1. Key Accounting Updates for Convention and Visitor Bureaus
Presented by:
MARIE BRILMYER, CPA, PARTNER
Tina Dzik, CPA, PARTNER
April 12, 2018

2. Welcome & Introductions

3. Contact Information
MARIE BRILMYER, CPA
PARTNER
TINA DZIK, CPA, MBA
PARTNER

4. Accounting Standards Update (ASU) Not-for-Profit Entities (Topic 958) Presentation of Financial Statements of Not-for-Profit Entities

5. Background Refresh after 20 years Update, not a complete overhaul
FASB debated, solicited comments, and revised the provisions of the ASU over the past 3 years
Why did the FASB seek to take on this project?
Does GAAP continue to meet users’ needs?
To better enable not-for-profit organizations to tell their story

6. Phase 1 Phase 2 Phases ASU 2016-14 Operating measures
Alignment of measures between statements
No set timeframe

7. Key Objectives – Overview
To improve the current net asset classification requirements (unrestricted, temporarily restricted and permanently restricted)
To improve information in the financial statements and footnotes useful in assessing an organization’s:
Liquidity
Financial performance
Cash flows

8. Key Objectives – Overview
Specifically to address the following issues:
Net asset classifications are too complex
It is impossible to figure out an organization’s liquidity and its availability of resources
All are organizations are doing something different when it comes to reporting
Expenses
Investment returns
The cash flow statement is cumbersome

9. Issue 1: Net Asset Classifications Are Too Complex
Instead of having three classes, there are now only two (minimum requirement)
Net assets with donor restrictions
Net assets without donor restrictions
Required disclosures
Composition of net assets with donor
restrictions at end of period
Show an analysis of time, purpose
and perpetual restrictions
Disclose how the restrictions affect
the use of resources
Temporarily Restricted Net Assets
Permanently Restricted Net Assets
Net Assets with Donor Restrictions

10. Example Statement of Activities

11. Example Statement of Financial Position

12. Example Disclosure

13. Board Designated Net Assets
New required disclosures of nature and amounts of board designated net assets
New FASB ASC Master Glossary definition:

14. Board Designated Net Assets Enhanced Disclosure Example

15. Implementation of Net Asset Changes
Develop policies and/or practices regarding board designations on net assets; even if no designations
Determine whether you need to adjust your general ledger, excel spreadsheet or other tracking mechanism to accommodate new terminology and presentation for net assets (but remember 990 still requires the three classifications of unrestricted, temporarily restricted and permanently restricted net assets)
Determine the appropriate level of disaggregation of net assets you wish to present among:
Net assets without donor restrictions;
Those with donor restrictions that will be satisfied over time and/or by expenditure for a particular purpose;
And those that will be maintained in perpetuity
Decide the degree of disaggregation you wish to present on the face of the statement of financial position vs. in the notes

16. Issue 2: Liquidity and Availability of Resources
Report qualitative information
How the organization manages its liquid available resources to meet cash needs over the next year
Also report quantitative information that communicates the availability of a NFP’s financial assets at the balance sheet date to meet cash needs for general expenditures within one year
Simple way to meet many of the requirements
Present a classified statement of financial position
If your organization is more complex
The amount of financial assets at the end of each period
Restrictions on financial assets, such that they are not available for near- term cash needs
The amount of financial liabilities that require cash in the near term

17. Liquidity Example #1

18. Liquidity Example #2

19. Liquidity Example #3

20. Implementation of Liquidity Requirements
Determine the format to present the required quantitative disclosure of liquidity information
Display gross amounts of financial assets, then adjustments to arrive at available for expenditure amounts, or
Display only the net amounts available for expenditure
Remember availability is affected by nature of assets, external limitations, imposed by donors, contractual agreements, and board designations
Develop a formal policy for managing the organization’s liquidity needs
Begin drafting the new disclosure describing how the entity manages its liquid assets and liquidity needs, including conditions under which certain board-designated net assets may be undesignated, access to the lines of credit or other financing sources, and any information useful in understanding the entity’s liquidity

21. Issue 3: Reporting Expenses and Investment Returns
All not-for-profits will report expenses by nature and function and an analysis by nature and function (currently only Voluntary Health and Welfare entities must report in this way)
Program
Management and General
Fundraising
Some choices:
On the face of the statement of activities
As a separate statement (but not a supplemental one)
In the notes to the financial statements
Disclose methodologies to allocate costs

22. Expense Reporting – Face of Statement of Activities

23. Expense Reporting – Separate Schedule

24. Disclosure Example for Expense Allocations:

25. Issue 3: Reporting Expenses and Investment Returns
Investment return will be net of related external and direct internal expenses
Do not disclose the netted expenses

26. Issue 4: Cash Flow Statement is Cumbersome
It was on the table to require all not-for-profit organizations to use the direct method of reporting cash flows
If the direct method was used, then indirect method reconciliation required
ASU allows a choice between direct and indirect method
If direct method, then no more reconciliation required

27. Effective Dates and Transition
If you are a December 31 year end, then your December 31, financial statements
If you are a June 30 year end, then your June 30, 2019 financial statements
Early adoption permitted
In the year of adoption  apply retrospectively
All not-for-profit organizations are affected

28. FASB ASU 2014-09 Revenue From Contracts with Customers (ASC 606)

29. ASU 2014-09 Revenue From Contracts with Customers
Core principle
Recognize revenue to depict transfer of good/service (G/S) in amount that reflects consideration expected to be entitled to receive in exchange for those G/S
Transfer based on control
Ability to direct use of and receive benefit from asset transferred
Concept of earnings process and realization are eliminated
New concepts
Transfer = Delivery
Entitlement = Fixed or Determinable / Collectability / Evidence of Arrangement

30. ASU 2014-09 Revenue From Contracts with Customers
Customer = counterparty to a contract
Contracted with an entity to obtain G/S
G/S are an output of entity’s ordinary activities
Consideration must be exchanged
If a counterparty shares in risks and benefits that result from the activity or process = not a customer
Example – developing an asset in a collaborative arrangement

31. ASU 2014-09 – Five Step Process
11/22/2013
ASU – Five Step Process
The final standard will include the five step assessment process proposed in the ED.
The proposed model is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration the vendor receives. To accomplish this objective, the guidance requires the application of the following five steps:
Identify the contract with the customer.
Identify the separate performance obligations in the contract.
Determine the transaction price.
Allocate the transaction price to the separate performance obligations in the contract.
Recognize revenue when (or as) the company satisfies a performance obligation.

32. Convention Center Revenues
Impacted by the new standard
Membership or partnership dues
Sales of products or services (e.g. advertising, publication spots, etc.) to third parties
Hotel registration fees
Not impacted by the new standard
Contributions

33. Partnership Dues Revenue Example
The CVB enters into a partnership contract with Company A for $2,500 for the calendar year The CVB provides the following under this contract to Company A:
An enhanced description on the CVB website
Listings in CVB’s owned publications
A 5% advertising discount
Admission to the CVB networking events for partners
Connections with more than 1,000 partner organizations
Access research on travel and tourism

34. Partnership Dues Revenue Example
5 Step Process
Step 1: Does the CVB have a contract for the partnership it has with Company A? Enforceable right to payment?
Step 2: What are the performance obligations under the contract?
Step 3: What is the price?
Step 4: If there is more than one performance obligation, how is the price allocated to the separate performance obligations under the partnership contract? Is there a standalone selling price for each performance obligation and if not, can it be estimated?
Step 5: Should revenue be recognized at a point in time or over time?

35. Partnership Dues Revenue Example
Recognize over time if one of the following criteria is met:
The Company simultaneously receives and consumes the benefits provided by the CVB’s performance as the CVB performs.
The CVB’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced.
The CVB’s performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for performance completed to date.

36. Nonrefundable Fees Nonrefundable fees charged upfront Current GAAP
Guidance is not clear. Can take the position to recognize when received.
New GAAP
Do nonrefundable fees relate to promised good or service? If so, you would recognize nonrefundable fee over the service period. The period could extend beyond the initial service period if the nonprofit can renew service at no additional cost.

37. Implementation of the New Revenue Recognition Standard
Revise your revenue recognition policies in accordance with the new standard (new terminology and core principles). Also update policies to incorporate changes in the proposed ASU re: contributions (to be covered next).
Assess your revenue contracts and determine whether any changes will need to be made to your revenue recognition under the new standard and have conversations with your Board of Directors

38. Effect Dates and Transition
If you are a December 31 year end, then your December 31, financial statements
If you are a June 30 year end, then your June 30, 2020 financial statements
All not-for-profit organizations are effected

39. Proposed ASU Not-for-Profit Entities (Topic 958): Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made

40. Purpose The amendments were made in an attempt to
Eliminate the diversity in practice in recognizing grants received, particularly those from governmental sources, as either exchange transactions or contributions
Distinguish between conditional and unconditional contributions.
The FASB also sought to clarify whether grants or contracts fall under the scope of ASU , Revenue from Contracts with Customers.
Applies to both contributions received by a recipient and contributions made by a resource provider (which could be CVBs)

41. Reciprocal (Exchange) vs
Reciprocal (Exchange) vs. Nonreciprocal (Nonexchange/Contribution) Transactions

42. Key Clarifications
The resource provider is not synonymous with the general public, even a governmental entity. If a resource provider receives value indirectly by providing a societal benefit, this would be considered a nonreciprocal transaction
If the primary beneficiary of a grant or contract is a third party, a NFP must use judgment to determine if the transaction is reciprocal or nonreciprocal
Furthering a resource provider’s mission or “feel good” sentiment does not constitute commensurate value received
The type of resource provider should not override the substance of the transaction

43. NFP Revenue Recognition Decision Making Process

44. Indicators to Determine Barrier
To determine what is a barrier, a NFP would consider indicators, which would include, but are not limited to, the following:
The inclusion of a measurable performance-related barrier or other measurable barrier
Whether a stipulation is related to the purpose of the agreement
The extent to which a stipulation limits discretion by the recipient
The extent to which a stipulation requires an additional action or actions

45. Impacts on CVBs Bed tax revenue – no changes
Funding CVBs provide to other organizations
Likely to be classified as contributions, conditional or unconditional
Would be classified as an exchange transactions in cases where the CVB provides funding to a third party to perform research where the CVB will benefit. Exchange transactions fall under the new revenue recognition standard.

46. Effect Dates and Transition
Same as the new revenue recognition standard
If you are a December 31 year end, then your December 31, financial statements
If you are a June 30 year end, then your June 30, 2020 financial statements

47. The New Lease Standard (ASC 842)

48. High-Level Insights
Will add lease-related assets and liabilities to the balance sheet that weren’t there before (for operating leases)
Will most likely impact compliance with contractual agreements and loan covenants
Two types of leases still remain, although now called finance leases (vs capital) and operating leases

49. Lessee Accounting – Overview
Balance Sheet
Income Statement
Statement of Cash Flows
Finance
Right-of-use (ROU) asset
Lease liability
Amortization expense
Interest expense
Principal payments –financing activities
Interest payments – operating activities
Operating
Single lease expense on a straight-line basis
Lease expense – usually operating activities
No substantial changes to how recognized in income statement vs Topic 840
FASB expects in general that most leases that were classified as capital under 840 to be finance lease under 842 and most operating leases under 840 to be operating leases under 842

50. Lessee Accounting – Operating Leases
Recognize right-of-use asset and lease liability
Measured at PV of lease payments (including renewal option periods if it is reasonably certain that they will be exercised)
Recognize a single lease cost
Calculated so that the cost of the lease is allocated over the lease term on generally a straight-line basis
Classify all cash payments in operating activities in statement of cash flows

51. High-Level Insights
Leases with 12 month term or less, an accounting policy election can be made not to recognize lease assets or liabilities
Needs to be applied consistently for similar leases
Would recognize lease expense on straight-line basis over lease term
If it is reasonably certain the lessee will exercise an option to extend – does NOT qualify
Practical expedient allows lessees to account for non-lease components (CAM charges) with lease components
Recognition and measurement of related party leases should be applied based on legally enforceable terms.
Principles based vs rules based
Election is made by class of underlying assets (office equipment, manufacturing equipment, etc.) Only for lessees. For leases that on the commencement date have a maximum term of 12 months including any renewal options that the lessee is reasonably certain to exercise

52. Lease Accounting – Operating Leases
Example 1 – Fact Pattern
The SiSock Sandblasting Company (Lessee) and the Sarah Leasing Company (Lessor) executed a 10 year lease of a building with the following terms with a commencement date of 1/1/2020:
Annual rent - $120,000
Lessee prepaid rent of $10,000 in 2019
Lease incentives - $100,000
Initial direct costs Lessee incurred - $15,000
What is the value of the right-of-use asset and the lease liability SiSock Sandblasting Company will record at 12/31/2019?

53. Lease Accounting – Right-of-Use Asset
Amount of the initial measurement of the lease liability
Any lease payments made to the lessor at or before the commencement date, minus any lease incentives received
Any initial direct costs incurred by the lessee
PV Lease payments
+ Payments made to lessor prior to commencement (prepaid rent)
- Lease incentives
+ Initial direct costs incurred by lessee
Right-of-use asset

54. Lease Accounting – Operating Leases

55. Lease Accounting Example Amortization Schedule
$10,000 annual lease payments over 10 years. Discount rate is 5%.

56. Lessee Accounting – Finance Leases
Criteria for finance lease classification (meets ANY of the following)
Transfer of ownership of the underlying asset to the lessee by the end of the lease term
Grants the lessee the option to purchase the underlying asset that the lessee is reasonably certain to exercise
Lease term is the major part of the remaining economic life of the underlying asset
PV of sum of lease payments and any residual value guarantees equals or exceeds substantially all of the fair value of the underlying asset
Underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term

57. Implementation of the New Lease Standard
Maintain an inventory of all leases with expiration dates after December 31, 2018, which includes all data needed for recording and disclosure
Determine whether or not to elect the optional practical expedients
Assess how the new lease standard will affect your organization’s financial statements and have conversations with your board of directors

58. Effect Dates and Transition
For nonpublic entities, effective for fiscal years beginning after December 15, 2019
Some financial statement users may be surprised by addition of several operating leases to the balance sheet
If you are a December 31 year end, then your December 31, financial statements
If you are a June 30 year end, then your June 30, 2021 financial statements

59. Other CVB Accounting Issues

60. Research and Marketing Costs
CVBs spent a significant amount of funds for research and marketing
Generally those costs should be charged to expense when incurred, rather than deferred to future periods
Certain costs to develop a website are able to be capitalized and amortized over future periods
Costs relating to developing the applications and infrastructure of the website
Costs to develop graphics
Developing content for a website does not qualify for capitalization
Costs to operate a website does not qualify for capitalization

61. Capital Improvements
Under GAAP, these generally would fall under tangible long-lived assets which include property and equipment and other assets held for investment or used in a company’s operations that have an estimated useful life longer than one year
The cost of the tangible long-lived assets should include an asset’s purchase price, sales tax, freight, installation costs, and direct and indirect costs (including interest) incurred by the organization in constructing its own assets
Routine repairs and maintenance cost that do not add to the utility of the asset should be expensed

62. Unrelated Business Income (UBI) - Publications
Lots of specific rules and exceptions
Publication may be an exempt activity but if it contains advertising there is potential UBI
Specific rules in relation to organizations with members like CVBs
Refer to IRS publication 598

63. Resources FASB website
AICPA and the Center for Plain English Accounting editorial and presentation material

64. Questions?

65. Thank you.
Information presented is not meant to constitute legal, accounting or other professional advice. Any action taken based on information in this presentation should be taken only after a detailed review of the specific facts and circumstances. Information is current as of the date presented.
April 12, 2018