2018 Nonprofit Accounting and Reporting Update

Transcription

1 The webcast will start at 1 p.m. Eastern Please note: Handout You can print or download the webcast handout at capincrouse.com/ webcast-accounting-update CPE CPE certificates will be ed to you within the next few weeks. To receive CPE credit you must respond to the polling questions, which are not available on mobile devices. Therefore, in order to receive CPE credit you must log in via a computer. Recording A recording of today s webcast will be available at capincrouse.com. Click Nonprofit Resources, and then select Webcast: Recorded from the list on the right Nonprofit Accounting and Reporting Update Fran Brown, Partner Frank Jakosz, Partner

2 ASUs We Will Be Covering Today Going concern Extraordinary items Debt interest Inventory Restricted Cash Consolidation guidance Compensation retirement benefits ASUs We Will Be Covering At a High Level NFP Financial Statements Leases Rev rec NAV disclosures Proposed ASU Grants and Contracts 2

3 ASU : Disclosure of Uncertainties about an Entity s Ability to Continue as a Going Concern Disclosures Disclosure is required when substantial doubt exists when conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued No longer the ability to hold the report until the auditor s level of doubt falls to a safe zone Current auditing standards don t give a definition of substantial doubt 3

4 Triggers Paragraph in the Guide has examples of triggers Negative financial trends Other indications of financial difficulties Internal matters External matters Time Horizon 3/1/20X3 12/31/20X1 Balance Sheet Date 3/1/20X2 FS Issuance Date 12/31/20X2 Prior Auditing Standard Requirement: One Year from Balance Sheet Date FASB Requirement: One Year from FS Issuance Date 4

5 Disclosures Principal conditions or events Management s evaluation Management s plan Statement that there is substantial doubt about the entity s ability to continue as a going concern This is only necessary when management s plans do not alleviate concern Effective Date For annual periods ending after December 15, 2016 How does this impact debt covenant waivers? 5

6 ASU , Eliminating the Concept of Extraordinary Items Guidance Previous Guidance Criteria to be met to qualify as extraordinary: Unusual in nature Infrequency of occurrence Both must be met Current Guidance ASU eliminated from GAAP the concept of extraordinary items 6

7 Effective Date Effective for fiscal years beginning after December 15, 2015 Any questions ASU Simplifying the Presentation of Debt Issuance Costs 7

8 Update Debt issuance costs related to a recognized debt liability should be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability Recognition and measurement guidance for debt issuance costs are not affected 8

9 Effective Date Effective for fiscal years beginning after December 15, 2015 An entity should apply the new guidance on a retrospective basis Questions? 9

10 ASU Simplify the Subsequent Measurement of Inventory Concepts Measure inventory at the lower of cost and net realizable value Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation Not in scope LIFO or Retail Inventory Method 10

11 Effective Date Fiscal years beginning after December 15, 2016 Prospective application ASU Restricted Cash 11

12 Update Statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents Transfers between cash, cash equivalents, and restricted cash or restricted cash equivalents are not reported as cash flow activities Disclose in a narrative or tabular format the amounts, disaggregated by line item, that sum to the total amount shown in the SOC. ASC FASB ASC A, FASB ASC , and FASB ASC Effective Date For fiscal years beginning after December 15,

13 ASU Clarifying When a Not-for-Profit Entity That Is a General Partner or a Limited Partner Should Consolidate a For-Profit Limited Partnership or Similar Entity Update This ASU was issued to clarify when a NFP that is the General Partner or a Limited Partner should consolidate a For-Profit Limited Partner or similar entity Retains the consolidation guidance that was in Subtopic for NFPs by including it within Subtopic Adds guidance to Subtopic on when an NFP limited partner should consolidate a for-profit limited partnership 13

14 Update Restores past accounting by the general partner Rebuttable presumption that general partner controls and should consolidate no matter what percent of ownership If limited partners have substantive participating rights, general partner uses equity method New requirement that a limited partner should consolidate if partner holds the majority of the kick-out rights Clarifies that noncontrolling interest in a general partnership should be reported using equity method if the partnership is engaged in real estate activities Effective Date Fiscal years beginning after December 15, 2016 NFPs need to adopt ASU at the same time they adopt ASU and should apply the same transaction method elected for the application of ASU For NFPs that have already adopted , will need to be applied retrospectively for all relevant periods beginning with the fiscal year in which was initially applied 14

15 ASU Improving the Presentation of Net Periodic Pension Cost & Net Periodic Benefit Cost Update Requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented Only the service cost component is eligible for capitalization when applicable (for example, as a cost of internally manufactured inventory or a self-constructed asset) 15

16 Effective Date Fiscal years beginning after December 15, 2018 Questions? 16

17 ASUs We Will Be Covering At a High Level NFP Financial Statements Leases Rev rec NAV disclosures Proposed ASU Grants and Contracts ASU NFP Financial Statement 17

18 Key Provisions of ASU No Net Asset Classification Updates net asset scheme, changes underwater endowment accounting, removes option for implied time restrictions on capital gifts, board designations, enhances disclosures Liquidity & Availability Quantitative and qualitative disclosures about liquidity and availability of resources Expenses Requirement to report expenses by function (already required) and nature, and an analysis showing the relationship between function and nature Statement of Cash Flows Free choice : indirect reconciliation no longer required for direct method Investment Return Present investment return net of external and direct internal investment expenses; no longer required to disclose netted expenses Implementation Statement of Activities Statement of Activities Intermediate Operating Measure 18

19 Implementation Statement of Activities Statement of Activities ASU Leases 19

20 Overview New Definition of a Lease Lease Classification Finance Lease Operating Lease Recognition & Measurement Right of Use Asset Lease Liability Subsequent Measurement Short-Term Lease Exception Initial Measurement 20

21 Subsequent Measurement: Familiar Recognition Disclosure Summary 21

22 Effective Date for ASC 842 (new ASC section) NFP entities that have issued, or are conduit bond obligators for, securities that are traded, listed, or quoted on an exchange or an OTC market For All Other Entities Fiscal years beginning after December 15, 2018 Fiscal years beginning after December 15, 2019 ASU Revenue From Contracts with Customers ( Topic 606 ) 22

23 Scope This FASB ASU applies when an entity enters into contracts with customers to transfer goods or services; or enters into contracts for the transfer of nonfinancial assets Unless those contracts fall within the scope of other standards, such as insurance, lease contracts, or guarantees within the scope of Topic 460 Considerations for NFPs Contributions (out of scope) Bifurcation (combination of exchange and contribution) Membership Dues Tuition and Fees Licenses and Royalties Royalties Advertising Retail Sales Sponsorships 23

24 Guidance Recognize revenue to depict the transfer of promised goods or service to customers in an amount that reflects the considerations to which the entity expects to be entitled in exchange for these goods and services Focus is on the contract rather than on transactions of certain types by certain industries Transfer Amount Transfer of promised goods and services Reflects consideration expects to receive Application for Recognition 24

25 Effective Date For a public entity (including NFP entities that have issued or are conduit bond obligors for securities that are traded, listed, or quoted on an exchange or OTC market) For annual reporting periods beginning after December 15, 2017 For all other entities For annual reporting periods beginning after December 15, 2018 AICPA Rev Rec Task Forces The AICPA has formed 16 industry task forces to help develop a new accounting guide on revenue recognition that will provide illustrative examples for how to apply the new standard one is for NFPs Implementation issues finalized and included in AICPA Revenue Recognition Guide: Tuition and housing revenues for NFP higher eds Contributions Bifurcation of Transactions Between Contribution and Exchange Components Implementation issue out for exposure Subscription and membership dues 25

26 ASU Disclosures for Investments in Certain Entities That Calculate NAV (or its equivalent) Update Removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient Practical expedient can t be used if investment has a readily determinable fair value, so it can t be used for investments in mutual funds if they are redeemable at the measurement date at NAV Can t be used for interests in pools managed by another NFP in many circumstances because the other NFP has mission-related activities in addition to its investing activities (criteria in FASB ASC ) Requires a reconciling item to be added to the fair value hierarchy disclosure to reconcile to statement of financial position 26

27 Effective Date Retrospective application NFP Entities Fiscal years beginning after December 15, 2016 Proposed ASU Clarifying the Scope and Guidance for Contributions Received and Contributions Made 27

28 Proposed Accounting and Reporting Proposed Accounting and Reporting Applies to both contributions received and made Proposed ASU requires: A right of return or release must exist, and The agreement must include a barrier 28

29 Indicators to Determine a Barrier including but not limited to: Inclusion of a measurable performance-related barrier (specified level of outputs, outcomes, matching, etc.) Excludes barriers unrelated to the primary purposes of the agreement (administrative tasks and trivial stipulations) The extent to which a stipulation limits discretion by the recipient The extent to which a stipulation requires an additional action or actions Excludes situations in which the only requirement is that the transferred assets be spent Proposed Effective Dates The effective date is the same as the new Revenue Recognition standard (Topic 606), but allows for early implementation. 29

30 Questions? Upcoming Webcast Please join us! Learn more at capincrouse.com Acquiring Top Talent for Your Nonprofit Organization Thursday, March 22 1 p.m. Eastern Presented by: Heather Mausz 30

31 Thank you. Frank Jakosz, Partner o , ext c Fran Brown, Partner fbrown@capincrouse.com o c Copyright CapinCrouse