Partners Rose Doherty, CPA, and Paul Doetsch, CPA, CMA, attended the AICPA Not-For-Profit Industry Conference from June 27–29, 2016 in Washington, DC. Nonprofit CPAs from around the country were in attendance to get the latest news and updates from industry leaders.
The Not-For-Profit Financial Statements Project was of keen interest. This Project includes updating but not overhauling the NFP financial statements. The Project’s objectives for not-for-profit entities include enhancing the net classification format, improving the information in the financial statements and notes regarding financial performance, cash flows, and liquidity. Not-for-profit entities will need to consider the nature of their membership dues, tuition and fees, license and royalties, governmental grants and contracts, and other revenue sources for their potential impact. And, on August 18, the Financial Accounting Standards Board (FASB) released its long-awaited accounting standards update for not-for-profit financial reporting.
The Not-For-Profit Financial Statements Project is supported by the new revenue recognition standard accounting standards updates (ASU) No. 2014-09, Revenue Recognition from Contracts with Customers and ASU No. 2015-14, Revenue from Contracts with Customers. The ASUs were issued by the Financial Accounting Standards Board (FASB) and are applicable for public and nonpublic entities reporting under U.S. generally accepted accounting principles.
The new standards eliminate the industry specific revenue recognition guidance under current generally accepted accounting principles (GAAP) and replaces it with a principal based approach.
The effective date for public entities is for annual reporting periods beginning after December 15, 2017. The effective date for non-public entities is for annual reporting periods beginning after December 15, 2018. Early adoption is permitted one year prior to the dates noted above.
Leases were also in the limelight due to the new ASU No. 2016-02, Leases. This ASU is applicable to all entities that enter into a lease and it recognizes lease assets and lease liabilities on the balance sheet and discloses key information about leasing arrangements. The effective date for public entities is for annual reporting periods beginning after December 15, 2018. The effective date for non-public entities is for annual reporting periods beginning after December 15, 2019.
Cybersecurity for all digital assets was a concern for numerous attendees this year. Recent trends include:
- Attack patterns that are now being applied to mobile devices and other small digital devices that often have poor security controls.
- Misuse of social networks to gain personal data and disseminate misinformation.
- Cloud computing resulting in a concentration of data within a small number of facilities.
Technologies are evolving to combat the risks associated with these assets. Be sure to have a process in place that governs practices and policies, manages risk, and ensures compliance with legal requirements. For more information, see AICPA’s resource page at: http://www. aicpa.org/InterestAreas/FRC/AssuranceAdvisoryServices/Pages/cyber-security-resource-center.aspx
Unrelated Business Income (UBI)
UBI and the related taxes are a concern for those nonprofit entities that are searching for innovative ways to fund their mission. Various scenarios were studied in depth to identify the criteria for triggering taxes on (UBI) and strategies were discussed to mitigate or eliminate the tax impact. See your tax professional for more guidance along with IRS publication 598, Tax on Unrelated Business Income of Exempt Organizations.
Update on Federal Funding
Federal funding guidance is in its second year of implementation. This new guidance was effective for entities for fiscal years ending dates of December 31, 2015 and eliminates duplicative and conflicting information. The guidance is entitled Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. The link can be found here.
Other interesting topics covered at the AICPA Nonprofit Conference included:
- Effective internal controls in smaller nonprofits: identifying personnel responsible for performing internal control processes and designing time and cost efficient internal controls were highlighted for cash receipts and cash disbursements—organizations should evaluate controls subject to the following considerations:
1. Identification of every person who handles cash and the controls surrounding each person’s processing of cash.
2. Limiting the number of people that handle cash prior to bank deposit.
3. Ensuring that an individual other than the accounting department reviews each disbursement from the bank accounts.
- Identifying your Strategic and Operational Needs to Meet your Mission – Seizing the future through articulating three year organizational goals is the focus for taking your organization where you want it to go. Be specific and measure progress on an ongoing basis to facilitate course corrections along the way. Points discussed for attaining goal objectives included setting up systems to support the goals and reporting publicly to organization personnel and board members.