Accounting and Auditing Update
December 2013
Jim Hagestad
Associate
Jennifer Culotta
Associate
Overview
 New ASU’s
 NFP Audit Guide Clarifications
 Auditor’s Report – Emphasis of Matter
 FASB and NFP Advisory Committee Projects
ASU 2012-05 Classification of the
Sale of Proceeds of Donated Financial Assets
in the Statement of Cash Flows
Effective for annual reporting periods beginning after June 15, 2013
 Cash receipts from the sale of donated financial assets (donated
securities) that upon receipt had no donor imposed limitations for sale and
were converted nearly immediately into cash (considered to be within days
of receiving the donation) shall be classified as operating cash flows
 If the donor restricted the use of the donated financial assets to a longterm purpose (acquiring property and equipment or for an endowment),
then the cash receipts shall be classified as a financing activity
 If neither of the above are applicable, the receipts from the sale of the
donated financial assets should be classified as an investing activity
ASU 2013-06 Services Received From
Personnel of an Affiliate
• Effective for fiscal years beginning after June 15,
2014. Early adoption is permitted.
• “Affiliate” is defined as a party that, directly or
indirectly through one or more intermediaries,
controls, is controlled by, or is under common control
with an entity
• Who is affected? NFP’s that receive services from
personnel of an affiliate that directly benefit the
recipient NFP and for which the affiliate does not
charge the recipient NFP
ASU 2013-06 Services Received From
Personnel of an Affiliate
• A NFP entity is required to recognize all services received from
personnel of an affiliate that directly benefit the recipient NFP entity
• Those services should be measured at the cost recognized by the
affiliate for the personnel providing those services
• If measuring a service received from personnel of an affiliate at cost
will significantly overstate or understate the value of the service
received, the recipient NFP entity may elect to recognize that service
received at either:
1. The cost recognized by the affiliate for the personnel providing
the service
2. The fair value of that service
NFP Audit Guide Clarifications
Beneficial interests in trusts
If sufficient information was unavailable in the year that the NFP
initially became aware of the existence of the trust, the NFP should
recognize the beneficial interest in the trust and contribution revenue
in the first year in which the necessary information becomes
available.
No prior period adjustment should be recorded if the NFP made, and
continued to make, reasonable efforts to obtain the necessary
information to measure the beneficial interest
NFP Audit Guide Clarifications
Investment Expenses
Investment expenses include, but are not limited to, the costs of the
following activities if conducted by the NFP or directly on its behalf:
a) Investment advice
b) Investment acquisition due diligence
c) Custodian services
d) Other administrative activities in connection with investments
e) Other professional services in connection with investment activities, such as legal
and accounting
f) Interim and year-end monitoring
g) Valuation procedures and processes
Investment expenses that are netted against investment revenues should be
reported by their functional classification on the statement of functional
expenses (if one is being presented)
NFP Audit Guide Clarifications
Expenses
Expenses that are reported by other than their natural classification (such
as salaries included in cost of goods sold or facility rental costs of special
events reported as direct benefits to donors) should be reported by their
natural classification if a statement of functional expenses is presented
Gains and Investment Income
Gains and investment income that are limited to specific uses by donorimposed restrictions may be reported as increases in unrestricted net
assets if the restrictions are met in the same reporting period as the gains
and income are recognized, provided the NFP has a similar policy for
reporting contributions received, reports consistently from period to period,
and discloses its accounting policy in the notes to the financial statements
NFP Audit Guide Clarifications
Contributions Receivable
Release of restrictions-time restrictions on contributions receivable
lapse when the receivable is due
Change in PY Reporting of Net Asset Classification
Changing Net Asset Classifications Reported in a Prior Yearindividual net asset classes, rather than net assets in the aggregate,
are relevant in determining whether the correction is an error in
previously issued financial statements
NFP Audit Guide Clarifications
Conduit Bonds
Conduit bonds issued on behalf of an NFP in a competitive or
negotiated offering are deemed to trade in public markets; bonds
issued in a private placement would not be deemed to trade in public
markets for as long as the bonds are privately held
Classification of Debt
Debt that appears to be long-term based on its legal maturity might
not be considered long-term for financial reporting purposes because
of subjective acceleration clauses or due on demand (put) provisions
Auditor’s Report
Emphasis of Matter Paragraph for Alternative Investments
Alternative investments representing 25% of more of net assets will
generally warrant inclusion of an emphasis paragraph
ExampleAs explained in Note X, the financial statements include investments
valued at $XXX,XXX (X% of net assets) at December 31, 2013 and at
$XXX,XXX (X% of net assets) at December 31, 2012 whose fair values
have been estimated by management in the absence of readily
determinable market values. Management’s estimates are based on
information provided by XXX (fund managers of the general partners)
FASB and NFP Advisory Committee
(NAC) Projects
Existing Exposure Draft: Review of Nonpublic Entity
Definition
Re-examining the definitions of the nonpublic entity and public entity
as defined by FASB. The project focuses on defining what
constitutes a public business entity and determining whether
distinctions should be made between NFP’s
Anticipate issuing a final pronouncement in the 4th
quarter of 2013
FASB and NAC Projects
New Exposure Draft on a Variety of Topics
• Financial Reporting Initiative
• Net Assets Classification
• Cash Flow Statement
• Statement of Functional Expenses
Estimated to be issued the first half of 2014
Final pronouncement estimated to be issued the
first half of 2015
FASB and NAC Projects
Financial Reporting Initiative
1.Revisit net asset classifications/terminology
2.Improve liquidity portrayal
3.More clearly communicate NFP performance
4.Enhance relevance and clarity of NFP specific
disclosures
5.Provide framework for commentary and analysis on
operations/financial health
FASB and NAC Projects
Net Asset Classifications
1.
Replace the existing requirements to present totals for each of three
classes of net assets on the face of a statement of financial position
and for changes in each of those classes on the statement of activities
with similar requirements for each of two classes of net assets that
convey net assets with donor-imposed restrictions and without donorimposed restrictions.
2.
Retain the current requirement to provide information about the nature
and amounts of different types of donor-imposed restrictions but
modify the requirement to (a) remove the hard-line distinction between
temporary and permanent restrictions and (b) focus on describing
differences in the nature with a focus on both how and when the
resources (net assets) can be used
FASB and NAC Projects
Cash Flow Statement
1. Require the direct method of reporting cash flows provided/used by operating
activities and removing the requirement to reconcile the change in net assets
to net cash flows from operating activities (indirect method)
2. Cash gifts with donor-imposed restrictions that they be used to purchase,
construct or otherwise acquire long-lived assets for operating purposes
would be classified as inflows from operating activities rather than as inflows
from financing activities
3. Cash payments to purchase, construct, or otherwise acquire long-lived
assets for operating purposes would be classified as outflows from operating
activities rather than as outflows from investing activities
4. Cash dividends and interest income would be classified as inflows from
investing activities rather than as inflows from operating activities
5. Cash payments of interest expense would be classified as outflows from
financing activities rather than as outflows from operating activities
FASB and NAC Projects
Statement of Functional Expenses
AICPA Expert Panel recommended a statement of
functional expenses be prepared for all NFP’s for which
contributions are a significant percentage of revenue
Thank you.
Please contact us with any
questions.