Not-for-Profits (NFPs) have recently been focused on the implementation of FASB ASU 2016-14, Presentation of Financial Statements of Not-for-Profit Entities. Numerous articles have been published, and many webinars have been held on this important new standard.
It’s now time to consider implementation of several other important standards that have been issued. Accounting standards apply to all entities, unless you are specifically scoped out, so NFPs need to be aware of the new standards that might affect their operations or reporting. It’s also important to note whether your NFP holds public conduit debt, as in some instances the standards will need to be implemented a year earlier than is required for NFPs without public debt.
The following are excerpts from the published summaries of new standards that might be applicable to your operations:
ASU 2014-09 (And Amendments), Revenue from Contracts with Customers: effective for calendar year 2019 (2018 if you hold public conduit debt). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
ASU 2016-01, Financial Instruments: Recognition and Measurement of Financial Assets and Liabilities: effective for calendar year 2019. This standard requires equity securities (including other ownership interests such as partnerships, unincorporated joint ventures and limited liability companies) to be measured at fair value with changes in the fair value recognized through net income. An entity’s equity investments that are accounted for under the equity method, or result in consolidation of an investee, are not included within the scope of this standard.
ASU 2016-02 (and amendments), Leases: effective for calendar year 2020 (2019 if you hold public conduit debt). For leases with a term of more than 12 months, a lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities.
ASU 2016-13, Financial Instruments-Credit Losses: effective for calendar year 2021 (2020 if you hold public conduit debt). The objective of this update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments by replacing the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.
ASU 2016-18, Statements of Cash Flows-Restricted Cash: effective for calendar year 2019. This update requires that amounts described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.
ASU 2017-01, Business Combinations: effective for calendar year 2019 (calendar year 2018 if you hold public conduit debt). This update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transaction should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill and consolidation.
ASU 2017-02, Consolidation: effective for calendar year 2017. Recent updates to Topic 810 created uncertainty about when an NFP that is a general partner should consolidate a for-profit limited partnership. The amendments herein reinstate the prior consolidation guidance with respect to general partners or limited partners and when they should consolidate the for-profit entity.
ASU 2017-10, Service Concession Arrangements-Determining the Customer of the Operation Services: effective for calendar year 2019 (2018 if you hold public conduit debt). This standard clarifies that when a public-sector entity (government) enters into an arrangement with an NFP under which the NFP will provide operation services to members of the general public, the public-sector entity is both grantor and the customer of the services.
ASU 2018-08, Clarifying the Scope and Accounting Guidance for Contributions Received and Made: effective for calendar year 2019 (fiscal years beginning after June 15, 2018, if you hold public conduit debt). This standard was issued to clarify and improve the scope and the accounting guidance for contributions received and contributions made. The amendments should assist entities in: (1) evaluating whether transactions should be accounted for as contributions (nonreciprocal transactions) or as an exchange (reciprocal) transaction, and (2) determining whether a contribution is conditional.
ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurements: effective for calendar year 2020. This standard modifies the disclosure requirements on fair value measurements.
Disclosure requirements removed include: (1) the amount of and reasons for transfers between level one and level two of the fair value hierarchy, (2) the policy for timing of transfers between levels, (3) the valuation processes for level three fair value measurements, and (4) for nonpublic entities, the changes in unrealized gains and losses for the period included in earnings for recurring level three fair value measurements.
Disclosure requirements modified include: (1) in lieu of a rollforward for level three fair value measurements, a nonpublic entity is required to disclose transfers into and out of level three and purchases and issues of level three assets and liabilities, (2) for investments in certain entities that calculate net asset value, and when the investee has communicated the timing to the entity or announced the timing publicly, an NFP is required to disclose the timing of liquidation of an investee’s assets and the dates when restrictions from redemption might lapse, and (3) the amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date.
ASU 2019-03, Updating the Definition of Collections: effective for calendar year 2020. The amendments of this update modify the definition of the term “collections” and require that a collection-holding entity disclose its policy for the use of proceeds from when collection items are deaccessioned (that is, removed from a collection).
NFPs with fiscal year-ends: If your organization has a fiscal year-end, remember that the implementation timeframes specified above fall after the calendar year-end. For example, ASU 2018-03 that is effective for NFPs for calendar 2020 is effective for NFPs with a fiscal year ending in 2021.
The number of new pronouncements over the next two years can appear intimidating, so you might first consider reading the introductory section of each new standard to become familiar with the requirements and how they may (or may not) affect your operations or reporting. And be sure to reach out to your Eide Bailly audit team for more information—we work with over 2,000 NFP organizations, and we are a good source of practical knowledge and application of the standards.
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