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The webcast will start at 1 p.m. Eastern

Please note:

• Handout – You can print or download the webcast handout atcapincrouse.com/ webcast-accounting-update

• CPE – CPE certificates will be emailed to you within the next few weeks. To receive CPE credit you must respond to the polling questions, which are not available on mobile devices. Therefore, in order to receive CPE credit you must log in via a computer.

• Recording – A recording of today’s webcast will be available at capincrouse.com. Click Nonprofit Resources, and then select Webcast: Recorded from the list on the right.

2018 Nonprofit Accounting and Reporting Update

Fran Brown, PartnerFrank Jakosz, Partner2.22.18

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ASUs We Will Be Covering Today

• 2014-15 Going concern

• 2015-01 Extraordinary items

• 2015-03 Debt interest

• 2015-11 Inventory

• 2016-18 Restricted Cash

• 2017-02 Consolidation guidance

• 2017-07 Compensation retirement benefits

ASUs We Will Be Covering — At a High Level

• 2016-14 NFP Financial Statements

• 2016-02 Leases

• 2014-09 Rev rec

• 2015-07 NAV disclosures

• Proposed ASU – Grants and Contracts

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ASU 2014-15: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern

• Disclosure is required when “substantial doubt” exists

• “… when conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued…”

• No longer the ability to hold the report until the auditor’s level of doubt falls to a “safe” zone

• Current auditing standards don’t give a definition of “substantial doubt”

Disclosures

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Triggers

Paragraph 2.125 in the Guide has examples of triggers

Negative financial trends

Other indications of financial difficulties

Internal matters

External matters

12/31/20X1• Balance Sheet

Date

3/1/20X2• FS Issuance Date

12/31/20X2• Prior Auditing

Standard Requirement: One Year from Balance Sheet Date

3/1/20X3• FASB

Requirement: One Year from FS Issuance Date

Time Horizon

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• Principal conditions or events

• Management’s evaluation

• Management’s plan

• Statement that there is “substantial doubt” about the entity’s ability to continue as a going concern

• This is only necessary when management’s plans do not alleviate concern

Disclosures

• For annual periods ending after December 15, 2016

• How does this impact debt covenant waivers?

Effective Date

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ASU 2015-01, Eliminating the Concept of Extraordinary Items

• Previous Guidance• Criteria to be met to qualify as extraordinary:

• Unusual in nature• Infrequency of occurrence

• Both must be met

• Current Guidance• ASU eliminated from GAAP the concept of

extraordinary items

Guidance

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• Effective for fiscal years beginning after December 15, 2015

• Any questions

Effective Date

ASU 2015-03 Simplifying the Presentation of Debt Issuance Costs

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Update

Debt issuance costs related to a recognized debt liability should be

presented in the balance sheet as a

direct deduction from the carrying amount of

that debt liability

Recognition and measurement guidance for debt issuance costs

are not affected

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• Effective for fiscal years beginning after December 15, 2015

• An entity should apply the new guidance on a retrospective basis

Effective Date

Questions?

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ASU 2015-11 Simplify the Subsequent Measurement of Inventory

• Measure inventory at the lower of cost and 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 in scope – LIFO or Retail Inventory Method

Concepts

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• Fiscal years beginning after December 15, 2016

• Prospective application

Effective Date

ASU 2016-18 Restricted Cash

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• Statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents

• Transfers between cash, cash equivalents, and restricted cash or restricted cash equivalents are not reported as cash flow activities

• Disclose in a narrative or tabular format the amounts, disaggregated by line item, that sum to the total amount shown in the SOC. ASC 230-10-50-8

• FASB ASC 958-210-45-5A, FASB ASC 958-205-55-7, and FASB ASC 210-10-45-4

Update

Effective Date

For fiscal years beginning after December 15, 2018

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ASU 2017-02 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

• This ASU was issued to clarify when a NFP that is the General Partner or a Limited Partner should consolidate a For-Profit Limited Partner or similar entity

• Retains the consolidation guidance that was in Subtopic 810-20 for NFPs by including it within Subtopic 958-810

• Adds guidance to Subtopic 958-810 on when an NFP limited partner should consolidate a for-profit limited partnership

Update

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• Restores past accounting by the general partner

• Rebuttable presumption that general partner controls and should consolidate no matter what percent of ownership

• If limited partners have substantive participating rights, general partner uses equity method

• New requirement that a limited partner should consolidate if partner holds the majority of the kick-out rights

• Clarifies that noncontrolling interest in a general partnership should be reported using equity method if the partnership is engaged in real estate activities

Update

• Fiscal years beginning after December 15, 2016

• NFPs need to adopt ASU 2017-02 at the same time they adopt ASU 2015-02 and should apply the same transaction method elected for the application of ASU 2015-02

• For NFPs that have already adopted 2015-02, will need to be applied retrospectively for all relevant periods beginning with the fiscal year in which 2015-02 was initially applied

Effective Date

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ASU 2017-07 Improving the Presentation of Net Periodic Pension Cost & Net Periodic Benefit Cost

• Requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period

• The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented

• Only the service cost component is eligible for capitalization when applicable (for example, as a cost of internally manufactured inventory or a self-constructed asset)

Update

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• Fiscal years beginning after December 15, 2018

Effective Date

Questions?

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ASUs We Will Be Covering — At a High Level

• 2016-14 NFP Financial Statements

• 2016-02 Leases

• 2014-09 Rev rec

• 2015-07 NAV disclosures

• Proposed ASU – Grants and Contracts

ASU 2016-14 NFP Financial Statement

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Key Provisions of ASU No. 2016-14

Net Asset ClassificationUpdates net asset scheme,

changes underwater endowment accounting,

removes option for implied time restrictions on capital gifts, board designations,

enhances disclosures

Liquidity & AvailabilityQuantitative and

qualitative disclosures about liquidity and

availability of resources ExpensesRequirement to report expenses by function (already required) and nature, and an analysis showing the relationship

between function and nature

Investment ReturnPresent investment return net of external and direct

internal investment expenses; no longer

required to disclose netted expenses

Statement of Cash Flows“Free choice”: indirect

reconciliation no longer required for direct method

Implementation – Statement of Activities

Statement of Activities

IntermediateOperating Measure

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Statement of Activities

Implementation – Statement of Activities

ASU 2016-02 Leases

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Overview

Lease ClassificationFinance Lease

Operating Lease

New Definition of a Lease

Recognition & Measurement

Right of Use AssetLease Liability

Subsequent Measurement

Short-Term Lease Exception

Initial Measurement

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Subsequent Measurement: Familiar Recognition

Disclosure Summary

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Effective Date for ASC 842 (new ASC section)

NFP entities that have issued, or are conduit bond obligators for, securities that are traded,

listed, or quoted on an exchange or an OTC market

Fiscal years beginning after

December 15, 2018

For All Other Entities

Fiscal years beginning after

December 15, 2019

ASU 2014-09 Revenue From Contracts with Customers (“Topic 606”)

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• This FASB ASU applies when an entity

• enters into contracts with customers to transfer goods or services; or

• enters into contracts for the transfer of nonfinancial assets

• Unless those contracts fall within the scope of other standards, such as insurance, lease contracts, or guarantees within the scope of Topic 460

Scope

Considerations for NFPs

• Contributions (out of scope)• Bifurcation (combination of exchange and contribution)• Membership Dues• Tuition and Fees• Licenses and Royalties• Royalties• Advertising• Retail Sales• Sponsorships

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• Recognize revenue to depict the transfer of promised goods or service to customers in an amount that reflects the considerations to which the entity expects to be entitled in exchange for these goods and services

• Focus is on the contract rather than on transactions of certain types by certain industries

Guidance

Amount

Reflects consideration

expects to receive

Transfer

Transfer of promised goods and services

Application for Recognition

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• For a public entity (including NFP entities that have issued or are conduit bond obligors for securities that are traded, listed, or quoted on an exchange or OTC market)

• For annual reporting periods beginning after December 15, 2017

• For all other entities

• For annual reporting periods beginning after December 15, 2018

Effective Date

• The AICPA has formed 16 industry task forces to help develop a new accounting guide on revenue recognition that will provide illustrative examples for how to apply the new standard — one is for NFPs

• Implementation issues — finalized and included in AICPA Revenue Recognition Guide:• Tuition and housing revenues for NFP higher eds

• Contributions

• Bifurcation of Transactions Between Contribution and Exchange Components

• Implementation issue — out for exposure• Subscription and membership dues

AICPA Rev Rec Task Forces

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ASU 2015-07 Disclosures for Investments in Certain Entities That Calculate NAV (or its equivalent)

• Removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient

• Practical expedient can’t be used if investment has a readily determinable fair value, so it can’t be used for investments in mutual funds if they are redeemable at the measurement date at NAV

• Can’t be used for interests in pools managed by another NFP in many circumstances because the other NFP has mission-related activities in addition to its investing activities (criteria in FASB ASC 946-10-15)

• Requires a reconciling item to be added to the fair value hierarchy disclosure to reconcile to statement of financial position

Update

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• Retrospective application

Effective Date

NFP Entities

Fiscal years beginning after December 15, 2016

Proposed ASU – Clarifying the Scope and Guidance for Contributions Received and Contributions Made

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Proposed Accounting and Reporting

Proposed Accounting and Reporting

• Applies to both contributions received and made

• Proposed ASU requires:

• A right of return or release must exist, and

• The agreement must include a barrier

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Indicators to Determine a Barrier including but not limited to:

• Inclusion of a measurable performance-related barrier (specified level of outputs, outcomes, matching, etc.)

• Excludes barriers unrelated to the primary purposes of the agreement (administrative tasks and trivial stipulations)• The extent to which a stipulation limits discretion by the

recipient • The extent to which a stipulation requires an additional

action or actions• Excludes situations in which the only requirement is that

the transferred assets be spent

The effective date is the same as the new Revenue Recognition standard (Topic 606), but allows for early implementation.

Proposed Effective Dates

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Questions?

Upcoming Webcast

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Thank you.

Frank Jakosz, Partner

fjakosz@capincrouse.como 630.682.9797, ext. 1201c 708.997.8310

© Copyright CapinCrouse 2018

Fran Brown, Partner

fbrown@capincrouse.como 617.535.7534c 781.860.2839