March 27, 2018
The Financial Accounting Standards Board’s 2009 codification of the accounting standards successfully organized the accounting content existing at that time, but it hasn’t slowed the continuing evolution of new standards and amendments. From the codification’s issuance through January 2018, FASB has issued nearly 150 Accounting Standards Updates (ASUs), with many more updates in various pre-issuance stages.
Trying to stay up to date with all the changes can be daunting. Nonprofits are subject to the vast majority of new ASUs and therefore must take steps to ensure they identify, understand, and properly apply new standards as they become effective. Here are several new ASUs applicable for calendar years ended Dec. 31, 2017, and fiscal years ending in 2018.
Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (A Consensus of the FASB Emerging Issues Task Force)
Many nonprofits have investments reported at fair value. The amendments in this ASU apply when the nonprofit elects to measure the fair value of certain investments using the net asset value per share practical expedient (NAV practical expedient). The ASU removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the NAV practical expedient. Although the amounts measured using the NAV practical expedient will no longer require leveling, they still must be presented within the hierarchy to permit reconciliation of the total amounts in the hierarchy to the amounts presented in the statement of financial position.
Inventory (Topic 330): Simplifying the Measurement of Inventory
Nonprofits often maintain inventories of mission-related items. For example, a museum gift shop maintains a variety of products related to its collections and also for the comfort and convenience of its visitors; a food bank maintains food stores in its warehouse; and a college book store maintains textbooks and supplies for students and faculty. ASU 2015-11 establishes a single measurement method for all inventory except that which is measured using the Last-In, First-Out (LIFO) or the retail inventory method.
All other inventory, which includes inventory that is measured using either First-In, First-Out (FIFO) or average cost, must be measured at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
Not-for-Profit Entities—Consolidation (Subtopic 958-810): 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.
Nonprofits use a variety of entity structures, including limited partnerships (LPs) and limited liability corporations (LLCs), to conduct activities such as the management of housing projects, facility construction and/or operations, and certain programmatic and ancillary activities. ASU 2017-02 provides clarity for nonprofit consolidation of these entities in response to confusion that arose after the issuance of ASU 2015-02, Amendments to the Consolidation Analysis.
ASU 2015-02 removed the presumption that a general partner controls and, therefore, should consolidate a for-profit limited partnership or similar entity. Instead, ASU 2015-02 required a nonprofit general partner to apply the consolidation guidance applicable to variable interest entities before applying the general consolidation guidance. However, because NFPs generally are excluded from the variable interest entities guidance, the question of when a nonprofit general partner should consolidate a for-profit limited partnership was left unanswered.
ASU 2017-02 updates the nonprofit consolidation guidance to now include both limited and general partner ownership arrangements. General partner nonprofits are presumed to control a for-profit limited partnership regardless of ownership interest, unless that presumption is overcome by virtue of the limited partners having either substantive kick-out or participating rights. To be considered substantive, kick-out rights must be exercisable by a simple majority vote of the limited partners, or a lower threshold.
The transition guidelines under ASU 2017-02 require entities that have not yet adopted ASU 2015-02 to adopt this ASU at the same time, using the same transition method elected for ASU 2015-02. Nonprofits that already have adopted ASU 2015-02 are required to apply the amendments in this ASU retrospectively to all relevant prior periods, starting with the fiscal year in which ASU 2015-02 was initially applied.
Please contact any member of your Eide Bailly service team to discuss your specific circumstances and how these new standards will apply to your nonprofit organization.
Future articles will address new standards for revenue recognition and leases. More to come!