not-for-profit organizations: the accounting updates you need to know

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Not-For-Profit Organizations

The Accounting UpdatesYou Need to Know

Introductions

Gary Dubas• Partner• CPA

Janice Snyder• Partner• CPA

Jim Shellenberger• Senior Manager• CPA

DisclaimerThe information contained in this presentation, both that contained in the slides and that expressed by the presenter, is not intended to be complete and comprehensive. To obtain a more detailed understanding of technical literature mentioned, please consult the full standards and interpretations.

Accounting Updates• Not-For-Profit Financial Reporting• Form 990 Updates• Uniform Guidance

Not-For-Profit Reporting• Presentation of Financial Statements of Not-for-Profit Entities• Affects Not-for-Profit Entities (958) and Health Care Entities (954)

Divided into 2 Phases

Not-For-Profit ReportingPhase I

Net Asset Classification(1) net assets with donor restrictions (2) net assets without donor restrictions

Disclosure of amounts & purpose of Board Designated Net Assets

Placed-in-service requirement for capital restrictions

Underwater endowments classified as net assets with donor restrictions

Not-For-Profit ReportingPhase I (continued)

Expenses - By nature and function• In notes or on the face of the statement of activities.• Must report all expenses by function and nature in one location – must show relationship

between functional and natural classification by disaggregating its functional categories by their nature classification

Consideration of impact on healthcare NFPs moved to future project.

Operating Measure - Improved disclosures over operating measure (for entities who choose to disclose this)

• Example: Performance indicator for NFP healthcare entities


Liquidity - Information useful in assessing liquidity• Qualitative information indicating how an NFP manages its liquid resources

to meet cash needs for general expenditures within one year of the balance sheet.

• Quantitative information indicating the availability of financial assets to meet cash needs for general expenditures within one year of the balance sheet date.

Statement of Cash Flows – Options for presentation – either:(1)Direct method (2)Indirect method

No longer need to reconcile direct method to indirect method!

Not-For-Profit Reporting


Investment Return Required to Present:• Investment return net of external and direct internal expenses

NOT Required:• Internal salaries and expenses netted against investment returns• Investment return in the endowment net assets rollforward

Cost Allocations • Enhanced disclosures about the methods used to allocate costs among program and

support functions.• Refining the definition of “management and general activities”

Not-For-Profit ReportingPhase 2

Operating Measure(1) Items not address in Phase I(2) Requirement for intermediate operating measures?(3) How to define operating measures?

Statement of Cash FlowsRealignment of certain line items.

Not-For-Profit ReportingPresentation of Financial Statements of Not-for-Profit Entities • Retrospective application required.

• Effective for fiscal years beginning after December 15, 2017 (June 30, 2019 for most Not-For-Profit Entities)

• Early Adoption permitted.

• Final Standard for Phase I Expected in Q3 2016!

FASB UpdateAccounting Standard

Update (ASU) #Transition Method Effective Date

Simplifying the Presentation of Debt Issuance Costs

2015-032015-15

Retrospective Periods after 12/15/15 Early Adoption

Permitted

Revenue from Contracts with Customers

2014-092015-142016-082016-102016-12

Retrospective Periods after 12/15/18

(Private & NFPs) Early Adoption

Permitted in 2017

Leases 2016-02 Modified Retrospective

Periods after 12/15/19

(Private & NFPs)

FASB UpdateCurrent Topics Status

Exposure Draft: Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement

Issued 12/3/15

Exposure Draft: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

Issued 1/26/16

Exposure Draft: Changes to the Disclosure Requirements for Defined Benefit Plans Issued 1/26/16

Exposure Draft: Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments

Issued 1/29/16

Exposure Draft: Statement of Cash Flows (Topic 230): Restricted Cash Issued 4/28/16Clarifying When a Not-For-Profit Entity that is a General Partner should Consolidate a For-Profit Limited Partnership

Exposure Draft in Q2 2016

Consolidation: Interests Held Through Related Parties that are Under Common Control

Exposure Draft in Q2 2016

Revenue Recognition of Grants and Contracts by Not-For-Profit Entities Initial DeliberationsAccounting for Identifiable Intangible Assets in a Business Combination for Public Business Entities and Not-For-Profit Entities

Initial Deliberations

Current Issues Related to the IRS Form 990• No substantive changes to 2015 Form 990 • Instructions to Schedule L, Transactions With Interested Persons,

clarify when a business transactions need to be reported. • Instructions to Schedule L define who is an interested person

• Officer, Director, trustee or key employee with last 5 years• A substantial contributor • A family member of the above

• A 35% controlled entity of one or more individuals and or organizations described above including management companies.

Current Issues Related to the IRS Form 990• Thresholds for reporting business transactions with Interested

Persons• All payments during the tax year exceeded $100,000.

• All payments from a single transaction exceeded the greater of $10,000 or 1% of the filing organizations total revenue for the year.• Compensation payments exceeding $10,000.

Common Errors on Form 990• Uncompensated board members are volunteers.• Reporting total voting members of the governing body • Do not report ex officio members • Report in accordance with bylaws • Reporting independent voting members of the governing body• If the member is reported on schedule L, they are not independent

Common Errors on Form 990• Reporting the powers of members of the Organization accurately in

lines 6-7b in Part VI, Governance, Management and Disclosure

• Part V, line 1a-The number reported in Box 3 of Form 1096

• Are you reporting the correct number of 1099’s for your organization?

Uniform GuidanceBackground• Guidance for Federal Awards previously spread over eight (8) different

circulars:• A-110, A-122, A-133 ,etc.

• Timeline:• October 2011 – Council on Financial Assistance Reform (COFAR) created• December 2013 – Final Uniform Guidance Issued• January 2014 through September 2015 –COFAR webcasts (2) and FAQs (3)

produced• September 2015 – 3rd COFAR FAQs issued (MOST RECENT)

Uniform GuidanceEffective Dates• Administrative and cost principal changes applicable for new awards

and additional funding increments of existing awards made after December 26, 2014.• Procurement is the only area with a time extension for implementation of up

to two years.

• Audit changes effective for fiscal years beginning on or after December 26, 2014.• i.e. Years ending December 31, 2015, June 30, 2016, etc.

Uniform GuidanceInternal Control 200.303• The non-federal entity must establish and maintain effective internal control over the

Federal award that provides reasonable assurance that the non-federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award.

• These internal controls should be in compliance with guidance in “Standards for Internal Control in the Federal Government” (Green Book) issued by the Comptroller General of the United States and the “Internal Control Integrated Framework”, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)

Must = RequiredShould = Indicates best practices or recommended approach

Uniform GuidanceProcurement• Good News - Grace period for one full fiscal year that begins on or

after December 26, 2014 included in the initial guidance• Even Better News - COFAR FAQ #3 extended this to two years.• Organization with a June 30th year-end, can elect to defer the procurement

provisions in the UG to 7/1/17 (i.e. the fiscal year ending June 30, 2017 is the final grace year)• Election must be documented in writing.• Can still early implement

Uniform GuidanceProcurement• Organizations must:• Have written procurement policies• Engage in full and open competition• Ask for actual or potential conflicts of interest (written)• Maintain records for all procurement activity

Uniform GuidanceProcurement Levels Thresholds

1. Micro Purchases Less than $3,000

2. Small Purchases Up to $150,000

3. Sealed Bids Greater than $150,000

4. Competitive Proposals Greater than $150,000

5. Sole Source (Noncompetitive) Unique, Public Emergency

Uniform Guidance

Uniform GuidanceCost AllocationNo universal rule for classifying certain costs as either direct or indirect• Reimbursement for more of your Direct Costs

• Reimbursement for Indirect Costs• De minimus rate of 10% of the modified total direct costs• Or may negotiate a higher rate• The introduction of the de minimus rate of 10% does not automatically force an

agency to fund indirect costs where it was not the intention of the grant

Uniform GuidanceIndirect Costs• Prepare an Indirect Cost Rate Proposal (ICRP)

• Previously referred to as a Cost Allocation Plan• Submitted to the Cognizant Agency for Indirect Costs• Updated and calculated annually

• Documentation includes:• Organizational charts• Financial statements and supporting schedules• Proposal reconciliations • Indirect Cost Pool and Direct Cost Base• Certified by the CFO

Uniform GuidanceImpact to Audits• Audit Threshold increases from $500,000 to $750,000 of federal funds• Still required to make records available for review/audit by Federal Agencies,

pass-through entities, and the GAO

• Change in audit coverage amounts• Low-Risk Auditee = 20% (previously 25%)• Non Low-Risk Auditee = 40% (previously 50%)

• Audit Finding threshold is raised to $25,000

Uniform GuidanceImpact to Audits• Auditor has less judgement to determine if a Type A Program is low-

risk (i.e. not tested as a major program• Type A programs are generally those programs greater than $750,000

(previously $300,000)

• Auditor may perform risk assessments on certain Type B Programs that traditionally have not been assessed. • Single Audit Report will now be posted publicly on the Federal Audit

Clearinghouse

Uniform GuidanceResources• How to Access the Uniform Guidance:• PDF of the Federal Register issued December 26, 2013:

• https://www.gpo.gov/fdsys/pkg/FR-2013-12-26/pdf/2013-30465.pdf • U.S. Government Publishing Office – Electronic Code of Federal Regulations (e-

CFR). • http://www.ecfr.gov/cgi-bin/text-idx?tpl=/ecfrbrowse/Title02/2cfr200_main_02.tpl

• Access COFAR guidance including Frequently Asked Questions (FAQ), archived webcasts, and other information• https://cfo.gov/cofar

• 2016 Compliance Supplement – late June 2016

Questions?

Gary Dubas• Partner• CPA• [email protected]

Janice Snyder• Partner• CPA• [email protected]

Jim Shellenberger• Senior Manager• CPA• [email protected]



and Risk Management

Questions?

Gary Dubas• Partner• CPA• [email protected]

Janice Snyder• Partner• CPA• [email protected]

Jim Shellenberger• Senior Manager• CPA• [email protected]



and Risk Management