EXECUTIVE EDUCATION SERIES:
What's New in Not-for-Profit Accounting
and Auditing Standards?
Presented by: Shareholders
Lau...
2
#MHMwebinar
 To view this webinar in full screen mode, click on view
options in the upper right hand corner.
 Click th...
3
#MHMwebinar
 This webinar is eligible
for CPE credit. To receive
credit, you will need to
answer periodic polling
quest...
4
#MHMwebinar
Laura Krueger Brock, CPA, CFE
Shareholder
727.572.1400 | lbrock@cbizkrmt.com
Laura is a Shareholder in the N...
5
#MHMwebinar
The information in this Executive Education Series
course is a brief summary and may not include all the
det...
6
#MHMwebinar
Today’s Agenda
1
2
3
4
5
6
Accounting and auditing standards
Current events and ongoing projects
Changes to ...
7
#MHMwebinar
Fair value measurements
Patient service revenues
Multiemployer pension plans
Donated assets
Other standards ...
8
#MHMwebinar
The good news is there is not much new
regarding fair value this year.
Items of significance:
 Enhanced Fai...
9
#MHMwebinar
 Enhanced Fair Value disclosures (continued)
 The non-NAV items are generally investments such as:
 Alter...
10
#MHMwebinar
 Enhanced Fair Value disclosures (continued)
 Requires detailed disclosure of the inputs used to valuatio...
11
#MHMwebinar
 Enhanced Fair Value
disclosures (continued)
 Supplemental fair value
disclosure information for
financia...
12
#MHMwebinar
Fair Value Measurements
Fair Value Measurement
The fair value of the Organization’s bonds payable approxima...
13
#MHMwebinar
 ASU 2013-08, Financial Services-Investment
Companies
 Relates to investment companies
 Clarifies the de...
14
#MHMwebinar
 ASU 2013-08, Financial
Services (Continued)
 Good news – the FASB chose
not to change accounting at the
...
15
#MHMwebinar
 ASU 2013-08 (Continued)
 Entities with the following characteristics generally qualify as
investment com...
16
#MHMwebinar
 ASU 2013-08 (Continued)
 What can you do to assess whether this ASU will impact
your organization?
 Con...
17
#MHMwebinar
 ASU 2011-07, Presentation and Disclosure of Patient
Service Revenue, Provision for Bad Debts, and
Allowan...
18
#MHMwebinar
 Key provisions (continued):
 Bad debt expense from receivables Other Than patient service
revenue can be...
19
#MHMwebinar
New guidance effective for
periods ending after
12/15/12 for nonpublic
entities, was effective
calendar 201...
20
#MHMwebinar
 Disclose:
 Plan name (enough info to allow users to access the Form
5500)
 Funded status
 Expiration d...
21
#MHMwebinar
 Statement of Cash Flows Presentation – ASU 2012-05
 Classify donated financial assets as inflows from op...
22
#MHMwebinar
 EITF Issue 12-B,
Not-for-Profit
Entities: Services
Received from
Personnel of an
Affiliate for Which the
...
23
#MHMwebinar
 Affiliate Services
 Questions have arisen about whether a recipient
organization should consider personn...
24
#MHMwebinar
 Affiliate Services (Continued)
 Final ASU
 Measure services at the cost recognized by the affiliate pro...
25
#MHMwebinar
Clarity Standards
The AICPA’s Auditing Standards Board (ASB) redrafted
all but one of the auditing sections...
26
#MHMwebinar
 Exposure Draft of Proposed Statement on Auditing
Standards Using the Work of Internal Auditors Released
...
27
#MHMwebinar
 Effective for years ended on or after December 15,
2012.
 The codification of the clarified standards us...
28
#MHMwebinar
Primary effects:
1. Opinion format
2. Opinion terminology
3. Component materiality and group audits
4. Lega...
29
#MHMwebinar
See the sample Auditor’s
Report included as a
download on this webinar.
Auditor’s Report
30
#MHMwebinar
 Fraud risks specific to NFPs
 Per Association of Certified Fraud Examiners,
a typical organization loses...
31
#MHMwebinar
 Management should establish fraud risk
management program
 Fraud risk assessment – identify the
fraud sc...
32
#MHMwebinar
 Changes to the AICPA Not-for-Profit
Accounting and Auditing Guide
 Other accounting developments
 Chang...
33
#MHMwebinar
2013 Overhauled Audit and Accounting Guide
34
#MHMwebinar
 The AICPA has issued a comprehensive revision of the
Audit and Accounting Guide Not-for-Profit Entities i...
35
#MHMwebinar
 Considered over 100 questions that had been asked
by members who called the AICPA Help Line
 Authoritati...
36
#MHMwebinar
 Accounting & Financial Reporting
 Basis of accounting content is from GAAP, but the Guides
provide addit...
37
#MHMwebinar
16 Chapters in the Guide
Chapter 2 – General Auditing Considerations
 Conformed to the Clarity project
 I...
38
#MHMwebinar
Chapter 3 – Financial Statements, the Reporting
Entity, and General Financial Reporting Matters
 Significa...
39
#MHMwebinar
Relationship
FASB Accounting
Standards Codification
(ASC) Reference
Discussion in
This Chapter
The reportin...
40
#MHMwebinar
Chapter 3 – Financial Statement/Reporting Entity
Statement of functional expenses
 Required as a basic fin...
41
#MHMwebinar
Chapter 5 – Contributions Received and Agency
Transactions
 Contribution vs. exchange transaction Table 5-...
42
#MHMwebinar
Chapter 5 – Contributions Received and Agency
Transactions (Continued)
 Below-market interest rate loans
...
43
#MHMwebinar
1/1/2013 NFP receives 0% interest
loan of $200,000 payable 12/31/2015 Market interest rate is 6%
1/1/2013
D...
44
#MHMwebinar
1/1/2013 NFP receives 0% interest
loan of $200,000 due on demand,
repaid 12/31/2015
Market interest rate is...
45
#MHMwebinar
Chapter 6 – Split Interest Agreements and Beneficial
Interests in Trusts
 Beneficial interest in trust hel...
46
#MHMwebinar
Chapter 10 – Debt and Other Liabilities
 New section on tax-exempt debt based on the AICPA
Audit and Accou...
47
#MHMwebinar
Chapter 15 – Tax and Regulatory Considerations
 Expanded discussion regarding legal and regulatory
environ...
48
#MHMwebinar
 Lease accounting continues to be a topic for discussion,
with continued exposure drafts and deliberation
...
49
#MHMwebinar
 Revenue recognition
 Seems most NFPs will not be impacted given many
transactions are outside of the sco...
50
#MHMwebinar
Changes to OMB Circular A-133
Why Change?
 Single Audit guidance has not been significantly amended
since ...
51
#MHMwebinar
OMB Uniform Guidance
 www.whitehouse.gov/omb/grants_docs under Proposed
Policies
 Replaces OMB Circulars:...
52
#MHMwebinar
OMB Uniform Guidance
Subchapters:
 A through D: General and Pre Award Requirements
 E: Post Federal Award...
53
#MHMwebinar
Subchapters A to D
CFDA (Catalog of Federal Domestic Assistance)
will be replaced with
CFFA (Catalog of Fed...
54
#MHMwebinar
Subchapter E: Post Federal Award Requirements
Subrecipient Monitoring – no significant changes
Good reminde...
55
#MHMwebinar
Subchapter E: Post Federal Award Requirements
Procurement Standards
 Must have written selection procedure...
56
#MHMwebinar
Subchapter F: Cost Principles
 Salaries
 Other Direct Costs
 Indirect Cost Rate
57
#MHMwebinar
Salaries
 Salaries of administrative and clerical staff should
normally be treated as indirect costs (some...
58
#MHMwebinar
Salaries
 Employees who work on multiple programs/activities:
 Timesheets indicating the number of hours ...
59
#MHMwebinar
Other Direct Costs
Family leave and dependent care
Clarification of allowability to the extent they
are rea...
60
#MHMwebinar
Indirect Cost Rate
 Option of extending prior approved Indirect Cost Rate
for up to 4 years subject to app...
61
#MHMwebinar
Indirect Cost Rate
 No negotiated indirect cost rate?
 Flat rate of 10% of total direct costs for entitie...
62
#MHMwebinar
Subtitle G: Audit Requirements
 Audit Threshold changed to from $500,000 to
$750,000 of federal expenditur...
63
#MHMwebinar
Audit Report Changes
 Report questioned costs over $25,000
(previously $10,000)
 Report known or likely f...
64
#MHMwebinar
Required Elements of Auditor Findings
1. Federal program, CFFA no., year, grant number
2. Criteria on which...
65
#MHMwebinar
Required Elements of Auditor Findings (Continued)
9. Identification of whether or not it is a repeat findin...
66
#MHMwebinar
Major Program Determination
Auditors must go through a rigorous process to
determine which federal grants t...
67
#MHMwebinar
 Type A threshold is $500,000 (previously $300,000)
 Type A and Type B programs must be evaluated and
cat...
68
#MHMwebinar
 Program has not been audited as a major program
within the last two years
 Program had findings reported...
69
#MHMwebinar
Auditor must test:
 All High Risk Type A programs
 All High Risk Type B programs, but limited to 1/4th th...
70
#MHMwebinar
Compliance Requirements to be Audited
Previously included 14 different compliance requirements
A. Activitie...
71
#MHMwebinar
7 Compliance Requirements
A. Activities Allowed or Unallowed
B. Allowable Costs/Cost Principles
C. Cash Man...
72
#MHMwebinar
Data Collection Form Changes
 For 2013 audits:
 Auditors must report their EIN
 Audit findings much foll...
73
#MHMwebinar
 Resource group is evaluating NFP financial reporting
 Evaluating operating measures – one statement vs.
...
74
#MHMwebinar
 Required statement of functional expenses?
 Considering the addition of an MD&A section to the
annual fi...
75
#MHMwebinar
Regulatory and Other Developments
76
#MHMwebinar
 IRS Colleges and University Project – final results,
generally applicable to all NFP’s as it indicates wh...
77
#MHMwebinar
 400 organizations were
sent questionnaires.
Process resulted in 34
examinations.
 Primary areas of focus...
78
#MHMwebinar
 Unrelated business income
 Disallowing expenses for lack of profit motive
 Disallowing expenses for imp...
79
#MHMwebinar
 Compensation
 Most examinees attempted to meet the rebuttable
presumption standard
 Broad existence of ...
80
#MHMwebinar
 Compensation
 About 20% of examinees failed to meet the rebuttable
presumption standard because of probl...
81
#MHMwebinar
 Employment tax
 IRS looked at employment tax returns at 11 organizations
 All resulted in adjustments t...
82
#MHMwebinar
 Employment taxes
 Charitable spending – focus on organizations with high
fundraising activity but minima...
83
#MHMwebinar
 UBTI
 IRS plans to examine a sample of organizations which
reported substantial gross UBI for three cons...
84
#MHMwebinar
 On June 21, 2013, the New York State Legislature
passed the Nonprofit Revitalization Act.
 Regulating en...
85
#MHMwebinar
 Key provisions:
 Conflict of interest policies required for all nonprofits
 Whistleblower policies requ...
86
#MHMwebinar
 Hot topic of late at the federal and state
level
 New York State Governor executive
order to limit execu...
87
#MHMwebinar
 Important to understand both the general and
specific economic conditions facing the industry
 Unemploym...
88
#MHMwebinar
 Multi-dimensional
 Financial strength
 Maintaining and enhancing revenue streams
 Adapting to changing...
89
#MHMwebinar
 Charity Watchdog Agencies
 Currently 16 watchdog agencies monitoring NFPs!
 Use of quantitative measure...
90
#MHMwebinar
Questions?
91
#MHMwebinar
 Join us for these future webinars
 7/30: What’s New in Not-for-Profit Accounting and Auditing
Standards?...
92
#MHMwebinar
Laura Krueger Brock, CPA, CFE
Shareholder
727.572.1400 | lbrock@cbizkrmt.com
Laura is a Shareholder in the ...
93
#MHMwebinar
Connect with Mayer Hoffman McCann
linkedin.com/company/
mayer-hoffman-mccann-p.c.
@mhm_pc
youtube.com/
maye...
Upcoming SlideShare
Loading in...5
×

Webinar Slides: What's New in Not-for-Profit Accounting and Auditing Standards?

1,148

Published on

Original Air Date: July 18, 2013

This course will provide an update regarding accounting and auditing standards that most commonly impact not-for-profit and educational organizations. Representatives from Mayer Hoffman McCann's Not-for- Profit practice group will discuss:

Accounting and auditing standards

Fair value measurements and related disclosures
Presentation and disclosure of patient service revenue, provision for bad debts, and the allowance for doubtful accounts for certain health care entities
Disclosures about employer's participation in a multiemployer pension plan
Classification of the proceeds of donated financial assets in the cash flow
Other recent accounting standards updates
How the clarity standards will impact not-for-profit and educational organizations

Current events and ongoing projects

Changes in the new AICPA Not-For-Profit Accounting and Auditing Guide
Continued discussion and updated exposure draft related to changes in lease accounting
The biggest changes in decades to OMB Circular A-133 and the various cost principals
The FASB NFP Financial Reporting Initiative
Regulatory developments to be mindful of

Join us for this course that will focus on:

The potential impact of the accounting and auditing standards on not-for-profit and educational organizations
The potential regulatory changes that may impact the way not-forprofits account for and report information
Best practices in accounting practices and disclosures

Published in: Business, Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
1,148
On Slideshare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
15
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Transcript of "Webinar Slides: What's New in Not-for-Profit Accounting and Auditing Standards?"

  1. 1. EXECUTIVE EDUCATION SERIES: What's New in Not-for-Profit Accounting and Auditing Standards? Presented by: Shareholders Laura Krueger Brock & Patrick Quinn July 18, 2013
  2. 2. 2 #MHMwebinar  To view this webinar in full screen mode, click on view options in the upper right hand corner.  Click the Support tab for technical assistance.  If you have a question during the presentation, please use the Q&A feature at the bottom of your screen. Before We Get Started…
  3. 3. 3 #MHMwebinar  This webinar is eligible for CPE credit. To receive credit, you will need to answer periodic polling questions throughout the webinar.  External participants will receive their CPE certificate via email immediately following the webinar. CPE Credit
  4. 4. 4 #MHMwebinar Laura Krueger Brock, CPA, CFE Shareholder 727.572.1400 | lbrock@cbizkrmt.com Laura is a Shareholder in the Not-For-Profit & Education Audit Practice and has over 30 years experience in public accounting primarily with Not-For-Profit and Government clients. She is head of the public sector attest practice in the Tampa Bay office. She is a past conference chair and speaker at the annual Not-For- Profit conference of the Florida Institute of CPAs. Her subjects have included fraud, internal controls and auditing and accounting. Today’s Presenters Patrick Quinn, CPA Shareholder 401.626.3211 | pquinn@cbiztofias.com Patrick is a Shareholder in the Not-For-Profit & Education Audit Practice. He has more than 17 years of accounting and audit experience working with not-for-profit and education organizations. He performs audits and reviews of financial statements, and assists clients with analyzing and interpreting financial results as well as debt offerings and internal control matters. He is a past conference chair and speaker at the annual Not-For-Profit conference of the Rhode Island Society of CPAs.
  5. 5. 5 #MHMwebinar The information in this Executive Education Series course is a brief summary and may not include all the details relevant to your situation. Please contact your MHM service provider to further discuss the impact on your financial statements. Disclaimer
  6. 6. 6 #MHMwebinar Today’s Agenda 1 2 3 4 5 6 Accounting and auditing standards Current events and ongoing projects Changes to the AICPA NFP A&A guide The FASB NFP financial reporting initiative Regulatory and other developments OMB Circular A-133 changes
  7. 7. 7 #MHMwebinar Fair value measurements Patient service revenues Multiemployer pension plans Donated assets Other standards updates Clarity standards Theft, fraud and internal control Accounting and Auditing Standards
  8. 8. 8 #MHMwebinar The good news is there is not much new regarding fair value this year. Items of significance:  Enhanced Fair Value disclosures  Level 2 and 3 financial instruments, not under the NAV practical expedient, must disclose techniques that were used in valuation  This involves not just indicating “Level 3 inputs” but indicating what specific inputs are used. For instance, some Level 3 inputs are discounted cash flows models or market comparisons Fair Value Measurements
  9. 9. 9 #MHMwebinar  Enhanced Fair Value disclosures (continued)  The non-NAV items are generally investments such as:  Alternative investments that are not investment companies  Alternative investments reported on the tax basis or a non-US GAAP framework  Direct investments in private companies  Direct investments in real estate  Mortgage portfolios (i.e. organizations that hold employee mortgages) Fair Value Measurements
  10. 10. 10 #MHMwebinar  Enhanced Fair Value disclosures (continued)  Requires detailed disclosure of the inputs used to valuation  Disclose ranges of assumptions such as discount rates, earnings multiples, etc.  This information is required to be disclosed in tabular format  Private equity/venture capital fund financial statements should have good examples of what is required, should you need to implement something  Discuss these disclosures early on with your auditors, keeping in mind materiality Fair Value Measurements
  11. 11. 11 #MHMwebinar  Enhanced Fair Value disclosures (continued)  Supplemental fair value disclosure information for financial instruments not measured and reported at fair value:  Must now include information on how fair value was determined within the hierarchy  Also need to describe the inputs to valuation that are used (see previous slides) Fair Value Measurements
  12. 12. 12 #MHMwebinar Fair Value Measurements Fair Value Measurement The fair value of the Organization’s bonds payable approximates $98,000,000 and $96,500,000 at June 30, 2013 and 2012, respectively, based upon observable quoted market prices for the same or similar issues utilizing Level 2 inputs. The market prices utilized reflect the rate the Organization would have to pay a creditworthy third party to assume its obligation and do not reflect an additional liability to the Organization. The Organization has concluded that fair value approximates carrying value for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, and deposits given the short-term nature of these instruments. The fair values of such instruments have been derived, in part, by management’s assumptions, under Level 2 fair value methods that include discount rates and other observable inputs. Different assumptions could significantly affect these estimated fair values. Accordingly, the net realizable values could be materially different from the estimates presented on the Statements of Financial Position at June 30, 2013 and 2012. In addition, the estimates are only indicative of the value of individual financial instruments and should not be considered an indication of the fair value of the Organization. Sample disclosure for reported only items
  13. 13. 13 #MHMwebinar  ASU 2013-08, Financial Services-Investment Companies  Relates to investment companies  Clarifies the definition of an investment company  Could impact NFPs if alternative investments that Organizations invest in are now out of the scope of the Investment Company Guide, thus will no longer qualify for the NAV Practical Expedient Fair Value Measurements
  14. 14. 14 #MHMwebinar  ASU 2013-08, Financial Services (Continued)  Good news – the FASB chose not to change accounting at the real estate entity level, thus these entities use consistent fair value measurements as other investment companies and should still qualify for NAV. Fair Value Measurements
  15. 15. 15 #MHMwebinar  ASU 2013-08 (Continued)  Entities with the following characteristics generally qualify as investment companies:  More than one investor  Investors are not related parties of the investment advisor  More than one investment  Ownership interests in the fund are either equity or partnership interests Fair Value Measurements
  16. 16. 16 #MHMwebinar  ASU 2013-08 (Continued)  What can you do to assess whether this ASU will impact your organization?  Contact your investment funds to assess whether they are still considered to be “investment companies”  Examine the current financials of the investment funds, if traditional private equity/venture capital funds then this new standard is not likely an issue  If they are closely held funds with few investors, need to consider this new guidance Fair Value Measurements
  17. 17. 17 #MHMwebinar  ASU 2011-07, Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and Allowance for Doubtful Accounts for Certain Healthcare Entities  Was issued two years ago, but generally effective for fiscal 2013 for most entities  Key provisions:  Patient revenue bad debts must now be presented as a reduction of Net Patient Service Revenue  Bad debts can no longer be presented as an operating expense Patient Service Revenue
  18. 18. 18 #MHMwebinar  Key provisions (continued):  Bad debt expense from receivables Other Than patient service revenue can be presented as an operating expense  Requires enhanced disclosures about an entity’s revenue recognition and bad debt policies  Disclose, by major payor source, policy for assessing collectability in determining the timing and amount of net patient service revenue to be recognized  Disclose, by major payor source, net patient service revenue before the provision for bad debts  Provide qualitative and quantitative analysis of the changes in the allowance for doubtful accounts Patient Service Revenue
  19. 19. 19 #MHMwebinar New guidance effective for periods ending after 12/15/12 for nonpublic entities, was effective calendar 2011, fiscal 2012 for public entities Multiemployer Pension Plans
  20. 20. 20 #MHMwebinar  Disclose:  Plan name (enough info to allow users to access the Form 5500)  Funded status  Expiration dates of any collective bargaining agreements  If employer’s contributions represent more than 5% of total, disclose this fact  Contributions made to each plan  Description of any changes impacting comparability among years Multiemployer Pension Plans
  21. 21. 21 #MHMwebinar  Statement of Cash Flows Presentation – ASU 2012-05  Classify donated financial assets as inflows from operating activities if:  Upon receipt, assets were directed for sale without any limitations  Assets were converted to cash nearly immediately  Donor did not restrict the use of the assets for long-term purposes  If donor restricted for long-term purposes, such as a capital expenditure, then the donation is classified in the financing section  In all other cases (i.e. not converted to cash), classify as investing activities Donated Financial Assets
  22. 22. 22 #MHMwebinar  EITF Issue 12-B, Not-for-Profit Entities: Services Received from Personnel of an Affiliate for Which the Affiliate Does Not Charge the Recipient NFP Other Recent Accounting Standards Updates
  23. 23. 23 #MHMwebinar  Affiliate Services  Questions have arisen about whether a recipient organization should consider personnel costs incurred on its behalf by an affiliate as contributed services and apply the relevant recognition guidance.  The question was how such contributions should be measured – based on cost or an estimated fair value?  New rules effective on a Prospective basis for fiscal years beginning after June 15, 2014 (fiscal 2015, calendar 2015), can be early adopted. Other Recent Accounting Standards Updates
  24. 24. 24 #MHMwebinar  Affiliate Services (Continued)  Final ASU  Measure services at the cost recognized by the affiliate providing the services  If recognizing at cost will significantly overstate the value of the services received, then recipient NFP may elect to recognize at either:  Cost recognized by affiliate  Fair value of the service  If Health Care Entity, report the services as an equity transfer from the affiliate and increase in net assets. All others can elect where to report, but cannot report as contra-expense or contra-asset Other Recent Accounting Standards Updates
  25. 25. 25 #MHMwebinar Clarity Standards The AICPA’s Auditing Standards Board (ASB) redrafted all but one of the auditing sections in Codification of Statement on Auditing Standards (contained in AICPA Professional Standards) Resource: AICPA Financial Reporting Center
  26. 26. 26 #MHMwebinar  Exposure Draft of Proposed Statement on Auditing Standards Using the Work of Internal Auditors Released  The ASB has completed the clarity redrafting of its last AU section in AICPA Professional Standards and has issued proposed Statement on Auditing Standards (SAS) Using the Work of Internal Auditors.  This proposed SAS would supersede AU section 322 and AU-C section 610, The Auditor’s Consideration of the Internal Audit Function in an Audit of Financial Statements, and, among other amendments, would also significantly amend AU-C section 315, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (AICPA, Professional Standards).  Comments were due July 15, 2013. Clarity Standards
  27. 27. 27 #MHMwebinar  Effective for years ended on or after December 15, 2012.  The codification of the clarified standards uses section numbering established by SAS No. 122, Statements on Auditing Standards: Clarification and Recodification and contains “AU-C” section numbers.  “AU-C” is a temporary identifier to avoid confusion with the references to AU section and will remain effective through 2013. Clarity Standards
  28. 28. 28 #MHMwebinar Primary effects: 1. Opinion format 2. Opinion terminology 3. Component materiality and group audits 4. Legal inquiry letters 5. Fraud inquiries 6. Opening balances in initial audit engagements Clarity Standards
  29. 29. 29 #MHMwebinar See the sample Auditor’s Report included as a download on this webinar. Auditor’s Report
  30. 30. 30 #MHMwebinar  Fraud risks specific to NFPs  Per Association of Certified Fraud Examiners, a typical organization loses an estimated 5% of its annual revenue to fraud  Damaged reputation can have devastating consequences  Donors  Grantors  Other public sources Theft, Fraud & Internal Control
  31. 31. 31 #MHMwebinar  Management should establish fraud risk management program  Fraud risk assessment – identify the fraud schemes that could potentially occur  Consider red flags or warning signals Theft, Fraud & Internal Control
  32. 32. 32 #MHMwebinar  Changes to the AICPA Not-for-Profit Accounting and Auditing Guide  Other accounting developments  Changes to OMB Circular A-133 Current Events and Ongoing Projects
  33. 33. 33 #MHMwebinar 2013 Overhauled Audit and Accounting Guide
  34. 34. 34 #MHMwebinar  The AICPA has issued a comprehensive revision of the Audit and Accounting Guide Not-for-Profit Entities in the spring of 2013  Financial Reporting Executive Committee (FinREC)  Not-for-Profit Entities Expert Panel  Not-for-Profit Guide Task Force  First revision (other than annual conforming changes) since the Guide was released in 1996. Changes in the new AICPA NFP A&A Guide
  35. 35. 35 #MHMwebinar  Considered over 100 questions that had been asked by members who called the AICPA Help Line  Authoritative guidance from FASB Codification  Non-authoritative guidance from FinREC conclusions  Incorporated relevant nonauthoritative AICPA literature Background for New Content
  36. 36. 36 #MHMwebinar  Accounting & Financial Reporting  Basis of accounting content is from GAAP, but the Guides provide additional explanation and practical guidance  Auditing  Auditing guidance considered interpretive publication under AU-C section 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Generally Accepted Auditing Standards  “The auditor should consider applicable interpretive publications in planning and performing the audit.” AU-C 200.27 Authoritative Status of AICPA Guides
  37. 37. 37 #MHMwebinar 16 Chapters in the Guide Chapter 2 – General Auditing Considerations  Conformed to the Clarity project  Includes NFP specific guidance  Fraud risks specific to NFPs  Other guide chapters have NFP specific suggested audit procedures relating to the particular chapter’s topic Chapter Updates
  38. 38. 38 #MHMwebinar Chapter 3 – Financial Statements, the Reporting Entity, and General Financial Reporting Matters  Significantly expands guidance on interest in related entities  Summary chart of examples:  NFP entities  For-profit entities  Special-purpose leasing entities Chapter Updates
  39. 39. 39 #MHMwebinar Relationship FASB Accounting Standards Codification (ASC) Reference Discussion in This Chapter The reporting entity controls another NFP through a majority voting interest in its board and has an economic interest in that other entity. Use the guidance in FASB ASC 958-810-25-3 Paragraphs 3.67-.69 The reporting entity controls an NFP through a form other than majority ownership, sole corporate membership, or majority voting interest in the board of the other entity and has an economic interest in that other entity. Use the guidance in FASB ASC 958-810-25-4 Paragraph 3.70 The reporting entity has control over another NFP or an economic interest in the other, but not both Use the guidance in FASB ASC 958-810-25-5 Paragraph 3.71 Excerpt from Exhibit 3-2
  40. 40. 40 #MHMwebinar Chapter 3 – Financial Statement/Reporting Entity Statement of functional expenses  Required as a basic financial statement for voluntary health and welfare entities  FinREC encourages presentation by all NFPs that are supported by the general public  -NFP with contributions of 20-30% of total revenue presumed to be supported by general public (excluding gov’t support)  -Consider facts & circumstances and use judgment Chapter 4 – Cash, Cash Equivalents, and Investments  Expanded guidance on investments commonly used by NFPs with summary chart of examples Chapter Updates
  41. 41. 41 #MHMwebinar Chapter 5 – Contributions Received and Agency Transactions  Contribution vs. exchange transaction Table 5-1  Membership dues  Grants  Contribution recognition and measurement  Contributed fundraising material, info material or advertising, including media time or space  Examples – public service announcements, radio advertising, newspaper print space  Donated asset vs. donated service  FinREC recommend: Recognize a contribution in NFP has active involvement in determining and managing the message and use of the materials; otherwise not a contribution Chapter Updates
  42. 42. 42 #MHMwebinar Chapter 5 – Contributions Received and Agency Transactions (Continued)  Below-market interest rate loans  No or low-interest loan of funds is a contribution to the NFP.  Record contribution revenue and interest expense for fair value of the contribution  Fair value typically estimated at the difference between market rate interest and actual interest  Related party status doesn’t impact recording.  Recognition of contribution/interest different for long-term loan vs. due-on-demand loan  See attached examples Chapter Updates
  43. 43. 43 #MHMwebinar 1/1/2013 NFP receives 0% interest loan of $200,000 payable 12/31/2015 Market interest rate is 6% 1/1/2013 Dr. Cash $200,000 Cr. Loan Payable* (169,775) Cr. Contribution revenue** (30,225) To record receipt of loan * calculated at PV of $200k at 6% over 2 yrs ** donor restricted, release over term of loan 12/31/13, 12/31/14 and 12/31/15 Dr. Interest expense $10,075 Cr. Loan payable (10,075) To record annual interest 12/31/15 Dr. Loan payable $200,000 Cr. Cash ($200,000) To record loan repayment Example #1 – Long-term Loan from a Foundation
  44. 44. 44 #MHMwebinar 1/1/2013 NFP receives 0% interest loan of $200,000 due on demand, repaid 12/31/2015 Market interest rate is 6% 1/1/2013 Dr. Cash $200,000 Cr. Loan Payable (200,000) To record receipt of loan 12/31/13, 12/31/14 and 12/31/15 Dr. Interest expense $12,000 Cr. Contribution (12,000) To record annual interest 12/31/15 Dr. Loan payable $200,000 Cr. Cash ($200,000) To record loan repayment Example #2 – Due on Demand Loan from a Foundation
  45. 45. 45 #MHMwebinar Chapter 6 – Split Interest Agreements and Beneficial Interests in Trusts  Beneficial interest in trust held by another entity  NFP later becomes aware of trust where NFP is named beneficiary or has a beneficial interest  NFP needs to make reasonable efforts to obtain a copy of executed trust document or statement from trustee or other information about the trust  Recognize the beneficial interest in trust and contribution the first year information becomes available  Should not record a prior period adjustment if NFP made reasonable efforts and continues to make efforts to obtain necessary information Chapter Updates
  46. 46. 46 #MHMwebinar Chapter 10 – Debt and Other Liabilities  New section on tax-exempt debt based on the AICPA Audit and Accounting Guide for Health Care Entities  Expanded discussion of debt extinguishments, debt modifications, credit enhancements and other classifications Chapter 11 – Net Assets and Reclassifications of Net Assets  Provides guidance on expiration of restrictions  Use restricted contributions first Chapter Updates
  47. 47. 47 #MHMwebinar Chapter 15 – Tax and Regulatory Considerations  Expanded discussion regarding legal and regulatory environment  Discussion regarding maintaining NFPs tax-exempt status  Unrelated business income and income tax positions  State and local regulatory issues such as state charitable solicitation laws, gaming regulations and UPMIFA Chapter Updates
  48. 48. 48 #MHMwebinar  Lease accounting continues to be a topic for discussion, with continued exposure drafts and deliberation  2013 Lease accounting exposure draft  For most leases other than real estate:  Recognize a right of use asset and a lease liability, initially recognized at the present value of lease payments  Recognize and report the interest expense on the lease liability separately from the amortization of the right of use asset  For most real estate leases:  Recognize a right of use asset and a lease liability at the present value of lease payments  Recognize a single lease cost — that combines the interest on the lease liability with the amortization of the right of use asset — on a straight line basis Other Accounting Developments
  49. 49. 49 #MHMwebinar  Revenue recognition  Seems most NFPs will not be impacted given many transactions are outside of the scope given they are contributions or collaborative arrangements  Most significant changes are likely to be enhanced disclosures  Definition of a Non-Public Entity  Deliberation as to whether a distinction is necessary  Some entities are public regardless of how this turns out given the nature of their conduit debt arrangements Other Accounting Developments
  50. 50. 50 #MHMwebinar Changes to OMB Circular A-133 Why Change?  Single Audit guidance has not been significantly amended since 1996.  OMB seeks to ensure the highest integrity in the financial management and operation of federal programs and to strengthen accountability for federal dollars by improving policies that protect against waste, fraud, and abuse.  Effort to reduce ‘‘red tape’’ that is attached to the financial assistance the federal government provides annually in the form of grants and cooperative agreements.
  51. 51. 51 #MHMwebinar OMB Uniform Guidance  www.whitehouse.gov/omb/grants_docs under Proposed Policies  Replaces OMB Circulars:  A-21, A-87, A-89, A-102, A-110, A-122, and A-133  Federal Register: Reform of Federal Policies Related to Grants and Cooperative Agreements – provides a summary of changes and rationale for certain changes
  52. 52. 52 #MHMwebinar OMB Uniform Guidance Subchapters:  A through D: General and Pre Award Requirements  E: Post Federal Award Requirements  F: Cost Principles  G: Audit Requirements  H: Appendices  State/Local- Wide Central Service Cost Allocation Plans  State and Local Indirect Cost Proposals  Data Collection Form
  53. 53. 53 #MHMwebinar Subchapters A to D CFDA (Catalog of Federal Domestic Assistance) will be replaced with CFFA (Catalog of Federal Financial Assistance)
  54. 54. 54 #MHMwebinar Subchapter E: Post Federal Award Requirements Subrecipient Monitoring – no significant changes Good reminders of NFP responsibilities:  Inform the subrecipient of the CFFA title and number  Ensure the subrecipient is aware of the federal requirements  Monitor the activities of the subrecipients
  55. 55. 55 #MHMwebinar Subchapter E: Post Federal Award Requirements Procurement Standards  Must have written selection procedures for procurement transactions  May be required to submit proposed procurement to the Federal Awarding Agency except when purchase is considered a small purchase:  Small purchase threshold increased to $150,000 (previously $100,000)
  56. 56. 56 #MHMwebinar Subchapter F: Cost Principles  Salaries  Other Direct Costs  Indirect Cost Rate
  57. 57. 57 #MHMwebinar Salaries  Salaries of administrative and clerical staff should normally be treated as indirect costs (some exceptions)  Employees charged as indirect costs — no additional documentation is needed outside the normal payroll distribution system reports  Employees who work 100% on a federal grant:  Semi-annual certifications that the employee worked solely on the program for the period covered by the certification  Must be signed by the employee or a responsible supervisory official
  58. 58. 58 #MHMwebinar Salaries  Employees who work on multiple programs/activities:  Timesheets indicating the number of hours worked on the grant  or Budget estimates as long as they are subsequently reconciled to actual through an after-the-fact certification  The certification should occur no later than every 12 months OMB is exploring alternatives to time-and-effort reporting requirements
  59. 59. 59 #MHMwebinar Other Direct Costs Family leave and dependent care Clarification of allowability to the extent they are reasonable and consistent with written institution-wide policy and practice
  60. 60. 60 #MHMwebinar Indirect Cost Rate  Option of extending prior approved Indirect Cost Rate for up to 4 years subject to approval of the indirect cost cognizant agency.  Only approved if there have been no major changes in indirect costs.  If granted the entity would not be allowed to request a rate review until the extension period ends.
  61. 61. 61 #MHMwebinar Indirect Cost Rate  No negotiated indirect cost rate?  Flat rate of 10% of total direct costs for entities without the capacity for a full negotiation for no more than four years while they develop the capacity to engage in full negotiations  The catch: Must extend the indirect cost rate to subrecipients, use the 10% flat rate, or negotiate a rate in accordance w/ federal guidelines
  62. 62. 62 #MHMwebinar Subtitle G: Audit Requirements  Audit Threshold changed to from $500,000 to $750,000 of federal expenditures  Timing of single audit report submission is unchanged:  Within 30 days of report issuance  No later than 9 months after fiscal year end (ongoing discussion to change this to 6 months)
  63. 63. 63 #MHMwebinar Audit Report Changes  Report questioned costs over $25,000 (previously $10,000)  Report known or likely fraud affecting the Federal Award  Changes to required components of a finding
  64. 64. 64 #MHMwebinar Required Elements of Auditor Findings 1. Federal program, CFFA no., year, grant number 2. Criteria on which the finding is based 3. Condition found including facts supporting the deficiency 4. Cause explaining how the condition occurred 5. Effect or potential effect or potential impact 6. Identification of questioned costs, if any 7. Information to provide proper perspective 8. Documentation of how the statistical sample was drawn to support that the sample size utilized was appropriate and proportional to any findings or conclusions
  65. 65. 65 #MHMwebinar Required Elements of Auditor Findings (Continued) 9. Identification of whether or not it is a repeat finding 10.The possible asserted effect to permit granting agency to determine the cause of affect 11.Recommendation to prevent further occurrences 12.Views of responsible officials 13.Reference number
  66. 66. 66 #MHMwebinar Major Program Determination Auditors must go through a rigorous process to determine which federal grants to test. Changes to OMB Circular A-133
  67. 67. 67 #MHMwebinar  Type A threshold is $500,000 (previously $300,000)  Type A and Type B programs must be evaluated and categorized as high risk or low risk Major Program Determination Changes to OMB Circular A-133
  68. 68. 68 #MHMwebinar  Program has not been audited as a major program within the last two years  Program had findings reported in the last year (previous look back was two years)  New program to the entity  Identified by federal government as having higher risk:  ARRA  Complexity of program requirements:  Section 8 eligibility requirements Changes to OMB Circular A-133
  69. 69. 69 #MHMwebinar Auditor must test:  All High Risk Type A programs  All High Risk Type B programs, but limited to 1/4th the number of low risk Type A programs  Must meet coverage rule:  20% of total for low risk auditee (previously 25%)  40% of total for high risk auditee (previously 50%) Changes to OMB Circular A-133
  70. 70. 70 #MHMwebinar Compliance Requirements to be Audited Previously included 14 different compliance requirements A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles C. Cash Management D. Davis Bacon E. Eligibility F. Equipment and Real Property Management G. Matching, Level of Effort and Earmarking H. Period of Availability I. Procurement, Suspension and Debarment J. Program Income K. Real Property Acquisition and Relocation Assistance L. Reporting M. Subrecipient Monitoring N. Special Tests and Provision Changes to OMB Circular A-133
  71. 71. 71 #MHMwebinar 7 Compliance Requirements A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles C. Cash Management D. Davis Bacon E. Eligibility F. Equipment and Real Property Management G. Matching, Level of Effort and Earmarking H. Period of Availability I. Procurement, Suspension and Debarment J. Program Income K. Real Property Acquisition and Relocation Assistance L. Reporting M. Subrecipient Monitoring N. Special Tests and Provision Changes to OMB Circular A-133
  72. 72. 72 #MHMwebinar Data Collection Form Changes  For 2013 audits:  Auditors must report their EIN  Audit findings much follow a standard format:  2003-001, 2003-002, etc.  Instead of indicating the type of finding for each major program, each finding will be listed separately  Added a question for number of findings  PDF submissions of audit reports must be unlocked, unencrypted, and at least 85% text-searchable (a scan of a paper copy will likely not comply) Changes to OMB Circular A-133
  73. 73. 73 #MHMwebinar  Resource group is evaluating NFP financial reporting  Evaluating operating measures – one statement vs. two statement approach  Considering changing net asset classification – more aligned with operations vs. donor restrictions?  Considering changes to the statement of cash flows The FASB NFP Financial Reporting Initiative
  74. 74. 74 #MHMwebinar  Required statement of functional expenses?  Considering the addition of an MD&A section to the annual financials  Disclosure framework – perhaps condense the currently overwhelming disclosures?  Many potential changes ahead, nothing is final at this point The FASB NFP Financial Reporting Initiative
  75. 75. 75 #MHMwebinar Regulatory and Other Developments
  76. 76. 76 #MHMwebinar  IRS Colleges and University Project – final results, generally applicable to all NFP’s as it indicates what the IRS is looking at  IRS 2013 work plan  New York Nonprofit Revitalization Act  Compensation  The Economy  Charity Watchdog Agencies  Message is there are various regulators looking at the NFP sector – lots to keep on top of Regulatory and Other Developments
  77. 77. 77 #MHMwebinar  400 organizations were sent questionnaires. Process resulted in 34 examinations.  Primary areas of focus:  Unrelated business income  Executive compensation  Employment tax IRS College and University Project
  78. 78. 78 #MHMwebinar  Unrelated business income  Disallowing expenses for lack of profit motive  Disallowing expenses for improper expense allocation  Allocations between exempt and non-exempt activities must be reasonable  Reclassifying activities as unrelated  IRS reclassified certain activities as unrelated, resulting in $4 million of additional UBI IRS College and University Project How does this relate to Accounting? Uncertain Tax Positions (FIN 48)!!
  79. 79. 79 #MHMwebinar  Compensation  Most examinees attempted to meet the rebuttable presumption standard  Broad existence of compensation policies  Procedures designed to avoid conflicts of interest  Entities by and large documented the basis for setting compensation IRS College and University Project
  80. 80. 80 #MHMwebinar  Compensation  About 20% of examinees failed to meet the rebuttable presumption standard because of problems with their comparability data  Institutions not similarly situated were used – i.e. location, endowment size, revenues, net assets, # of students  Comp studies failed to document the selection criteria for schools included  Comp studies failed to specify whether data included just salary or salary and other forms of compensation IRS College and University Project
  81. 81. 81 #MHMwebinar  Employment tax  IRS looked at employment tax returns at 11 organizations  All resulted in adjustments to wages:  Failure to include in income the value of personal use of autos, housing, social club memberships and travel  Misclassification of employees as independent contractors  Failure to withhold tax for wages paid to non-resident aliens  Failure to include in income the value of certain graduate tuition waivers and reimbursements  Resulted in wage adjustments of $36 million and payroll taxes and penalties of over $7 million IRS College and University Project
  82. 82. 82 #MHMwebinar  Employment taxes  Charitable spending – focus on organizations with high fundraising activity but minimal charitable activity – looking at validity of exempt status  International activities  Ensure that assets and income of domestic charities are not diverted to non-charitable purposes when sent abroad  Ensuring compliance with recordkeeping and reporting when NFPs operate or donate funds overseas  FBAR reporting IRS Exempt Organizations 2013 Work plan
  83. 83. 83 #MHMwebinar  UBTI  IRS plans to examine a sample of organizations which reported substantial gross UBI for three consecutive tax years, but reported no income or tax due  512(b)(13) study – taxes on certain payments from controlled organizations to their parents IRS Exempt Organizations 2013 Work plan
  84. 84. 84 #MHMwebinar  On June 21, 2013, the New York State Legislature passed the Nonprofit Revitalization Act.  Regulating enhancement of NFP oversight governance.  If signed by the governor, most provisions of the act take effect on July 1, 2014. New York Nonprofit Revitalization Act
  85. 85. 85 #MHMwebinar  Key provisions:  Conflict of interest policies required for all nonprofits  Whistleblower policies required for NFPs with twenty or more employees and annual revenue of over $1 million  Annual audit is required if all of the following  Registered to solicit funds in New York  Already required to file independent accountant audit reports with the Attorney General  Annual revenue of over $500,000. If it meets all of these criteria  Does not allow an employee of an NFP to serve as chair of the board or hold a position with similar responsibilities.  Permits the board and committee members to participate in meetings by videoconference and allows meeting notices and notice waivers to be sent electronically, as well as electronic signatures on written consents. New York Nonprofit Revitalization Act
  86. 86. 86 #MHMwebinar  Hot topic of late at the federal and state level  New York State Governor executive order to limit executive compensation to $199,000 for organizations that receive funding from the state  Other states have similar bills or proposed bills limiting executive compensation. Compensation
  87. 87. 87 #MHMwebinar  Important to understand both the general and specific economic conditions facing the industry  Unemployment rate remains at 8% for 2012 conservatively representing over 12 million people  After a few years of slow growth, the U.S. economy is showing signs of recovery  Household spending increasing  Housing sector showing signs of improvement  Federal spending cuts delayed The Economy: An Overview
  88. 88. 88 #MHMwebinar  Multi-dimensional  Financial strength  Maintaining and enhancing revenue streams  Adapting to changing government funding  Controlling costs  Leadership  Day-to-day  Resource management  Succession planning  Volunteers  Mission Clarity  Measurable, positive outcomes The Economy: Organizational Sustainability
  89. 89. 89 #MHMwebinar  Charity Watchdog Agencies  Currently 16 watchdog agencies monitoring NFPs!  Use of quantitative measures (mainly from 990)  Program expense/total expense ratio  Fundraising revenue/Fundraising expenses  Try to establish governance standards  Try to establish benchmark for financial health  Charity Navigator requests "restating" for some humanitarian organizations  Updates to GuideStar to provide more information (98%of users access the “free” information) Charity Watchdog Agencies
  90. 90. 90 #MHMwebinar Questions?
  91. 91. 91 #MHMwebinar  Join us for these future webinars  7/30: What’s New in Not-for-Profit Accounting and Auditing Standards? (repeat of today’s course)  11/7: New and Emerging Business Risks for Not-for-Profit and Educational Organizations  Read these related MHM Messengers  23-12: Evolving Business Practices Spur Transition from SAS 70 to SOC Reports  12-12: An Update on Not-for-Profit Financial Reporting  9-12: FASB Emerging Issues Task Force Addresses Key Not- for-Profit Issues If You Enjoyed This Webinar…
  92. 92. 92 #MHMwebinar Laura Krueger Brock, CPA, CFE Shareholder 727.572.1400 | lbrock@cbizkrmt.com Laura is a Shareholder in the Not-For-Profit & Education Audit Practice and has over 30 years experience in public accounting primarily with Not-For-Profit and Government clients. She is head of the public sector attest practice in the Tampa Bay office. She is a past conference chair and speaker at the annual Not-For- Profit conference of the Florida Institute of CPAs. Her subjects have included fraud, internal controls and auditing and accounting. Today’s Presenters Patrick Quinn, CPA Shareholder 401.626.3211 | pquinn@cbiztofias.com Patrick is a Shareholder in the Not-For-Profit & Education Audit Practice. He has more than 17 years of accounting and audit experience working with not-for-profit and education organizations. He performs audits and reviews of financial statements, and assists clients with analyzing and interpreting financial results as well as debt offerings and internal control matters. He is a past conference chair and speaker at the annual Not-For-Profit conference of the Rhode Island Society of CPAs.
  93. 93. 93 #MHMwebinar Connect with Mayer Hoffman McCann linkedin.com/company/ mayer-hoffman-mccann-p.c. @mhm_pc youtube.com/ mayerhoffmanmccann gplus.to/mhmpc blog.mhm-pc.com slideshare.net/mhmpc facebook.com/mhmpc
  1. A particular slide catching your eye?

    Clipping is a handy way to collect important slides you want to go back to later.

×