FASB Up-date
For the Government & Nonprofit Section’s
2008 Mid Year Meeting in San Antonio
Presented by
Teresa P. Gordon
University of Idaho
tgordon@uidaho.edu
208-885-8960
Uncle Sam is Watching NFPs
Charitable reform still on the
Congressional agenda
 Reforms to Red Cross governance
structure
 GAO report on uncompensated care
and community benefits provided by
hospitals
 Senate Finance Committee Endowment info requested from C&Us
with endowments > $500 million
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Key Issues I’ll Cover
Revisions in Form 990
 New standards impacting NFP entities
 UPMIFA
 Other standards “in progress” at FASB
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Then Dana Forgione will tell
us how these and other
issues impact the health care
industry
Form 990
Radically
redesigned with
many more
schedules
For 2009 filings
(fiscal years
beginning in
2008)
Compensation reporting now based
on W-2 and Form 1099
Part I, number of employees & volunteers
Part V, number of W-2 and 1099 forms issued
Part VII, Reports on compensation of officers,
directors, key employees, and five highest paid
employees (> $100K)
 Schedule J – Discloses compensation for all
(other) individuals with reportable
compensation greater than $150K or total
compensation of $250K
 Part IX - Statement of functional expenses
will still be based on fiscal year
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Partial list of schedules
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Schedule A - Public Charity Status and Public Support.
Schedule D - Supplemental Financial Statements.
Schedule E - Schools
Schedule F - Statement of Activities Outside the United States.
Schedule G – Supplemental Info Regarding Fundraising
Schedule H - Hospitals
Schedule J - Compensation Information.
Schedule K - Supplemental Information on Tax Exempt Bonds.
Schedule L - Transactions with Interested Persons.
Schedule M – Non-cash Contributions
Schedule R - Related Organizations and Unrelated Partnerships.
Overall Analysis of Changes?
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An exciting bonanza of new information
for future researchers!
◦ Corporate governance & compensation
◦ Fund raising & noncash contributions
◦ Schedule D – almost like notes to FS!
A burden on charities to prepare many
more schedules and disclose more
information
 Donors should benefit from clearer
information on the cover page
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Recent FASB publications relevant to
not-for-profit organizations
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FAS155, Accounting for Certain Hybrid Financial Instruments
FAS157, Fair Value Measurements
FAS158, Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans
FAS159, The Fair Value Option for Financial Assets and
Financial Liabilities
FIN48, Accounting for Uncertainty in Income Taxes
FSP FAS 126-1, Applicability of Certain Disclosure and
Interim Financial Reporting Requirements for Obligors of
Conduit Debt Securities
EITF 06-2, “Accounting for Sabbatical Leave and Other
Similar Benefits Pursuant to FASB Statement No. 43”
EITF 06-3, “How Taxes Collected from Customers and
Remitted to Governmental Authorities Should Be Presented
in the Income Statement (That Is, Gross versus Net
Presentation)”
How a NFP can be a public entity
FSP FAS 126-1 - An entity that is an obligor
for conduit debt securities that are traded in
a public market meets the definition of a
public entity
 Result:
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◦ Required disclosures under FAS60 (oil & gas)
and FAS126 (financial instruments)
◦ APB28 Interim reporting
◦ FAS109 & FIN48 Income taxes
◦ Pension disclosures (FAS132R, FAS158)
◦ Both NFP industry audit guides
Statement 157:
Approach to Measuring Fair Value
THE ASSET OR LIABILITY
Unit of
Account
Valuation
Premise
Highest and
Best Use
Exit Market
Market Participant
Assumptions
Fair Value
Measurement
Attribute Value to Asset or Liability
at Unit of Account Level
F/S Presentation and
Disclosure
Inputs to
Valuation Techniques
Indicated Value
Unit of Valuation
From Journal of
Accountancy,
November 2007
article by Miller and
Bahnson
Statement 157, Resource Slide #7:
Fair Value Hierarchy
Level 1
Quoted prices in active markets for identical
assets/ liabilities (unadjusted); no blockage
factors (Price x Quantity)
Level 2
Other observable inputs—include quoted
prices for similar assets/ liabilities (adjusted)
and market-corroborated inputs
Level 3
Unobservable inputs—entity’s own
assumptions about market participant
assumptions, including assumptions about risk,
developed based on the best information
available in the circumstances (subject to costbenefit constraint); might include the entity’s
own data
FAS157 – particular issues for NFPs
FAS116 All contributions are recorded
initially at fair value, with the exception
of certain collections and contributed
services
 FAS124 Most investments are carried
at fair value.
 FAS136 Requires assets held in a trust
to be carried at fair value
 Valuation issues: restrictions on assets
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Partial delay on FV implementation
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FSP-FAS157-2 (issued Feb 14, 2008)
◦ Provides for delayed application for
certain nonfinancial assets and
nonfinancial liabilities until fiscal years
beginning after November 15, 2008
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Examples:
◦ Impairment of assets, asset retirement
obligations – implementation deferred
◦ Land carried in investments at fair value –
deferral does not apply
FAS158: Recognition Provisions
Funded status on balance sheet
 Net periodic benefit cost unchanged
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◦ Reconciling amounts between funded
status and cumulative amounts
recognized in net periodic benefit cost:
 Gains and losses
 Prior service costs and credits
 Transition assets and liabilities
◦ Separate line item(s) apart from expenses
 Either within or outside an intermediate
measure of operations
Derivatives & Fair Value Option
Rules on derivatives, hedging and the “fair
value option” (FAS159) could affect NFPs
 Many C&Us have interest rate swaps where
FV option might be used
 Another DIG item (B35) is related to the
kind of split-interest agreements (lifeincome and gift annuities) that many NFPs
have
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◦ In this case, permitted use of current interest
rates would be simpler than bifurcation
FIN 48: Uncertainty in Income Taxes
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Applies to all entities, including NFPs
◦ Unrelated taxable income
◦ For-profit subsidiaries
◦ Jeopardized tax-exempt status?
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Assumes all tax positions will
ultimately be examined by
knowledgeable authorities
FIN 48 – Uncertain Tax Positions
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The key points in the Interpretation
are:
◦ A tax benefit may be reflected in the
financial statements only if it is more likely
than not that the company will be able to
sustain the tax return position, based on
its technical merits
◦ A tax benefit should be measured as the
largest amount of benefit that is
cumulatively greater than 50-percent
likely to be realized
FIN 48 – Inventory of tax positions
◦ Ability to sustain tax-exempt status for
entity as a whole (are activities consistent
with mission?)
◦ Justification for classifying certain types of
revenues as not subject to taxes on
unrelated income
◦ Potential “intermediate sanctions” for
salaries and other issues
◦ Interest on unrecognized tax benefits that
are not deemed “more likely than not”
FSP FIN48-2 (issued 2/1/08)
Effective Date of FASB Interpretation No. 48 for
Certain Nonpublic Enterprises
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FIN48 deferred for many but not all
nonprofits. Now to be implemented for
fiscal years beginning AFTER
12/15/07
◦ Not-for-profit that has publicly traded
conduit debt is defined to be a PUBLIC
entity and must apply FIN 48 for fiscal
year 2007-2008
 See definition in amended FAS109 glossary
(¶289)
Coming Soon!
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Proposed FSP SOP 94-3-a and AAG
HCO-a Omnibus Changes
◦ Consolidation and equity method issues
for NFPs
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NFP Mergers & Acquisitions
◦ Revised “limited” ED in 2nd Qtr 2008
◦ Final versions to be issued later in 2008
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Proposed FSP on UPMIFA
NFP Mergers & Acquisitions Project
Another ED this spring
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Tentative: Merger ≠ Acquisition
◦ Merger means original entities cede
control to a new entity
Pooling
◦ Carryover method for mergers
◦ Otherwise, acquisition method must be
Purchase
used
◦ Other issues for re-deliberation
 Donor-related intangible assets
 Goodwill
 Definition of a business or non-profit activity
Codification identifies gaps and
discrepancies
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FSP SOP 94-3a and AAG HCO-a
◦ Eliminate temporary control exception to
consolidation
◦ Require equity method for investments in
for-profit partnerships & LLCs unless
carried at fair value
◦ Confirm applicability of several decisions
regarding leases
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EITF 07-1 (pending)
◦ Equity method not permitted for “virtual
joint ventures”
Uniform Prudent Management of
Institutional Funds Act (UPMIFA)
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Approved July 2006 to replace 1972 UMIFA
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Modernizes the law around investment
management and endowment spending
◦ Thus far, enacted by 13 states and being
considered for enactment by several others (see
table in handout)
◦ Eliminates the concept of historic dollar value, in
favor of more robust guidance on what constitutes
“prudent” endowment spending
 More short-term flexibility to handle declining investment
markets
 Optional 7% rebuttable presumption of imprudence
Lone Star Differences
UPMIFA is unique in Texas
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Spending > 7% is the rebuttable
presumption of imprudence EXCEPT
FOR
◦ Endowments less than $1 million,
spending threshold > 5%
◦ Endowments over $450 million,
spending threshold > 9%
UPMIFA Issues
How will SFAS 117 and 124 be
applied in states that adopt UPMIFA?
 What amount of an endowment will be
considered “permanently restricted”?
 Will the concept of “underwater”
endowments as described in SFAS
124 be relevant in states following
UPMIFA?
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26
Proposed FSP No. FAS 117-a
Tentative Title: Not-for-Profit
Endowments: Net Asset Classification
under the Uniform Prudent Management
of Institutional Funds Act and Enhanced
Disclosure Requirements
 Objectives:
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◦ Provide guidance on net asset classification
of donor-restricted endowment funds for notfor-profit organizations subject to UPMIFA
◦ Improve disclosures about an organization’s
endowment funds (both donor-restricted and
board-designated), whether or not the
organization is subject to UPMIFA
Proposed FSP FAS 117-a’s Disclosure
Requirements
Description of governing board’s
interpretation of relevant law underlying
net asset classification
 Endowment spending policy
 Endowment investment policy
 Composition of endowment by net asset
class with roll-forward by net asset class
 Planned endowment distribution for next
year
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Sample Endowment Composition
Disclosure
(presented for each balance sheet date)
Sample Endowment Roll-Forward Disclosure
(presented for each statement of activities period)
Proposed FSP FAS 117-a:
Comment Period and Effective Date
Proposed FSP to be released in midFebruary for 60-day public comment period
 Will be available on the FASB’s website
www.fasb.org
 Final FSP expected to be issued in mid-June
 Would be effective for fiscal years ending
after June 15, 2008, with early adoption (e.g.,
for May 31st year ends) permitted.
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Ongoing Projects of Interest to
Not-for-Profit Sector
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Conceptual Framework
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Financial Statement Presentation
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Revenue Recognition
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Leases
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Postretirement Benefit Obligations,
including Pensions (Phase 2)
search :
Who sets standards?
Convergence and related issues
Changing Structure at FAF, FASB
and GASB?
More sources of nominees for FAF
with final decision made by trustees.
Size would be 14 to 16 each serving a
single 5-year term.
 Reduce the size of the FASB from
seven members to five, simple
majority to pass standards (3 to 2)
 FASB (& GASB) chairs given authority
to set technical agenda.
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Long-term: Even bigger issues!
As FASB and IASB converge, what
will be the role of FASB?
 IASB does not set standards for notfor-profit entities
 IPSASB (International Public Sector
Accounting Standards Board) does
not set standards for not-for-profits
 Does that leave FASB as the not-forprofit standard setter?
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For a copy of these slides
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From my web site:
http://www.cbe.uidaho.edu/tgordon
◦ From the first page, click on
“presentations”
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Or send email to tgordon@uidaho.edu