Services Received from an Affiliate

FASB issued Proposed Accounting Standards Update (ASU) No. EITF-12B, Not-for-Profit Entities (Topic 958): Personnel Services Received from an Affiliate for Which the Affiliate Does Not Seek Compensation (a consensus of the FASB Emerging Issues Task Force).  The FASB will be accepting comments on this proposed accounting update until September 20, 2012.  The proposed update would modify the current that guidance which indicates that only those contributed services that (1) create or enhance nonfinancial assets or (2) require specialized skills, are provided by individuals possessing those skills, and typically would need to be purchased if not provided by donation should be recognized.  In addition, under this accounting update the value of the services would be measured at the cost recognized by the affiliate for the personnel providing those services.  For more detail read the full FASB exposure draft.

New Acronym Alert: PCC (Private Company Council) established to define GAAP for private companies

On May 23, the Financial Accounting Foundation (FAF) voted to create the Private Company Council (PCC), whose main purpose will be to define differences and exceptions in U.S. GAAP for private companies. This new council will differ considerably from the previously proposed council in October. Several reductions of FASB’s part in the PCC’s decision making process have been made: FASB’s role in the decision making process has been switched from “ratification” to “endorsement;” The PCC chair will no longer be a FASB member; FASB will be given 60 days to approve a PCC decision or must give a public, written notice of why it failed to endorse the decision; and the PCC is able to decide, by a two-thirds vote and discussion with FASB and stakeholders, which components of GAAP are eligible to be exceptions or modifications.

The PCC, with around nine to 12 members chosen by FAF, will hold a minimum of five meetings every year during its first three years. Several of the deliberative meetings will welcome the public and FASB members, while other administrative and educational meetings will exclude FASB members. A FAF committee will supervise the PCC and FASB as they respond to the requests of the private companies. The Private Company Financial Reporting Committee, which had previously worked with FASB about private company matters, will no longer exist in the near future.

Suggested variances in U.S. GAAP for private companies will be brought up by the public and discussed further by the PCC, who will send the approved modifications or exceptions to FASB for final endorsement. These endorsed modifications or exceptions will then be integrated into U.S. GAAP. FASB is in the process of creating a Private Company Decision-Making Framework, which will be the standard set of rules to determine if and when an adjustment to U.S. GAAP is necessary for private companies. FASB is also working on establishing a clear understanding of how a nonpublic entity is to be defined. The AICPA has shown its support for the PCC and has proclaimed its plans to found an “other comprehensive basis of accounting” (OCBOA) framework for private companies that are small enough to be excluded from the requirement to file U.S. GAAP financial statements. The AICPA hopes that OCBOA will be a “less comprehensive, less costly alternative” for these small and medium-size companies and believes that steps have been made in the right direction to change U.S. GAAP for all private companies.

Source: Journal of Accountancy, July 2012, FAF Creates Private Company Council by Ken Tysiac

How do you record donated services from an affiliate?

Frequently nonprofit organizations receive services from a parent or affiliate’s employees or there may be shared administrative support for which the recipient organization doesn’t pay or incur costs. But what do you do to capture the value of the work provided? What is fair value in this case and what qualifies as a “specialized skill” (sidenote: unrelated donated services must qualify as a specialized skill or one that creates or enhances non-financial assets)?

The Emerging issues Task Force (EITF)’s job is to hash out those insidious little details that are left in grey territory by the FASB. They began discussing this topic in March which I helpfully translated into dramatic narrative here. Or, you can read all about it in their own words here. They go through possible scenarios and discuss if changes should be retrospective. At their June meeting, EITF reached what is referred to as “consensuses-for exposure” which is to say they agreed on an approach and now the FASB needs to chime in.

What was agreed upon was this: The recipient organization should record donated service revenue and expense for all work done on their behalf by an affiliate’s employees at cost. Retrospective application is optional. Early adoption is permitted.

FASB Fatigued

Fitch Ratings and Accounting Today are reporting that accounting standard setters are experiencing some fatigue. Not surprising considering there have been 12 new accounting pronouncements in 2011. The FASB has been working with the IASB, focusing on issuing new accounting standards that will converge  U.S. standards with the dreaded international standards – IFRS. The credit rating agency stating it believes the emphasis on high quality along with the call for comments on updated proposals has slowed the two standard setting boards down.

According to the agency, “The major priority projects initially scheduled for a June 2011 completion are still at various stages of completion in 2012 and some will likely extend into 2013.” Even the SEC is postponing making a decision on incorporating IFRS.

The article does not get into the status of any determination of who will govern over nonprofit standards but it seems a logical conclusion that decision is also on hold.

Possible Changes Coming to Nonprofit Reporting

Not-for-Profit Advisory Committee (NAC) was established in October 2009 to serve as a standing resource for the Financial Accounting Standards Board (FASB) in obtaining input from the not-for-profit sector on existing guidance, current and proposed technical agenda projects, and longer-term issues affecting those organizations.  Recently, NAC recommended several possible long-term projects for FASB.  The three possible agenda items include net asset classes, form of financial statements and MD&A.  For more details on the agenda items read the article from the Journal of Accountancy.

Discussing Changes to Lease Accounting

Today, September 21, 2011, the FASB and IASB plan to revisit the topic of lease accounting.  The boards are trying to complete a converged standard that has eluded them to this point.  The project aims to end the long-standing practice in US GAAP and IFRA that leaves most operating leases off organizations financial statements.  Currently, capital leases are recorded on organization’s financial statements.  As reported by the Corporate Finance Weekly Update, users of the statements have expressed that putting operating leases on the financial statements will give a clearer picture of the organization’s liabilities because the leasing of equipment, vehicles or buildings allow organizations to report lower financial leverage and higher profitability.

The Trustee Working Group; guidance on accounting standards for nonpublic entities

There has always been a bit of a gap in official accounting guidance for nonprofits. There is no individual board in place to focus solely on non-profit accounting issues. Get ready for some acronyms! The hierarchy of standard setting in the simplest terms goes like this:

• Most of the rulings are first set for public companies by the Public Company Accounting Oversight Board (PCAOB);
• Those rules are then adapted for private for-profit companies by the Financial Accounting Standards Board (FASB); 
• The FASB then comes up with a non-profit application;
• Ongoing issues where it becomes additional guidance is needed may be addessed by the Emerging Issues Task Force (EITF).

This trickle-down guidance creates some challenges and foggy grey territory for non-profits to wade through. With the ongoing move towards International Financial Reporting Standards (IFRS) there has been some increasing concern over where that leaves the non-profits. IFRS doesn’t address non-profit issues because for the most part, the rest of the world doesn’t have a non-profit sector. Either their governments take care of it or it doesn’t happen. If/when the U.S. moves completely to IFRS, the FASB  will become an outmoded entity. Continue reading »

Don’t Be the Last to Know

Everyone knows it’s the worst feeling in the world when you are the last person to know something.  Never fear with these resources you will no longer be the person at the party going “What new SAS’s? Isn’t SAS 117 the latest?” and getting laughed at.  Now you can stay in the know and never have to worry about being in the dark again about new accounting principles.  For the latest in SASs visit the AICPA website.  For the latest in pronouncements visit the FASB website. Now not only can you keep up with the latest in accounting speak you can also understand what people are saying as each link also offers an explanation about the new SAS or pronouncement.   Never be behind the times again with these trusty links. You’ll be the life of every party.

Changes in The Way Leases Are Recorded

A joint proposal from the Financial Accounting Standards Board and the International Accounting Standards Board to overhaul lease accounting would result in a single “right-of-use” approach applied to lessees and lessors.  Read more of the details at Journal of Accountancy.

Not-For-Profit Entities: Mergers and Acquisitions

FASB Statement No. 164, Not-For-Profit Entities: Mergers and Acquisitions was amended at the beginning of the year. The updates were to be in effect beginning in 2010 for calendar year entities. The main criterion to distinguish between a merger and acquisition is determining if one entity obtained control over the other. If this occurred, the transaction is defined as an acquisition. If the entity ceded control to a new not-for-profit entity, it is recorded as a merger.  Continue reading »