepted by FASB and resulted in 2 ASUs issued January 2014; a third ASU was issued in March 2014 FASB has agreed to consider whether and how not-for-profit entities should be allowed to apply some of these issues also These represent alternatives that can be selected

28 Active FASB Projects Activities of Private Company Council issues adopted by FASB NOT APPLICABLE TO NFPs ASU , Intangibles Goodwill and Other (Topic 350) Accounting for Goodwill Goodwill may be amortized for a period not to exceed 10 years, and would be tested for impairment only when a triggering event occurs Goodwill can be tested for impairment at the company-wide level ASU , Derivatives and Hedging (Topic 815) - Accounting for Certain Receive- Variable, Pay-Fixed Interest Rate Swaps Simplified Hedge Accounting Approach Practical expedient to qualify for hedge accounting. Not being considered for NFPs PCC Issue No , Applying Variable Interest Entity Guidance to Common Control Leasing Arrangements Will allow alternative not to apply VIE guidance for certain common control leasing arrangements ASU was issued in late March

29 Active FASB Projects Activities of Private Company Council - Other PCC Issue No A, Accounting for Identifiable Intangible Assets in a Business Combination Recognize only those intangible assets arising from non-cancellable contractual terms or those arising from other legal rights Any other intangible assets would not be recognized separately from goodwill, even if separable Generally would result in companies recognizing fewer intangible assets in a business combination than under current U.S. GAAP, thereby reducing the cost and complexity of valuing intangible assets acquired in a business combination

30 ASUs Issued in 2013 ASU & Cod. Topic/Subtopic ASU , Balance Sheet (Topic 210) ASU , Comprehensive Income (Topic 220) Title Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income ASU , Financial Instruments (Topic 825) Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities ASU , Liabilities (Topic 405) Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date

31 ASUs Issued in 2013 ASU & Cod. Topic/Subtopic ASU , Foreign Currency Matters (Topic 830) ASU , Not-for-Profit Entities (Topic 958) Title Parent s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity NFPs: Services Received from Personnel of an Affiliate ASU , Presentation of Financial Stmts (Topic 205) Liquidation Basis of Accounting ASU , Investment Companies (Topic 946) Amendments to the Scope, Measurement, and Disclosure Requirements

32 ASUs Issued in 2013 ASU & Cod. Topic/Subtopic ASU , Fair Value Measurement (Topic 820) ASU , Derivatives and Hedging (Topic 815) ASU , Income Taxes (Topic 740) ASU , Master Glossary Title Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purpose Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists Definition of a Public Business Entity

33 ASUs Issued so far in 2014 ASU & Cod. Topic/Subtopic Title ASU , Investments Equity Method and Joint Ventures (Topic 323) ASU , Intangibles Goodwill and Other (Topic 350) ASU , Derivatives and Hedging (Topic 815) ASU , Receivables Troubled Debt Restructurings by Creditors (Subtopic ): ASU , Service Concession Arrangements (Topic 853) Accounting for Investments in Qualified Affordable Housing Projects (EITF) Accounting for Goodwill (PCC) Accounting for Certain Receive-Variable, Pay- Fixed Interest Rate Swaps Simplified Hedge Accounting Approach (PCC) Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure EITF Concensus

34 ASUs Issued so far in 2014 ASU & Cod. Topic/Subtopic Title ASU ASU , Consolidation (Topic 810) ASU , Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) Technical Corrections and Improvements Related to Glossary Terms Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements (PCC) Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity

35 Services Received from Personnel of an Affiliate (ASU ) Personnel services received from an affiliate (parent/sub or common control) for which the affiliate doesn t charge the recipient NFP should be recognized in the recipient NFP s financial statements, measured at the actual costs incurred by the affiliate Contributed services criteria no longer applicable FV practicability exception if cost will significantly overstate or understate the value of the services received Entities under Topic 954 (healthcare) would report as equity transfer Effective for f/y beginning after Modified retrospective application; early adoption permitted

36 Obligations Resulting from Joint and Several Liability Arrangements (ASU ) Requires an entity to measure such obligations for which the total amount of the obligation is fixed at the reporting date as the sum of: a) amount the entity agreed to pay on the basis of its arrangement among its co-obligors, and b) any additional amount the entity expects to pay on behalf of its coobligors Also requires disclosures about nature and amount of obligation and other information about those obligation Effective date: Public entities: f/y beginning after Nonpublic entities: f/y ending after Retrospective application; early adoption permitted

37 Liquidation Basis of Accounting (ASU ) Offshoot of Going Concern project; provides guidance on when and how to use liquidation basis When: liquidation is imminent Likelihood is remote that entity will return from liquidation, and either (a) approved plan with remote likelihood of being blocked, or (b) imposed by outside forces (e.g., involuntary bankruptcy) Limited-life entities only if approved plan differs from plan at inception How: assets (including any not previously recognized, such as trademarks) at expected cash proceeds, liabilities as per other GAAP Certain disclosures also required Effective date: F/y beginning after , and interim periods therein Prospective application; early adoption permitted

38 Definition of a Public Business Entity (ASU ) Issued December 2013 Defines a public business entity Not-for-profit entities excluded Effects future standards only. Current requirements continue for notfor-profit issuers of debt or conduit debt Effective as adopted in future standards

39 Earlier ASUs Becoming Effective ASU & Cod. Topic/Subtopic Title ASU , Health Care Entities (Topic 954) ASU , Intangibles Goodwill and Other (Topic 350) ASU , Statement of Cash Flows (Topic 230) Continuing Care Retirement Communities Refundable Advance Fees Testing Indefinite-Lived Intangible Assets for Impairment Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows

40 Continuing Care Retirement Communities Refundable Advance Fees (ASU ) Issued July 2012 Effective dates: Public for fiscal periods beginning after December 15, 2012 Nonpublic for fiscal periods beginning after December 15, 2013 Early adoption is permitted Objective is to clarify the reporting for refundable advance fees received by continuing care retirement communities (CCRCs)

41 Continuing Care Retirement Communities Refundable Advance Fees (ASU ) (continued) An entity should classify an advance fee as refundable advances when a CCRC has a resident contract that provides for payment of the refundable advance fee upon re-occupancy by a subsequent resident, which is limited to the proceeds of re-occupancy Refundable advance fees that are contingent upon re-occupancy by a subsequent resident but are not limited to the proceeds of reoccupancy should be accounted for and reported as a liability

42 Testing Indefinite-Lived Intangible Assets for Impairment (ASU ) Issued July 2012 Effective for interim and annual impairment tests performed for fiscal years beginning after September 15, 2012 (calendar 2013) Early adoption is permitted Objective is to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets Previous guidance required an entity to test indefinite-lived intangible assets for impairment, on at least an annual basis, by comparing the fair value of the asset with its carrying amount

43 Testing Indefinite-Lived Intangible Assets for Impairment (ASU ) (continued) An entity may first perform a qualitative assessment to determine whether it is necessary to perform the quantitative impairment test Unconditional option to bypass qualitative assessment For any indefinite-lived intangible asset May resume in any subsequent period

44 Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows (ASU ) Issued October 2012 Effective date: For fiscal years, and interim periods within those years, beginning after June 15, 2013 (calendar 2014) Retrospective application to prior periods is permitted Objective is to address how cash receipts arising from the sale of certain donated financial assets, such as securities, should be classified in the statement of cash flows of a nonprofit entity (NFPs)

45 Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows (ASU ) (continued) Operating activities if cash receipts were from the sale of donated financial assets that upon receipt were directed without any Nonprofit-imposed limitations for sale and were converted nearly immediately into cash, should be classified as operating Financing activities if the donor restricted the use of the contributed resources to long-term purposes, should be classified as financing Investing activities if neither of the above, then cash receipts from the sale of donated financial assets should be classified as investing activities

46 FASB and IASB Joint Projects Project Status 1H 2H Revenue recognition Final ASU expected F Leases ED issued in May 2013 Financial instruments Classification and measurement ED issued in Feb 2013 F Impairment ED issued in Dec 2012 F Hedging DP issued in Feb 2011 Insurance Contracts ED issued in June 2013 F = Final

47 Why should you be interested? Revenue Recognition Revenue recognition policies of almost all entities will be effected Virtually all industry-specific guidance will be superseded What s the status? Final ASU expected in Q What s happened recently? Drafting final standard Discussions related to collectibility, licenses and the constraint AICPA drafting industry assistance guide When would it be effective? 2017 for calendar year-end public companies 2018 for calendar year-end private companies

48 Why should you be interested? Leases Accounting by lessees and lessors could change drastically What s the status? Revised ED issued in May 2013 Comment letters due in September 2013 Roundtables held in Q3 and Q What themes have come through in comment letters and round tables? Generally not supportive of model in revised ED Differing opinions on how to move forward - Do away with Type A/B model - Disclosure only standard What s next? Re-deliberations began January 2014 Nearly 600 comments letters on this ED were received

49 Financial Instruments Classification and Measurement Why should you be interested? What s the status? What themes came through in comment letters? More financial assets may need to be measured at fair value and fair value option could be restricted Re-deliberations have started Cash flows characteristics test is too complex Permitted sales of loans are too restrictive Trade receivables/payables should be excluded from scope Have any significant decisions been reached in redeliberations? What s next? Discussions focused on improving cash flows characteristics test Decide whether to retain cash flows characteristics test Reconsider business model assessment

50 Financial instruments Impairment Why should you be interested? What s the status? What themes came through in comment letters? Have any significant decisions been reached in redeliberations? What s next? Could significantly accelerate recognition of expected credit losses Re-deliberations have started Preparers are not supportive of proposed model, particularly upfront recognition of lifetime expected credit losses and need to consider multiple outcomes Clarifications on how to estimate lifetime expected credit losses Address timing of recognition and other concerns Refining the Current Expected Credit Loss model

51 AICPA NFP Audit Guide (revised) The AICPA issued a comprehensive revision in spring 2013 First since Guide was released in 1996 Non-authoritative, but indispensable! Wraps around guidance in FASB Accounting Standards Codification (authoritative), expanding upon, further explaining, and illustrating Much easier to read than ASC New materials on programmatic investments, tax-exempt debt, giftsin-kind Expanded discussion on interests in related entities, fair value measurements, many other areas

52 Polling Question #5 Do you have a access to the 2013 version of the AICPA NFP Audit Guide? 1. Electronic 2. Paper 3. Both 4. Neither

53 Staying Current FASB Online Online Key resources at FASB webcast series Projects NFP section (link on home page) Codification Twitter: FAFNorwalk sign up for Action Alert

54 Q & A It is now time for our Q&A session.

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56 This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does note constitute professional advice and you should consult a qualified professional advisor before taking any action based on the information herein. Boldt Financial Solutions, LLC are not responsible for any loss resulting from or relating to reliance on this document by any person