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.

FASB New Cloud Computing Standard Reduces Complexity

By | Cloud, FASB | No Comments

Cloud computing offers unprecedented convenience and adaptability, especially now with so many organizations encouraging remote working arrangements for employees. With cloud computing, your team logs into the organization’s systems from any internet-connected computer. Data stored on the cloud offers excellent security and backup protection as well as the convenience of accessibility.

FASB Offers New Cloud Computing Standard

FASB announced another new standard on cloud computing costs associated with a service agreement. This standard is effective for public business entities in fiscal years beginning on or after December 15, 2019, and will take effect for all other entities for reporting periods beginning after December 15, 2020.

Accounting Standards Update No. 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Service Arrangement That Is a Service Contract has a very long and complex title for a standard intended to reduce complexity.

The standard now aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement. The hosting arrangement must be a service contract. The requirements are for capitalizing the implementation costs incurred to develop, or obtain, software and hosting arrangements that include an internal-use software license. Note, however, that the amendment doesn’t affect accounting for the service element of a hosting arrangement if it is in a service contract.

Before this clarification, there were two different capitalization models. Each model depended on whether the item purchased was a service agreement or an asset. However, cloud computing models weren’t included in the 2015-issued standards. This update clarifies how to account for cloud computing adoption, a popular method of software adoption.

Hybrid Solutions Require Close Accounting Attention

Another challenge that many organizations face is accounting for hybrid cloud models. Hybrid models may include both cloud-based and site-based elements in a software solution. If it’s both, how should it be accounted for?

Companies must assess which portion of the costs are internal-use and which are considered part of a service agreement. The focus should be on identifying costs and properly allocating them to the correct item.

Potential Advantages from the Update

There are some potential advantages from the FASB update, too. One advantage is the deferral aspects of the costs that qualify. EBITDA and some balance sheet metrics may be impacted by the deferral.

The new standard also aligns the balance sheet and income statement in the aggregate for all types of software. It adds consistency and comparability which help accountants provide clear financial reports.

Getting to the Right Answer

Clarity and consistency are both vital to accounting metrics, with management involved in policy decisions regarding IT projects. Deciding whether or not to adopt a hybrid cloud model, pure cloud, or site-based solution is a decision that requires time and care. Each organization must weigh the pros and cons of various products and solutions, including the financial and accounting ramifications, and determine what is best for their needs.

The best method of determining new software for an organization is to include representatives from each department on the decision team. This includes members from finance and accounting who, together with IT, marketing, sales, and management must decide which solution meets the organization’s needs the best. By understanding the financial ramifications of adopting new software, the finance team can provide an informed opinion about the best choice from an accounting and financial perspective.

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.

The New IRS 1099-NEC Form: What You Need to Know

By | Tax | No Comments

The IRS is typically on the ball when it comes to changing their forms. After all, the organization is perhaps the “king of forms” and juggles hundreds of forms, schedules, and instructions to manage the complex U.S. tax code.

That’s why it was so surprising when they made a rather glaring error on the updated 1099-MISC. The mistake: assigning two different deadlines to the same form. (Oops.)

Their solution: separate non-employee commission from all the other income types reported on the 1099 to create the new 1099-NEC form.

Here’s what you need to know about the 1099-NEC.

What Is 1099-NEC?

Starting in the tax year 2020, all non-employee compensation should be reported using the new 1099-NEC form. Instructions for both the 1099-MISC and 1099-NEC may be found on the IRS site.

The new 1099-NEC separates non-employee compensation from all other forms of compensation, such as royalties, rents, and other income payments.

Why Did the IRS Change the 1099-MISC?

Initially, the IRS tried to change the filing deadline for Box 7 on the 1099-MISC form. The problem, however, is that they ended up with two deadlines for the same form. As you can imagine, that caused considerable confusion.

To address the issue, they split out the information formerly reported in Box 7 of the 1099-MISC into the new 1099-NEC. This enabled them to assign different deadlines for the information because each deadline is now assigned to a unique form.

What Are the New Deadlines?

The new filing deadlines for the forms are January 31 for the 1099-NEC and March 31 for the 1099-MISC.

Will the Changes Affect Your Organization?

You’ll need to review the IRS publications linked above to determine how to report income from any non-employees compensated by your organization. For example, if you have independent contractors providing over $600 in services to your organization, you may need to file 1099-NEC for each contractor according to the earlier deadline.

Those who may receive royalties on book sales, however, would continue to receive the 1099-MISC.

Other changes to the 1099-MISC may be confusing. Boxes have moved and changed, so be especially careful when completing the form to avoid common mistakes.

Abila MIP Software Takes the Confusion Out of 1099 Reporting

This is one of the many reasons why we recommend using Abila MIP accounting software. Starting in 2020, Abila announced they’d added the 1099-NEC to their software. To code items to the new 1099-NEC in Abila MIP, you’ll need to:

  1. Update your version of Abila to the latest edition.
  2. Change vendor defaults to the new box.
  3. Make sure to use the new box in transaction entry.
  4. Move historical information from MISC-07 to the NEC via 1099 Adjustments.

If you aren’t running Abila MIP but are interested in true fund accounting for nonprofits, give Welter Consulting a call. We’ve helped many nonprofits transition their accounting and finance software to packages such as Abila, explicitly created for the nonprofit world.

Accounting for nonprofits includes fund accounting and unique setups to trace income and expenses to grants and other specific budget lines. Only with software created specifically for the nonprofit world can you do this easily and quickly.

For more information, contact Welter Consulting at 206-605-3113.