Category

Accounting

Jan 21
0

Compliance Focus: Unclaimed Property Laws

By | Accounting, Nonprofit, Unclaimed Property | No Comments

Unclaimed property remains a revenue source for many states. It can take two forms: tangible (such as unclaimed safe deposit boxes) and intangible (unclaimed general ledger property). Each state sets its own rules regarding when property may be declared unclaimed and how to legally dispose of such property. This article offers a general overview of unclaimed property laws and guidelines for how entities must comply with them, but for specific laws regarding unclaimed property in your state, consult your state’s website or an attorney.

What Exactly Is Unclaimed Property?

Unclaimed property is just what the name implies: something left behind, unclaimed for a period of time, or abandoned.

A good example is a bank safe deposit box. Often, families aren’t aware that a relative has a safe deposit box, nor do they have access to the key. If the owner of the box passes away, the bank may be unaware for a period of time during which the family has already settled the estate. The bank may be unable to find the legal owner of the box.

Banks are required to conduct due diligence and make every effort to find the legal owner. After exhausting these avenues and after a specific time period has passed, the laws governing the disposal of such unclaimed property go into effect, and the contents may revert to the state or to the property holder. If the property reverts to the state, this is called escheatment.

Nonprofits May Have Unclaimed Property, Too

Intangible property, such as general ledger entries, may also be declared unclaimed property. An example of such unclaimed property may be paychecks owed to an employee who leaves, moves away, and provides no forwarding address. In such an example, nonprofits are bound to use every appropriate means (letters, emails, etc.) to find the person to which the money is owed. If the owner cannot be located after a set time, state laws also govern how intangible property is disposed.

Dormancy Period

The time period in which property remains idle is called the dormancy period. Depending on the state, this may be one, two, three, or more years. During this time, the holder of the property is required to make every good faith effort to contact the original property owner. After the appropriate efforts have been made and the period has passed without contact from the property owner, the holder must escheat or give the property over to the proper jurisdiction. First dibs go to the property owner’s state, with the holder’s state in second place for the escheatment.

Types of Unclaimed Property Nonprofits May Encounter

Most nonprofit accountants will go through their career with very few instances of unclaimed property crossing their desks. But it can, and does, happen. A few examples of unclaimed property a nonprofit may encounter and should account for include:

  • Customer overpayments
  • Rebates from manufacturers
  • Unclaimed rights (mineral, oil, gas)

If your nonprofit has a history of inconsistent reporting of unclaimed property, the state may flag it as the target of an audit. Audits are conducted by third parties. Once one state requests an audit, others may join in as well.

One way to potentially avoid the unpleasant disruption of an audit is to have a consistent and clear method of reporting unclaimed property. Voluntary Disclosure Agreement programs enable organizations to become compliant and avoid audits and associated late fees and penalties in their reporting.

Although unclaimed property isn’t something you’ll encounter often, it is a possibility, so it pays to be prepared.

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.

Dec 21
0

Adjusting Accounting Practices in a Time of Uncertainty: Coronavirus Challenges

By | Accounting | No Comments

To say the novel coronavirus or COVID-19 has changed every part of society is an understatement. No area of home or business life remains untouched. This includes the world of accounting, which must adapt and adjust to the many changes that have occurred due to business disruption.

Although the guidelines for financial accounting were established to provide a framework for many situations, nothing could have prepared accountants for what they faced this year. The Paycheck Protection Program and many other adaptions due to the pandemic have raised numerous questions throughout the accounting world.

FASB, AICPA, and other groups have attempted to clarify many of these changes and how to apply them to the fiscal year end. The following provides highlights of the major issues accountants face with reporting this year. Be sure to delve deeply into specific areas of concerns by referring to the specific source documents.

Lease Concessions

FASB answered this question related to lease concessions. The lessor or lessee can elect to apply or not to apply the lease modification guidance in FASB ASC Topic 842, Leases, and Topic 840, Leases, to those contracts. This election is available for pandemic-related concessions that don’t result in a substantial increase in the rights of the lessor or the obligations of the lessee.

When a deferral affects the timing of the lease contract, but the amount is substantially the same, the accountant can choose which method to use. FASB does not favor one or the other. The two methods are:

  • Accounting for the concessions as if no changes to the lease contract were made. In that case, a lessor would increase its lease receivable, and a lessee would increase its accounts payable as receivables/payments accrue. In its income statement, a lessor would continue to recognize income, and a lessee would continue to recognize expense during the deferral period.
  • Accounting for the deferred payments as variable lease payments.

FASB did caution, however, that the same method should be applied to similar situations within the same organization if they arise.

The Paycheck Protection Program

The Paycheck Protection Program (PPP), enacted through the Small Business Administration, was intended to help businesses keep people employed during the coronavirus. The loan should be treated as a financial liability. Please refer to Topic 470 for details.

AICPA added further clarification that nongovernment entities should report PPP loans as follows. An entity accounting for the loan would:

  • initially record the cash inflow from the PPP loan as a financial liability and would accrue interest in accordance with the interest method under Subtopic835-30.
  • NOT impute additional interest at a market rate.
  • continue to record the proceeds from the loan as a liability until either (1) the loan is partly or wholly forgiven and the debtor has been legally released or (2) the debtor pays off the loan.
  • reduce the liability by the amount forgiven and record a gain on extinguishment once the loan is partly or wholly forgiven and legal release is received.

For more information pertaining to accounting change and challenges brought about by the coronavirus, please see the special SBA Paycheck Protection Resources for CPAs brought to you by AICPA.

No one could have predicted the challenges and changes brought about by a virus. But, with the usual flexibility that seems to be built into the fabric of the nonprofit world, organizations are rising to the challenges and finding ways to cope. This includes accountants who must ensure that nonprofits comply with the ever-changing regulations, guidelines, and programs available. Hopefully, these resources will help you navigate such changes more easily.

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.

Oct 27
0

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.

Oct 13
0

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.