FASB Update for Non-Profits. Presented By: Amy Lewis

Transcription

1 FASB Update for Non-Profits Presented By: Amy Lewis July 18, 2018

2 The Big 3 2

3 Implementation Dates New Reporting Model 12/31/18 6/30/19 Revenue Recognition Public: 12/31/18 or 6/30/19 Non-Public: 12/31/19 or 6/30/20 Leases Public: 12/31/19 or 6/30/20 Non-Public: 12/31/20 or 6/30/21 3

4 New Reporting Model See Tomorrow s Session at 12:30 4

5 Leases See Tomorrow s Session at 3:20 5

6 Revenue Recognition (Topic 606) 6

7 Not Included Lease contracts Insurance contracts Financial instruments Guarantees Nonmonetary exchanges in the same line of business to facilitate sales to customers Contributions Collaborative arrangements 7

8 Steps to Apply Revenue Recognition 5. Recognize revenue 1. Identify contracts 4. Allocate transaction price 2. Identify performance obligations 3. Determine transaction price 8

9 NFP Areas of Focus Tuition and housing fees contained in Revenue Recognition Guide Subscriptions and membership dues out for exposure Grants ASU will be discussed later Healthcare Issues some are final in the Revenue Recognition Guide, some are in exposure period 9

10 ASU Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made 10

11 ASU Issued June 2018 Why? To clarify and improve the scope and the accounting guidance for contributions received and contributions made To assist entities in (1) evaluating whether transaction should be accounted for as contributions (nonreciprocal transactions) or as exchange transactions (reciprocal transactions) To assist entities in determining whether a contribution is conditional To respond to ASU

12 Two Practices to Follow Contributions Subtopic Exchange Topic

13 Who Must Follow ASU ? All NFPs Some business entities Entities receiving contributions no matter what they are called Gifts Grants Donations 13

14 ASU Effective Dates Recipients: Public: 6/30/19 or 12/31/19 Non-Public: 12/31/19 or 6/30/20 Resource Providers: Public: 12/31/19 or 6/30/20 Non-Public: 12/31/20 or 6/30/21 Should be applied on a modified prospective basis No prior period results should be restated, and there should be no cumulative-effect adjustment to the opening balance of net assets 14

15 Exchange Transaction vs Contribution Considerations to be Made: A benefit received by the public as a result of the assets transferred is not equivalent to commensurate value received by the resource provider Execution of the resource provider s mission shall not constitute commensurate value received Expressed intent by both parties to exchange resources If the resource provider has full discretion in determining the amount of the transferred assets, the transaction is indicative of a contribution If the penalties for nonperformance exceed the amount of assets transferred, the transaction is indicative of an exchange 15

16 Exchange Transaction vs Contribution The following are not contributions: Transfers of assets that are in substance purchases of goods or services Transfers of assets in which the reporting entity acts as an agent, trustee, or intermediary Tax exemptions, tax incentives, or tax abatements Transfers of assets from government entities to business entities Transfers of assets that are part of an existing exchange transaction between a recipient and an identified customer Example: Medicare, Medicaid 16

17 Contribution (A) or Exchange Transaction (B)? Research #1 The local government provided funding to NFP A to perform a research study on the benefits of a longer school year. The agreement requires NFP A to plan the study, perform the research, and summarize and submit the research to the local government. The local government retains all rights to the study. 17

18 Contribution (A) or Exchange Transaction (B)? Research #2 University B applied for and was awarded a grant from the federal government. B must follow OMB rules and regulations. B is required to incur qualifying expenses to be entitled to the assets. Any unspent money is forfeited and must be returned. B is required to submit a summary of research findings to the government, but B retains the rights to the findings. 18

19 Conditional Grants A donor-imposed condition is a donor stipulation that represents a barrier that must be overcome before the recipient is entitled to the assets transferred or promised. It must be determinable from the agreement that a recipient is only entitled to the transferred assets or a future transfer of assets if it has overcome the barrier. 19

20 Conditional Grants (cont.) It is possible that some agreements that do not contain any barriers could contain either a right of return or a right of release. These may be included as standard wording but if no barriers are imposed, then the resources would be considered unconditional. Some agreements contain multiple requirements that must be overcome. An entity must consider the facts and circumstances and use judgement to determine which stipulations, if any, are deemed to be barriers. 20

21 Measurable Performance-Related Barrier Specified level of service 1000 meals per week for a soup kitchen Specific output or outcome Students achieving a minimum standardized test score Matching Outside event If the resource provider s net worth reaches a specified level 21

22 Conditional (A) or Not Conditional (B)? Contribution #1 Foundation C gives NFP D a $400,000 grant to provide specific career training to disabled veterans. The grant requires NFP D to provide training to at least 8,000 disabled veterans during the next fiscal year, with specific minimum targets that must be met each quarter. Fdn A specifies a right of release in the agreement that it will only give NFP D $100,000 each quarter if NFP D demonstrates that those services have been provided to at least 2,000 disabled veterans during the quarter. 22

23 Conditional (A) or Not Conditional (B)? Contribution #2 NFP E is a hospital that has a research program. NFP E receives a $300,000 grant from the federal awarding agency to fund thyroid cancer research. The terms of the grant specify that NFP E must incur certain qualifying expenses in compliance with OMB. The grant is paid on a cost-reimbursement basis by NFP E initiating drawdowns of the grant assets. Any unused assets are forfeited and any unallowed costs that have been drawn down must be refunded. 23

24 Conditional (A) or Not Conditional (B)? Contribution #3 NFP F is a public charity that performs research on various diseases and allergies as part of its overall mission. It receives a $100,000 grant from a foundation to perform research on gluten-related allergies over the next year. The grant agreement includes a right of return as part of the foundation s standard wording and a requirement that at the end of the grant period a report must be filed with the foundation that explains how the assets were spent. 24

25 Conditional (A) or Not Conditional (B)? Contribution #4 NFP G is a university that is conducting a capital campaign to build a new mathematics building. NFP G receives a $10,000 upfront grant from a foundation as part of its campaign. The agreement contains a right of return requiring that the assets be reimbursed to the foundation if the assets are not used for the purposes outlined in the capital campaign materials. The foundation does not include any specifications in the agreement about how the building should be constructed. 25

26 Conditional (A) or Not Conditional (B)? Contribution #5 NFP H is a recreational organization that provides various sports programs to children that live in the community. NFP H receives a $40,000 upfront grant from a foundation to be used towards its tennis program. The agreement includes specific guidelines (from NFP H s grant proposal) for which NFP H could use the assets, but does not specify that NFP H s entitlement to the $40,000 is dependent upon NFP H meeting any of the specific indicated guidelines. The grant contains a right of return for funds not spent on the tennis program. 26

27 Other FASB Projects 27

28 Recent Accounting Standards Updates ASU Other Income Gains and Losses (Subtopic ): Clarifying the Scope of Asset Derecognition and Accounting for Partial Sales of Nonfinancial Assets ASU Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting ASU Compensation Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost ASU Receivables Nonrefundable Fees and Other Costs (Subtopic ): Premium Amortization on Purchased Callable Debt Securities ASU Compensation Stock Compensation (Topic 718): Scope of Modification Accounting ASU Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services ASU Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exemption ASU Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities ASU Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842 ASU Income Statement Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ASU Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic ): Recognition and Measurement of Financial Assets and Financial Liabilities 28

29 Collections On June 26, 2018, the FASB issued Proposed ASU, Not-for-Profit Entities (Topic 958): Updating the Definition of Collections Comment period ends August 20, 2018 The term collections in the Master Glossary of the Codification is no longer aligned with the definition used in the American Alliance of Museums Code of Ethics for Museums 29

30 Definition, as amended: Collections (cont.) Works of art, historical treasures, or similar assets that meet all of the following criteria: 1. They are held for public exhibition, education, or research in furtherance of public service rather than financial gain. 2. They are protected, kept unencumbered, cared for, and preserved. 3. They are subject to an organizational policy that requires the proceeds of items that are sold to be limited to direct care of existing collections or the acquisition of used to acquire other items for collections. 30

31 Balance Sheet Classification of Debt Debt would be classified as noncurrent if either of the following are met: Liability is contractually due to be settled more than one year after the balance sheet date Entity has contractual right to defer settlement of liability for at least one year after the balance sheet date Prohibits an entity from considering a subsequent refinancing when determining the classification of debt Requires debt to be classified as noncurrent when there has been a debt covenant violation if the entity receives a waiver that meets certain conditions before the financial statements are issued Requires separate presentation on the balance sheet 31

32 Cloud Computing Arrangements Becoming more common Treatment is inconsistent EITF Issue would treat implementation costs of CCAs that are service contracts in accordance with Subtopic on internal-use software Configuration costs incurred during development stage would be capitalized Costs incurred during preliminary project and postimplementation stages would be expensed Comment period on this EITF issue ended April 30,

33 Disclosure Framework Four new documents to improve the effectiveness of disclosures in notes A new chapter in the FASB s conceptual framework on disclosures An update to an existing chapter of the conceptual framework addressing materiality An update to Fair Value Measurement disclosure requirements An update to Defined Benefit Plan disclosure requirements 33

34 Questions? Contact Me! Amy C. Lewis, CPA Pittsburgh Harrisburg Butler State College Erie Lancaster 34