Moving to International Financial Reporting Standards (IFRS)

The AICPA recently reported in its CPA Letter Daily, “executives from three of the Big Four accounting firms said the nation’s plan to shift to global accounting standards could face significant delays and that the process could become extremely politicized. The executives said discussions about the shift are at a crucial point. For IFRS daily updates, training courses, case studies and other resources, visit http://www.ifrs.com/

Revisiting Fair Value Measurement and Disclosure

The AICPA Accounting Standards Executive Committee has issued a draft issues paper, FASB Accounting Standards Codification™ Section 820, Fair Value Measurements and Disclosures, for Certain Issues Pertaining to Not-for-Profit Entities. Specifically, this draft issues paper discusses fair value measurement for unconditional promises to give cash, beneficial interests in perpetual trusts, and split interest agreements as they pertaining to nonprofit entities.

Do You Have A Split-Interest Agreement?

Split-interest agreements are contributions that are to be shared by the nonprofit organization and other beneficiaries.  A split-interest agreement is created when a donor contributes assets directly to a nonprofit organization or places them in a trust for the benefit of the nonprofit organization, but for which the organization is not the sole beneficiary.  Common types of split-interest agreements are charitable lead trusts, charitable remainder trusts, charitable gift annuities and pooled (life) income funds.   Split-interest agreements are either revocable or irrevocable.  Revocable split-interest agreements are not recognized as contributions, while the benefits to be received by the organization related to irrevocable split-interest agreements are generally recorded as contributions.  The accounting treatment varies for irrevocable split-interest agreements, depending on the type of split-interest arrangement created and whether the organization or a third party is trustee.  Read FASB’s accounting codification for more details.

SUBSEQUENT EVENTS

Making sure that material subsequent events are disclosed in financial statements has long been an audit requirement . The introduction of FASB’s SFAS No. 165 ” Subsequent Events ” shifts that responsibility to the internal preparers of financial statements and explicitly makes it the nonprofits not the auditors responsibility to have correctly treated subsequent events . Continue reading »

FASB CONSIDERS CHANGES TO GOING CONCERN

FASB has an outstanding exposure draft on a proposed standard on management’s responsibility to evaluate a company’s ability to continue as a going concern. The proposed guidance changes the responsibility of assessment to management and the time horizon for management’s evaluation from “a reasonable period of time not to exceed one year” to a period that is “at least, but is not limited to, 12 months” from the end of the reporting period.

The Board is currently in redeliberations and is considering broadening the scope of the project to enhance disclosures on short-term and long-term risks for which there is a more-than-remote likelihood of occurrence. In addition, the Board plans to address (1) defining substantial doubt in terms of the entity’s ability to continue as a going concern and (2) when it would be appropriate to apply the liquidation basis of accounting. The FASB project plan indicates a final standard is expected in 2010.  Those interested can monitor the status of this project at http://www.fasb.org/. You can find the exposure draft at www.fasb.org/ed_going_concern.pdf

Useful Tool for Federal Grantees: The Excluded Parties Lists System (EPLS)

Recipients of Federal grants are aware that they cannot pass Federal money on to excluded parties. Ways of ensuring that the vendors, subcontracts, and subgrantees are eligible include getting them to provide certification and checking them against known excluded parties.  There is a searchable database available to the public of known people and companies that are ineligible to receive Federal funding called the Excluded Parties List System or EPLS.

 The EPLS is located at https://www.epls.gov/ and allows people and business to search by name to find out who is on the excluded party list.  Excluded parties are not allowed to receive federal contracts or subgrants due to being a felon, a known terrorist, or other reasons.  EPLS provides a single searchable list of all excluded parties.  This is an important and easy tool for any organization that receives federal funds or gives out subgrants.  Continue reading »

ADVERTISING OR SPONSORSHIP…THE DIFFERENCE CAN BE A LOT OF $$$

Advertising revenue is considered “unrelated business income” (UBI) by the Internal Revenue Code (IRC) Section 513.  But how do you know the revenue your organization is receiving is REALLY considered advertising?  This is where a closer look can save you big tax dollars! 

To make it simple, you have advertising revenue subject to the UBI rules if the “advertising” promotes or markets any trade or business, or the advertiser otherwise expects more than a negligible commercial benefit in return.  If merely the name, logo, or product line of the advertiser is listed on a banner or appears in a publication, such as a conference agenda, it is more aptly described as “sponsorship revenue” and is not subject to the UBI taxation.  

Real life situations can appear to be somewhere in between the definition of advertising and sponsorship, and (of course) the guidance as written in the IRC is copious and confusing, so consult your tax practitioner if you are not sure whether you have advertising (taxable) or sponsorship revenue (not taxable).

Refresher on Joint Cost Activity

To be able to allocate joint costs and not have an item count as 100% fundraising the item or event has to pass a 3 tiers of criteria:

1. Purpose – i.e. will this help accomplish the entity’s mission. This requires a “Call to Action” which is encouraging or educating the audience/population to take an action that would be in line with your mission. Best example: cardiac society gives brochures with informaiton on suggested ways to reduce risk of a heart attack such as quitting smoking.  A proportion of the brochure asks for contributions – that’s a legitimate joint cost if the other criterion are also met. The amount allocated to fundraising would be based on the proportion of the brochure. If 1/8^th of the brochure is dedicated to requesting contributions then 1/8^th of the brochure’s printing and mailing costs would be allocated to fundraising. If the Purpose criteria is failed then 100% has to go to fundraising.
2. Audience – if the recipients of the brochures/mailers or attendees of an event are primarily prior donors or members then there’s a problem. The population receiving the info has to be selected based on their potential use for the info and the audience can assist in meeting the goals of the purpose besides just raising money. Example: renting mailing lists from similar/ like-minded organizations and mailing to everyone there meets the audience test whereas mailing only to people who have given you money before does not.
3. Content – This is much like “purpose” but the idea is you can have a purpose to it but not adequately or clearly convey the call to action so the content has to be clear and informative. The intent may be there but is the information all there?

If your item or event passes all three criteria then allocating a portion to fundraising and a portion to program activity is appropriate.

From SOP 98-2 : “Costs of goods or services provided in exchange transactions that are part of joint activities, such as costs of direct donor benefits of a special event (for example, a meal), should not be reported as fund raising.”

Defined Benefit Plan Considerations

Non-Profits and Associations are one of the few industries where defined benefit plans still exist and as everyone knows DB plans are struggling these days.  The lackluster stock market performance of  the last decade has left most plans in an underfunded situation and many organizations have frozen future benefit accruals either permanently or for a period of time.  Obviously “how are we going to fund the plan”  and “what should we do in the future” are the overriding concerns, but we have also seen some accounting issues arise from incomplete communications between the organizations and their actuaries. Continue reading »

FASB creates Not-for-Profit Advisory Board

Those of us that work in the non-profit industry have been keeping an eye on the upcoming switch to International Financial Reporting Standards (IFRS) and what it will mean for non-profits. Currently IFRS has no guidance for non-profits because the concept of a non-profit industry is fairly American in its make-up. Not trying to instigate political debate but by and large the areas that are managed in America by non-profit groups are handled by the government or not at all. With the dissolution of the FASB, who is going to take over guidance for non-profit has been the question on everyone’s mind. Now we have an answer. The FASB has created a new Not-for-Profit Advisory Committee (NAC). Continue reading »