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5 Changes to the Not-for-Profit Accounting and Tax World

March 12, 2015

A closer look at how various accounting and tax updates will affect current and future operations.

Recent accounting and tax changes that have been implemented will affect present and future nonprofit operations. We have summarized several items that your nonprofit should be aware of and be updated on; they could affect measurement, management, and disclosures.

Top 5 Changes

  1. Services Received from Personnel of an Affiliate - Accounting Standards Update (ASU) 2013-06- For organizations with fiscal year ends of June 30, 2015 or later, this accounting update applies, requiring nonprofits to acknowledge services performed by their affiliated entities properly, especially taking into account the cost of those services. Recognizing services performed “at cost” could significantly overstate or understate the value of the services received; in this case, the nonprofit may choose to recognize at either the cost recognized by the affiliate or at the fair market value of the service provided. This might not affect the bottom line, but it will give organizations more clarity concerning how important these services may be, and how effective they’ve been in past years.
  2. Revenue from Contracts with Customers - ASU 2014-09- The new revenue recognition standards released in May of 2014 could affect some nonprofits’ accounting practices, so organizations will need to carefully analyze all transactions. The law for public entities begins for year-end December 31, 2017; for all other entities the law will be implemented the next year. In the meantime, the AICPA is analyzing how the new revenue recognition standards will pose challenges for organizations’ accounting practices. In addition to this, the Not-for-Profit Revenue Recognition Task Force has been put in place to help review. They plan to consider items like tuition revenue, contributions, sponsorships, government grants, and many more in the review process.
  3. Uniform federal grant guidance - At the end of 2013, the Office of Management and Budget (OMB) offered several points of guidance concerning federal awards and grants. All changes apply to existing awards made after December 26, 2014. This is not expected to pose great change for most nonprofits, but it is recommended that organizations review the new guidance to make sure they are in compliance with everything. For organizations formerly under requirements of OMB Circular A-133, they can expect to adjust practices to fit new requirements for items such as single audit, type A/B major program determination, and percentage of coverage. Though the new changes can help relieve audit triggers, organizations should meet with outside auditors to pinpoint exactly where they will be affected.
  4. Requirements for revisions in financial statement presentations - In order to improve financial reporting, the Financial Accounting Standards Board (FASB) created the “Financial Statements of Not-for-Profit Entities Project” to include more information concerning net asset classification, liquidity, cash flows, and financial performance. Significant changes are expected to be released during the first quarter of 2015 which include new requirements for a direct method cash flow statement, and mandatory release by all organizations of a statement of functional expenses.
  5. Proposed accounting update to fair value measurement Proposed accounting update to fair value measurement- In 2014 FASB issued a proposed accounting update impacting fair value measurement. The update proposes to remove the requirement to categorize within the fair value hierarchy investments that use the net asset value (NAV) practical expedient. A reporting entity would continue to disclose information on investments for which the entity uses the NAV practical expedient to help users understand the nature and risks of the investments.

It is vital to be mindful of how your nonprofit will be affected by these five updates. Stay up to date on important deadlines; it is better to plan ahead then be struck by surprises that you are not prepared for. For more information, contact any member of our Not-for-Profit Services Team.

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