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Accounting

FASB Updates Gifts-in-Kind Standards

By | Accounting, FASB, Nonprofit | No Comments

FASB introduced accounting standards update 2020-07, Presentation and Disclosure by Not-for-Profit Entities for Contributed Nonfinancial Assets, to clarify the existing standard around gifts-in-kind. Such gifts may include assets like land, buildings, and equipment, or the use of such assets. Other items included in this category are utilities, materials and supplies, such as food, clothing, or pharmaceuticals, intangible assets, and recognized contributed services.

The standard must be applied retrospectively and organizations may choose to adopt the updated standard earlier than the effective date. The amendments take effect for annual reporting starting after June 15, 2021, and interim periods within annual reporting periods beginning after June 15, 2022.

What Is the Updated Requirement?

The newly updated standard requires nonprofit organizations to show contributed nonfinancial assets as a separate line item in the statement of activities. This should be kept separate from contributions of cash or other financial assets. Nonprofits are now required under the standard to disclose contributed nonfinancial assets within the statement of activities. These should be disaggregated by category. The categories should depict the type of nonfinancial asset being presented.

What Must Nonprofits Disclose?

Additional details should be disclosed around the statement of gifts-in-kind. Nonprofits should prepare statements that include the following disclosures:

  • Whether the asset was used or monetized during the reporting period.
  • If the asset was used, include a description of how the items were used and for which programs run by the nonprofit.
  • A policy statement from the nonprofit about how gifts can or cannot be monetized rather than using the gifts-in-kind.
  • A full description of any donor-imposed restrictions on how the gift may be used or monetized.
  • The valuation techniques used to assess the gift’s value upon receipt. For guidance, see
  • If the nonprofit is prohibited by a donor-imposed restriction on selling or using the item, the market by which fair value was estimated.

Challenges Involving Gifts-in-Kind

Accurately and clearly accounting for gifts-in-kind has always been challenging, but it can be particularly challenging for some nonprofits, especially if they aren’t used to receiving gifts-in-kind. The previously cited FASB Topic 820 offers help but common sense, previous experience, and prudent judgment must guide a nonprofit as they value items used for programs.

Some items are easier to value than others. An automobile donated to a nonprofit can be valued by using the Kelly Blue Book Value. But what about a horse or pony donated to an equine therapy program? Here, the marketplace where the animal might be sold offers some insight. Similar horses sold in the equine therapy program’s service area may be used as a basis for judging the value of the donated animal.

Some watchdog groups view gifts-in-kind differently than other donations. Because there is so much leeway in how such gifts can be valued, nonprofit accounting professionals must keep detailed records and notes of how values are obtained and reported.

Another consideration is that there may be donor or legal restrictions on gifts. A donor may choose to restrict a gift so that it cannot be sold or they may have specific conditions around the use of the gift. These conditions must be adhered to in order to be compliant with the terms of the gift.

Lastly, gifts are sometimes purchased at below market value by the nonprofit from a donor. How you account for this varies but should be considered as part of the gifts-in-kind guidelines within your nonprofit organization. You may need to establish policies around GIK so that such situations are treated consistently over time.

Gifts-in-kind can be a valuable addition to your nonprofit. Accounting for them clearly and consistently enables you to welcome them when donors step up with generous gifts.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

Top Accounting Issues for Nonprofits

By | Accounting, COVID-19, Nonprofit | No Comments

As we move into the last quarter of 2020, it’s time to take another look at several accounting issues facing nonprofit organizations this year. Many issues pertaining to the coronavirus relief package signed into law in March 2020, and similar pandemic-related responses may change how nonprofits account for activities and expenses this year.

Financial Relief for Nonprofits

In March 2020, President Trump signed into law the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act (H.R. 748). The act provided relief to businesses and nonprofits through the United States impacted by the coronavirus pandemic.

The CARES Act provided many resources including the Paycheck Protection Program. AICPA has provided a resource center that offers many tools to help organizations understand the CARES Act resources and how they may be utilized.

Other good resources to help you with your accounting needs related to the CARES Act include IRS and FASB guidelines.

Delayed Effective Dates for Several New Accounting Standards

The AICPA Auditing Board has delayed the adoption of several new standards due to the disruption created by the coronavirus pandemic. The standards listed below have been delayed one year to allow time for audit firms to focus on implementing the new model and to make effective changes.

Standards delayed one year include:

  • SAS No. 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements, as amended by SASs No. 137, 138, and 140.
  • SAS No. 135, Omnibus Statement on Auditing Standards — 2019.
  • SAS No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, as amended by SASs No. 138 and 140.
  • SAS No. 137, The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports.
  • SAS No. 138, Amendments to the Description of the Concept of Materiality.
  • SAS No. 139, Amendments to AU-C Sections 800, 805, and 810 to Incorporate Auditor Reporting Changes From SAS No. 134.
  • SAS No. 140, Amendments to AU-C Sections 725, 730, 930, 935, and 940 to Incorporate Auditor Reporting Changes From SAS Nos. 134 and 137.

SAS No 141 has been delayed until December 15, 2021.

FASB Votes to Extend Deadline for Revenue Recognition

Another change: FASB voted to extend by one year the effective date of its revenue recognition standard to all nonpublic entities. This pertains only to those entities which have not yet issued their financial statements.

Other Considerations Unique to This Year

There are several other conditions unique to 2020 that accounting and financial professionals must take into consideration.

Remote auditing may be necessary, so it is important to prepare now for a virtual audit. This includes adding or enhancing existing financial and accounting systems to allow for external auditing professionals to access accounts and documents.

Internal controls may be impacted due to staffing restrictions. You may need to adjust internal controls to l staff present in a physical office location.

Fraud risks are heightened. The FBI warns that there is an increase in scamming activity this year due to the coronavirus pandemic. For example, fraudulent unemployment claims are on the rise, and phone and email phishing scams have also increased. Vigilance and additional awareness training for your staff may help prevent cyberattacks and crimes.

Board and Finance Committee meetings may need to be held using virtual technology. Use an encrypted file-sharing service or protect sensitive documents with passwords (do not send passwords via email but relay them over the telephone to the intended recipient.)

Because the financial situation for your nonprofit may be uneven this year, continue to adjust budgets and revenue projects as necessary to adapt to the continually evolving situation.

The global pandemic has created many changes worldwide, including changes to the world of finance and accounting. Stay on top of the most recent FASB, IRS, and AICPA recommendations, deadline extensions, and updates through the Welter Consulting blog.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

Best Practices in Accounting Ethics

By | Accounting | No Comments

We often think of business ethics, but what about accounting ethics?

The International Ethics Standards Board for Accountants (IESBA) recently issued the International Code of Ethics for Professional Accountants (including International Independence Standards.) That’s quite a mouthful! In sum, it’s a document many accountants have been looking forward to, that will help guide ethics throughout the profession.

IESBA, the professional body behind the revised code of ethics, is often viewed as the standard-setter for the industry. Their recommendations often impact professional codes of ethics in both for-profit and not-for-profit accounting. Many professional groups, including accounting professional groups in the United States, review the accounting ethics recommendations and apply them in their specific recommendations.

The Updated Accounting Ethics: Old-Fashioned Ideas Applied to Modern Accounting

The revised IESBA international code focuses on several key areas of accounting ethics:

  1. Integrity
  2. Objectivity
  3. Professional conduct and the concept of “due care”
  4. Confidentiality
  5. Professional behavior

Throughout the revised code, IESBA stresses independence. Accountants must always be independent when performing audits, reviews, or other professional services. This ensures that accountants won’t be swayed by personal or professional ties to those who request their services. They can review facts and figures objectively and provide clear, unbiased guidance if they remain independent.

Third-Party Test

The revised code stresses independence and suggests the so-called ‘third party’ test to determine whether or not circumstances meet the test. For example, consider all appearance concerns when determining if a situation meets the third-party test. Is there any appearance of bias, conflict of interest, or personal ties to one’s work? Would a neutral third party, upon viewing the situation, agree that the relationship between accountant and client meets this test?

Only by keeping one’s work completely free of all biases and ties can accountants offer their best advice to clients. A nonprofit client, for example, depends on their accountant for unbiased audits that will eventually be published as part of their due diligence for potential donors. It’s important for all to ensure a fair, just and unbiased audit, but perhaps even more so for nonprofits who depend on public trust and goodwill.

Professional Conduct and Confidentiality

Like a doctor or lawyer, an accountant also has a duty to provide professional conduct, due care, and confidentiality. For clients, this means they can trust that their accountants will behave honorably with their private information. “Due care” means that care and attention will be applied to an accountant’s work, so that, to the best of their knowledge, their work has been completed to professional standards. Yes, mistakes may be made, but not intentionally. Accountants have a responsibility to their clients to keep abreast of new tax laws, accounting standards, and other changes that impact their business and that of their clients.

Lastly, accountants must maintain confidentiality over all records, information, and financial information provided by their clients. Confidentiality forms the backbone upon which accountants and clients build long-term relationships. It ensures that clients’ information is protected and secure from competitors and others who should not access it.

Accounting Ethics Ensure Consistency

The new accounting ethics published by IESBA ensure consistency in the accounting profession’s actions and behaviors worldwide. For accountants, it offers them a rubric from which they can build an independent practice that meets the needs of their clients. For clients, it provides peace of mind and establishes expectations of duties, responsibilities, and relationship frameworks. Accounting ethics are an integral part of the profession and the new ethics provided by IESBA make a big difference.

Welter Consulting

At Welter Consulting, we believe strongly in shared ethical frameworks that guide our work and our clients’ expectations of us. Our goal is to bridge people and technology together for practical solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

National Defense Authorization Act Raises Micro-Purchase and Simplified Acquisition Thresholds

By | Accounting, Government, Nonprofit | No Comments

If you work with tribes or are part of a tribal government, you should closely follow the changes made to the National Defense Authorization Act. On June 30, 2018, the NDAA issued changes that  increased the minimum thresholds for micro purchases and simplified acquisition.  These changes impact many individuals and groups, as well as impact tribal governments.

Raising the minimum threshold should ease some of the reporting burden on those receiving federal funds.

What Are the Exact Changes?

  • The threshold for micro-purchases is increased from $3,500 to $10,000
  • The threshold for simplified acquisitions is increased from $100,000 to $250,000

What Should You Do?

Groups currently receiving federal awards, including tribal governments, may wish to immediately revise internal procurement policies so that they can implement the new thresholds.

Memorandum M-18-18 also outlines changes for institutes of higher learning, nonprofit research organizations, and independent research organizations that wish to use a micro-purchase threshold higher than $10,000.

Specific Recommendations

There are some specific recommendations that can help you follow the new guidelines as stated in M-18-18.

  • Micro-purchase: You should include purchases when the aggregate dollar amount does not exceed $10,000. It may be helpful to distribute micro-purchases fairly among qualified suppliers if you can. You don’t need competitive quotes if management determines that the price is reasonable. Document a definition of how you define ‘reasonable’ prices so that you have something to reference to confirm your choices.
  • Small purchases: You can use simplified acquisitions for the purchase of property services that do not exceed an establish amount pursuant to 200.88 in the Uniform Guidance. This also includes purchases up to $250,000 according to M-18-18. Informal purchasing procedures are acceptable under the guidelines, but you should always obtain several price or rate quotes before making your choice. This is just good business practice that will also help you comply with the new requirements.
  • Sealed bids: Large projects, such as construction projects, commonly exceed $150,000. A formal RFP or bid solicitation process is required. The fixed price, lump sum, or unit price should be awarded to the best bidder who conforms to all the material terms and provides the best price.
  • Competitive bids and proposals: A formal bidding or solicitation process is required. Competitive bids and proposals covers purchases over $150,000. Fixed-price or cost-reimbursement contracts, as well as a formal bid process, should be used when sealed bids aren’t appropriate or warranted. Awarding the contract should be based on the quality of the program with price being one, not the only, factor.
  • Sole source: You can only use the sole source designation when specific criteria is met. The criteria includes:
    • The product or service is only available from a single source – no one else offers what you need
    • There is a public emergency, and the fastest or best way to handle the emergency is to buy from one source
    • Federal warding agency authorization, or the awarding agency specifically authorizes a non-competitive procurement. This is usually after a written request from the non-federal entity.
    • There’s not enough or inadequate competition after you’ve asked for bids from multiple sources.

Can you request an even higher threshold than these new amounts? Yes, but with a catch. You’ll need to request approval from your institution’s appropriate Federal agency for indirect cost amounts. They will then assign you to the appropriate office inside the agency who can approve the new amount and maintain records indicating compliance with the new amount. It’s also a good idea to keep records on your own to support any moves you make when it comes to micro-purchases.

The world of nonprofit accounting is always changing, and new thresholds and guidelines like these are important to understand and follow. Welter Consulting can help you if you have any questions about these guidelines or other nonprofit accounting and software needs.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.