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FASB

FASB Delays Several Effective Dates: Credit Losses, Leasing, Hedging, and Long-Duration Insurance Standards Affected

By | FASB | No Comments

The Financial Accounting Standards Board announced at the end of 2019 that they were delaying several effective dates. These changes impact four areas: credit losses, leasing, hedging, and long-duration insurance standards.

You can find a chart of all the dates and standards impacted on the FASB website.

Who Is Affected?

If your nonprofit is considered a public business entity (PBE), it may be subjected to the same rules and requirements as PBEs. When looking at FASB ASU 2019-10, this would place nonprofits in “bucket 2” in the update, subjecting them to the same changes as other entities when it comes to reporting financial instruments such as credit losses, leasing, derivatives, and hedging.

What Are the Major Implications?

If your nonprofit is affected by ASU 2019-10, here are the critical points found in the standards update:

  • Credit Losses: If your organization is on a calendar-year end, and it is eligible for the deferral, the new effective date is January 1, 2023. Organizations can determine whether they are eligible to be ‘smaller reporting companies’ based on their most recent filing determination. This must be in accordance with SED regulations as of November 15, 2019.
  • Derivatives: Nonpublic business entities get a one-year deferral. If your organization is on a calendar year-end, and it is eligible for the deferral, the effective date is January 1, 2021.
  • Leases: All non-public business entities get a one-year deferral. This includes nonprofits that have issued, or are conduit bond obligators for securities that are traded, listed, or quoted on an over-the-counter market or exchange, as well as employee benefit plans that file or furnish financial statements with or to the SEC. If your organization is on a calendar year-end, and it is eligible for the deferral, the new effective date is January 1, 2021.

Why the Update?

According to the FASB report, there is a significant change to the underlying philosophy of the standards, thus necessitating updates to:

  1. Accounting Standards Update No. 2016-13, Financial Instruments— Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (Credit Losses)
  2. Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (Hedging)
  3. Accounting Standards Update No. 2016-02, Leases (Topic 842) (Leases).
  4. Accounting Standards Update No. 2018-12, Financial Services—Insurance (Topic 944)

Is Your Nonprofit a PBE?

It is essential to note whether your nonprofit is considered a PBE, which would make the changes applicable to your organization. FASB amended its glossary of terms in 2013 to create one definition for PBEs.

Although nonprofits are left out of the general definition of PBE in the Master Glossary, specific nonprofits may be subjected to the requirements imposed on PBEs by specific FASB standards. When that occurs, nonprofits are differentiated using similar terms to those used for the definition of PBEs.

“Nonprofits that have issued, or is a conduit bond obligor for securities that are traded, listed, or quoted on an exchange or an over-the-counter [OTC] marketare held to the same accelerated effective dates and expanded disclosure requirements imposed on PBEs,” according to AICPA.

Your best recourse is to consult with the Master Glossary definitions and use these to evaluate whether your nonprofit fits in the PBE category. Then, check what disclosures are required. Nonprofits, for example, are required to disclose certain pension information only if the nonprofit is determined to be a public entity.

Fortunately, FASB has granted more time to adhere to the news standard. They’ve also provided plenty of clarifying information in the documents we’ve linked to help you understand the full impact of the changes and updates.

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.

5 Questions to Measure Fund Accounting System Effectiveness

By | Accounting, Budget, FASB, Grant Management, MIP Fund Accounting, Nonprofit | No Comments

Mandated reporting has become increasingly complex, due to multiple funding sources and programs within nonprofit organizations. You may find yourself having to rely on spreadsheets and workarounds, which can quickly become unmanageable and have a higher risk for error. As compliance, regulatory agencies, funding sources, and complexities grow, these issues can quickly hinder mission productivity and you may be exposed to larger burdens including:

  • System constraints limiting your ability to adapt other new and vital technology
  • Poor financial control which can lead to future loss of time and money
  • Lost opportunities for additional funding because your system is not flexible or robust enough to properly handle tracking and reporting requirements

Sound familiar? If so, you may need a more robust accounting system. Time to ask yourself the following five questions.

Are you facing an upgrade or needing software built for the complexity of nonprofit finance and accounting? Download “10 Reasons Why Nonprofits Need True Fund Accounting™.”

Does my current solution incorporate nonprofit-specific accounting rules?

Audited financial statements must present information in accordance with the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 116 and 117, or Governmental Accounting Standards Board (GASB) guidelines. If your reports need heavy customization to comply with these guidelines, you should consider software that easily provides compliance-ready reporting.

 Can I easily measure performance of a program or activity?

Nonprofits typically need to measure a program or activity outcome, and track beyond basic financial information – something off-the-shelf, which is something most commercial accounting software is not designed to do. Your software needs to be robust enough to track and report performance or outcome measures on financial statements, as well as budgeting outcome measures for accurate forecasting.

 Am I able to create reports for varying fiscal years?

While commercial accounting often assumes that fiscal years end in the same months each year, nonprofits often have to report to several different audiences, with different information requirements and reporting timelines. Thus, the ability to track and report across different time periods (cross-fiscal & grant-year reporting) is critical for nonprofits.

 Can I easily show how money is tracked or budgeted?

Funds must be treated as distinct entities with their own general ledger and individual revenue, expense, income, and balance sheet reports. Nonprofits need software that will automatically handle the offset postings to cash or payable accounts by fund, as well as the encumbrance processing, grant tracking, and budget controls.

 Can I perform allocations of indirect costs by grantors?

Accuracy of allocations is critical in providing auditors and grantors a complete audit trail, but these allocations typically are not handled well by a commercial accounting system not designed with nonprofits in mind. Allocations need to be performed on virtually any account balance at the program level, department level, or grant level, and across multiple segments at one time with advanced calculation options, including fixed or dynamic percentages, unit measures, and more.

 

About 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.

Is Your Nonprofit Ready for the New FASB Rules?

By | Accounting, Audit, FASB, Nonprofit | No Comments

In the world of nonprofit accounting, only one thing remains constant: Change. FASB’s new rules are in effect in December 2017. Are you ready?

The Financial Services Accounting Board (FASB) issued new rules for nonprofits in August 2016. Since then, we’ve covered some of the clarifying questions nonprofits asked FASB about various aspects of the rules. This is the first major change to the guidelines for accounting for nonprofits since 1993 and thus a substantial amount of change is going into effect. Let’s take a look at the new rules and how they may impact your nonprofit organization.

Overview of the New FASB Rules

The new guidelines aim at making financial statements easier to read for all stakeholders. Stakeholders such as directors, the public, donors and granting institutions need clarity and consistency when reviewing nonprofit financial statements.

Nonprofit financial statements are more than debits and credits. To the keen eye, they provide a story of how your organization spends its time and money. Providing better clarity and consistency is critical because understanding the financial statements provides insight to decision-makers about which organizations they choose to support.

Four Major Areas of Impact

There are four major areas of impact to nonprofit financial statements. The goals of the changes are to improve:

  1. Simplicity and clarity: As previously stated, FASB hopes that the new guidelines will improve both the simplicity and clarity of nonprofit financial statements. Some level of consistency in the presentation of information is also desirable. The new rules simplify the treatment of net assets. The emphasis is on donor-imposed restrictions. The goal is to classify temporarily restricted versus permanently restricted funds. The current three classifications of net assets are replaced by two categories, restricted and unrestricted. Although the temporarily unrestricted category is eliminated, nonprofits can still provide clarification in the notes section and in other areas of their financial reports.
  2. Clarity on cash and available assets: Nonprofits are now required to reveal any limitations on the use of liquid assets. Quantitative and qualitative information must now be provided to demonstrate how an organization manages liquid assets. It’s a good idea to speak with your nonprofit auditing firm or CPA when preparing financial statements to adhere to this new guideline. Keep in mind that quantitative information is determined by the nature and limit imposed upon it.
  3. Consistency reporting investment expenses and returns: Income must be reported net of related internal and external expenses. Currently, this is optional.
  4. Communication about Statement of Cash Flows and Related Presentation Options: Nonprofits may continue to present operating cash flows using direct or indirect reporting methods at their discretion.

Now is the time to prepare your accounting setup for the new year. If you haven’t adjusted your plans for reporting, this is the time to do so. We urge you to seek professional assistance with your audits or end of year reporting if you aren’t sure how to adhere to the FASB guidelines. It’s important for the financial health of your organization to report its funds and expenses in a clear, concise manner so that donors, the public, granting organizations and directors can understand the good work that you do and how their money is spent.

About 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.

FASB Seeks Comments on Revenue and Grant Recognition Reporting

By | Accounting, FASB, Grant Management | No Comments

The Financial Accounting Standards Board (FASB) is looking for input. The group wishes to improve, clarify, and enhance revenue recognition standards for grants and contracts by nonprofits. They are seeking comments on the topic, and nonprofit organizations are welcome to respond.

Currently, many nonprofit stakeholders indicated confusion about when to report grant and contract revenue or how to consistently report revenue in these areas.  This difficulty is compounded in the area of government grants and contracts.

The comment period for the proposed Accounting Standards Update (ASU), titled Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made, ends November 1.

Proposed ASU Changes

The big changes proposed in the standards include distinguishing between contributions (nonreciprocal transactions) and exchange (reciprocal) transactions. If the proposed ASU changes proceed, more grants and contracts will be counted as contributions.

The proposed framework indicates that if a grant is an exchange transaction, revenues should be recorded in accordance with Revenue from Contracts with Customers. Details on this may be found in Topic 606 or other applicable topics.

Grants, on the other hand, are determined to be contributions and should be recognized as revenue for not for profit entities under Revenue Recognition Subtopic 958-605.

There are no sweeping generalities for grants. Each one must be evaluated and categorized individually. Grants can be considered exchanges if the value received is commensurate with the services rendered Then it is categorized as an exchange or reciprocal transactions.

The good news is that the ASU includes plenty of examples to help nonprofits determine whether grants are nonreciprocal or reciprocal transactions.

Conditional Contributions

If a grant does not have either a barrier or a right of return, it may be considered a conditional contribution. A conditional contribution is a grant that comes with strings attached – conditions that must be met in order for the grant to be considered fully received.

Some conditions include:

  • Measurable performance goals such as matching grants, levels of service, or other items that can be measured or quantified;
  • A stipulation that specific conditions must be met for the grant;
  • Something limiting how the funds can be spent;
  • Additional actions that would be required to be taken by the recipient organization in addition to the activities that it would normally pursue

For those fuzzy gray areas, the ASU states that donations requiring stipulations can be presumed to be conditional.

Some grants may be considered contracts with a customer. In that case, the specifications in Topic 606 take priority.

When Does This Go into Effect?

The new recommendations will go into effect on or around December 31, 2019, for the fiscal year ending in 2020. That may seem like a long way off, but for nonprofits dealing with a lot of grants that fit these categories and descriptions, it may be prudent to take steps now to conform to the new guidelines. Of course, changes may be made to the recommendations based on feedback received by FASB.

The good news is that the changes do not affect prior quarters in any way, so you don’t need to change anything prior to 2019. For more details, please visit FASB.

About 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.