1. Ultimate Finance and Legal Conference
GAAP Update
Ultimate Finance and Legal Conference
Vonna Laue

2. Agenda Nonprofit financial statements – ASU 2016-14
Restricted cash – ASU
Revenue recognition – ASU
Leases – ASU
Consolidation – ASU
Clarification of Contributions Received and Made – Proposed ASU

3. Nonprofit Financial Statements
A generation since the last major change

4. Specifics
Title: Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities Issue date: August 18, 2016 Effective date: Fiscal years beginning after Dec 15, 2017 Length: 270 pages Early adoption: Permitted Retrospective transition: Required for all but functional and liquidity disclosures

5. Key Elements
Net asset classification: With and without donor restrictions
Financial statement presentation
Required disclosures – analysis by time, purpose, and perpetual restrictions
Day-to-day accounting

6. Key Elements
Underwater endowments: Endowments with a current fair value below the original gift amount
Classified with donor restrictions
Expanded disclosures
Original amount of endowment
Policy related to spending from these funds
Whether the policy was followed

7. Key Elements
Board-designated net assets: Net assets without donor restriction but set aside by governing board
Disclosures required for nature and amounts of designated balances
Board may allow management to designate
Examples would be capital or operating reserves or quasi-endowments
Should consider policy on designating net assets

8. Key Elements
Long-lived assets: Gifts for construction or acquisition of property and equipment
Restriction released when asset placed in service
No longer able to release over useful life of asset
Exception for donor giving explicit instructions

9. Key Elements
Transparency and liquidity: Quantitative and qualitative information to help readers understand:
Entity’s exposure to risks
How the entity manages liquidity risk
Information about availability of assets to meet cash needs for the next year
Information could include budgeting, reserve policies for qualitative and current ratio for quantitative.

10. Key Elements Presentation of investment expenses:
Includes external and direct internal costs
Eliminates need to identify imbedded fees
Results in expenses being reflected in net asset category related to the investment income

11. Key Elements Expense reporting:
Functional AND natural classification required
May use statement of functional expense (SFE), statement of activities (SOA), or footnote
Voluntary health and welfare organizations will no longer be required to have a separate SFE

12. Key Elements
Cash flow information: May now use direct or indirect method of cash flows with no required reconciliation if the direct method is used.

13. A clarification in reporting cash and cash equivalents
Restricted Cash
A clarification in reporting cash and cash equivalents

14. Specifics
Title: Statement of Cash Flows (Topic 230): Restricted Cash Issue date: November 17, 2016 Effective date: Fiscal years beginning after Dec 15, 2018 Length: 41 pages Early adoption: Permitted Retrospective transition: Required

15. Key Elements
Statement of cash flows (SCF): Cash and restricted cash shown in total
Transfers no longer reflected on SCF
Nature of restrictions must be disclosed
Purpose - Duration
Source - Amount
Reconciliation of cash on SCF and statement of financial position (SFP) required
Minimum balance requirements
Bond sinking funds
Grants

16. The big question is “Does it apply to us?"
Revenue Recognition
The big question is “Does it apply to us?"

17. Specifics
Title: Revenue from Contracts with Customers (Topic 606) Issue date: May 28, 2014 Effective date: Fiscal years beginning after Dec 15, 2018 Length: 156 pages Early adoption: Prohibited Retrospective transition: Required

18. Key Elements What is covered? Membership Tuition Public grants
Conferences
Sponsorships
Subscriptions

19. Key Elements
What is NOT covered?
CONTRIBUTIONS

20. Key Elements Five-step process:
Identification of contract with customer
Identification of performance obligations
Determination of transaction price
Allocation of the transaction price to separate performance obligations
Determination of when a performance obligation is satisfied and revenue recognized
1 - Contract may be oral or written
2 – what does NFP have to do
3 – what does NFP expect to receive both cash and noncash
4 – especially if there are multiple performance obligations
5 – point in time (sale of good, conference) or over time (membership dues, subscriptions, royalties. Over time may be done based on outputs, inputs, or time based/straight line

21. Prepare to Implement Discuss with your CPA
Inventory all revenue streams
Determine what may need modified
Determine point in time vs over time
Determine if there are costs to acquire contracts that may need capitalized
Train boards and finance committees early
1 - Contract may be oral or written
2 – what does NFP have to do
3 – what does NFP expect to receive both cash and noncash
4 – especially if there are multiple performance obligations
5 – point in time (sale of good, conference) or over time (membership dues, subscriptions, royalties. Over time may be done based on outputs, inputs, or time based/straight line

22. SFP – Big changes SOA – Virtually the same
Leases
SFP – Big changes SOA – Virtually the same

23. Specifics
Title: Leases (Topic 842) Issue date: February 25, 2016 Effective date: Fiscal years beginning after Dec 15, 2019 Length: 191 pages Early adoption: Permitted Retrospective transition: Required

24. Key Elements Most leases become finance leases (capital)
Leases of 12 months or less with no purchase option can be expensed
Asset and liability recorded
SOA will include amortization of asset cost and interest expense from lease which will approximate previously expensed payments

25. Prepare to Implement Evaluate all current and future leases
Be aware of retrospective presentation
Consider early adoption if there are leases that will extend beyond the implementation date

26. Consolidation
Limited audience – nonprofits that are involved in limited partnerships

27. Specifics
Title: Not-for-Profit Entities - Consolidation (Topic ): Clarifying When a Not-for-Profit Entity That Is a General Partner or a Limited Partner Should Consolidate a For- Profit Limited Partnership or Similar Entity Issue date: January 2017 Effective date: Fiscal years beginning after Dec 15, 2016 Length: 44 pages Early adoption: Permitted Retrospective transition: Required

28. Key Elements
Nonprofits that are general partners in a limited partnership should consolidate the partnership unless there are specific rights of the limited partners such as kick-out rights or substantive participating rights. This would also apply to managing members of limited liability companies.

29. You have the ability to speak into a proposed change – NOW!
Proposed ASU
You have the ability to speak into a proposed change – NOW!

30. Specifics
Title: Not-for-Profit Entities (Topic 958): Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made Issue date: August 3, 2017 Comment period: Ends November 1, 2017 Effective date: Fiscal years beginning after Dec 15, 2018 Early adoption: Permitted

31. Key Elements
Evaluate whether the resource provider is receiving value in return for the resources transferred
Yes, then exchange transaction
On behalf of someone else, then exchange transaction (Medicare)
No, then contribution

32. Key Elements
Requires organizations to determine conditional vs. unconditional
A barrier must be overcome and
Right of return of assets or release of obligation

33. Key Elements
Expected this could result in more grants and contracts being treated as contributions After a contribution is deemed unconditional, it may still have donor-imposed restrictions

34. It is a nonreciprocal transaction. Apply contribution guidance.
Is the transaction one in which each party directly receives commensurate value?
Yes
It is an exchange transaction. Apply Topic 606 on revenue from contracts. No
Is the payment from a third-party payer on behalf of an existing reciprocal transaction?
Yes
It is a balance-sheet only transaction. No effect on an entity’s revenue recognition. No
It is a nonreciprocal transaction. Apply contribution guidance.
Are there conditions present (a barrier and a right to return or release)?
It is unconditional. Recognize revenue in appropriate net asset class. No
Yes
Meeting of condition
It is conditional. Recognize revenue when the condition is met.
Are restrictions present (purpose or timing)?
Yes No
It is unconditional and with donor restrictions.
It is unconditional and with donor restrictions.

35. How to Respond www.fasb.org/draft
Would the amendments in this proposed Update provide clarifying guidance that would be operable in practice? If not, why not?
Would the proposed amendments clarify whether a resource provider is receiving commensurate value in return for assets transferred and when a transaction is within the scope of Subtopic ? If not, why not?

36. Be prepared and don’t turn your back on these upcoming changes.

37. Resources
FASB Implementing new standards page: BDO flash alerts EY “To the Point” October 31 ECFA webinar with Andrew Prather