Posts Tagged ‘FASB’

5 Things You Need to Know About the New Not-For-Profit Accounting Standard

Emily CampbellBy Emily Campbell, MPA
Staff, Audit and Assurance Services

Last August the Financial Accounting Standards Board (FASB) released the first major changes to Not-for-Profit financial reporting since 1993. Accounting Standard Update 2016-14 includes significant impact to the look of financials for nonprofits.

If you are in a leadership position or on the board of a not-for-profit, you need to be aware of how this will affect your organization’s financial reporting process. Here are the Top 5 things you need to know about ASB 2016-14:

  1. Net Assets

ASU 2016-14 changes the net asset class structure from Unrestricted, Temporarily Restricted, and Permanently Restricted to Net Assets without Donor Restrictions and Net Assets with Donor Restrictions. This update removes the distinction between temporarily and permanently restricted net assets in an effort to simplify restrictions. In addition, FASB eliminated the “unrestricted” language to reduce confusion. Not-For-Profit entities will continue to report the change in total net assets for the period. They will also have to report changes in each of the two classes of net assets in their Statement of Activities.

  1. Expense Presentation

Not-For-Profit entities are now required to break out expenses by both nature and function. This was previously an option under GAAP, but now all entities must do so. The purpose of the update is to show how an entity’s expenses relate to their programs and to make Not-For-Profits more comparable. Additionally, investments are now presented net of investment expenses. Because of this, it will no longer be included in functional expense breakout.

  1. Statement of Cash Flows

Not-For-Profits may choose to present either the direct or indirect method of Statement of Cash Flows. If the direct method is selected by the entity, it no longer is required to prepare a reconciliation of the change in net assets to net operating cash flows. FASB’s intention was to decrease the burden placed on entities to present the same information in multiple ways. FASB also wanted to increase an entity’s flexibility to present the Statement of Cash Flows using the method that best suits the needs of the entity and its financial statement users.

  1. Increase in disclosures

Another big change with ASU 2016-14 is the enhanced disclosure requirements. The goal is to improve clarity and transparency in reporting. This includes an increase in net asset disclosures to enrich readers’ understanding of the donor restrictions. There will also be a new requirement to provide quantitative and qualitative information regarding the Not-For-Profit’s liquidity. The entity must communicate the availability of financial assets to meet cash needs for general expenditures for one year after the Statement of Financial Position date.

  1. Effective Date

ASU 2016-14 is effective for fiscal years beginning after December 15, 2017 and interim periods thereafter. Changes are to be retroactively applied, with options to omit analysis of expenses and disclosures of liquidity in the year of adoption. Early adoption is permitted, so reach out to a trusted financial expert to discuss whether early adoption is best for your Not-For-Profit.

Sponsel CPA Group has expertise in Not-for-Profit financial reporting, and can go over the new rules with you to find the best options for your organization.

If you have any questions regarding ASU 2016-14, please contact Emily Campbell at (317) 613-7873 or email

Farewell to Extraordinary Accounting

Eric WoodruffBy Eric Woodruff, CPA
Manager, Audit & Assurance Services

In January 2015, the Financial Accounting Standards Board (FASB) released Accounting Standards Update 2015-01 that eliminates the concept of “Extraordinary Items.”

The change is made in an effort to reduce complexity for financial statement preparation.

Historically, extraordinary items were defined as an event or transaction that was unusual in nature and infrequent in occurrence.

The purpose of this classification was to remove extraordinary events from operating income on financial statements so it would be clear to the user this event was truly extraordinary.

The elimination of this concept is effective for financial statement years beginning after December 15, 2015 — so the concept of extraordinary items will not be available for calendar-year 2016 financial statements.

In theory, this is a useful concept. In practice, however, transactions very rarely met the qualifications to be classified as extraordinary. As such, the removal of the extraordinary items concept from accounting principles generally accepted in the United States of America will not have a big impact on financial statement users or preparers.

The following events or transactions are listed in the FASB Codification as examples of those that did not meet the Extraordinary Item Criteria:

  • A citrus grower’s Florida crop is damaged by frost. Frost damage is normally experienced every three or four years. The standard of infrequency of occurrence based upon the environment in which the entity operates would not be met, since the history of losses caused by frost damage provides evidence that such damage may reasonably be expected to recur in the foreseeable future.
  • A large diversified entity sells a block of shares from its portfolio of securities that it has acquired for investment purposes. This is the first sale from its portfolio of securities. Since the entity owns several securities for investment purposes, it should be concluded that sales of such securities are related to its ordinary and typical activities in the environment in which it operates, and thus the standard of unusual nature would not be met.
  • A textile manufacturer with only one plant moves to another location. It has not relocated a plant in 20 years and has no plans to do so in the foreseeable future. Notwithstanding the infrequency of occurrence of the event as it relates to this particular entity, moving from one location to another is an occurrence which is a consequence of customary and continuing business activities, such as finding more favorable labor markets, more modern facilities and closer proximity to customers or suppliers. Therefore, the criterion of unusual nature has not been met and the moving expenses (and related gains and losses) should not be reported as an extraordinary item.
  • A consequence of customary and typical business activities (namely financing) is an unsuccessful public registration, the cost of which should not be reported as an extraordinary item.
  • The costs incurred by an entity to defend itself from a takeover attempt, or the cost attributed to a standstill agreement, do not meet the criteria for extraordinary classification.

If you have any questions about how the new rules could affect your financial reporting, please call Eric Woodruff at (317) 613-7850 or email

What to Do About Leases

Mike BedelBy Mike Bedel, CPA, MBA, CGMA
Partner, Director of Audit & Assurance Services

Balance sheets are changing! A new update released by the Financial Accounting Standards Board (FASB) in February of this year spells out the changes resulting from a lengthy deliberation on the treatment of leases in U.S. Generally Accepted Accounting Principles (GAAP).

The main changes will be noticeable to lessees involved in an operating lease – which is probably the most common lease arrangement we see in privately held organizations. Previously these leases were disclosed in the footnotes of the financial statements. After the changes go into effect, these leases will be recognized on the balance sheets of lessees as lease assets and lease liabilities.

The recognized lease asset represents a right to use the underlying leased asset over the term of the lease, and the recognized liability represents the obligation to make lease payments under the related lease agreement. In situations where an extension of the lease agreement terms is anticipated, the extended terms will be used to recognize the related asset and liability.

For example, if you lease a vehicle under an operating lease, the new standards will require you to recognize the value of your right to use that vehicle as an asset and the present value of the lease payments as a liability.

The good news, for now, is that these changes will not take effect until 2020 for most privately held organizations (years beginning after December 15, 2019). This provides time to prepare.

One of the main areas of concern voiced by initial readers of the new standards is that this recognition of assets and liabilities will impact financial ratios often used to manage debt covenants. By recognizing assets and liabilities that were not on the balance sheet before, the equity section of the balance sheet seems to shrink proportionally.

Now is a good time to investigate and start discussions with your trusted advisors about the impact this standard could have on any debt covenants you have with a bank or other financing institution.

The tracking of operating leases has traditionally been fairly simple. Monthly payments were made and recorded to expense. With the new standards, however, the asset will need to be adjusted with each payment and maintained more similarly to a property and equipment schedule.

Similarly, the liability arising from the operating lease payments will need to be tracked and reduced over time. For an organization with one or two leases, this will still be relatively easy. However, if your business model relies on a larger quantity of leases, this may require the purchase of additional software to track the lease assets and liabilities.

Many organizations will also want to take this opportunity to reevaluate the completeness of their list of operating leases. Where a missed lease in the past was difficult to identify, the missing asset and liability may be more impactful on the updated balance sheet under the new rules.

Finally, organizations will need to make a determination about when to implement the new lease standards. The FASB will allow early adoption of the leasing standards, but full compliance is required by 2020.

We will be sharing more technical implementation ideas about the changes in lease standards in the future. If you have any questions, please contact Mike Bedel at (317) 613-7852 or email

Changes Loom for Not-for-Profit Reporting

Lisa_Blankman_low_resThe Financial Accounting Standards Board (FASB), which establishes financial accounting and reporting standards in the U.S., has proposed significant changes to not-for-profit (NFP) reporting guidelines. While not yet approved, these new rules would represent the biggest impact on the way non-profit groups perform their financial reporting responsibilities since FASB statements in 1993.

FASB’s Not-For-Profit Advisory Committee has sought ways to make NFPs more comparable to each other through financial reporting. The changes are also intended to give donors and lenders a clearer picture of liquidity so as to better assess the financial health of the not-for-profit.

The proposed changes include:

  • NFPs would have to report all expenses by nature and function, something that currently only applies to health and welfare organizations.
  • Requiring a net presentation of investment expenses against investment return on the statement of activities, including internal salary and benefit expenses. External investment expenses netted against returns would no longer have to be disclosed.
  • NFPs must present two intermediate operating measures as defined by the dimensions of mission and availability. Mission refers to the group’s reason for existence, while availability on resources available for current-period activities.
  • The requirement to use the placed-in-service approach for the treatment of expiring restrictions on long-lived assets, thereby eliminating the possibility of releasing the donor-imposed restriction over an asset’s estimated useful life.
  • The current net asset classes of permanently restricted, temporarily restricted and unrestricted would be simplified into two classes: assets with donor restrictions and assets without restrictions.
  • Endowment funds that are currently underwater would be placed in the “with donor restrictions” class of net assets. The NFP would additionally be required to provide disclosures about the original gift amount, current fair market value and organizational spending policies.
  • Reporting cash flows for operating activities would now require the direct method, replacing the existing indirect method.
  • NFPs must provide quantitative and qualitative information for assessing liquidity, including a description of the time horizon used to manage its liquidity.

The FASB is accepting comments on the proposal through Aug. 20. If you have any concerns about these new rules, we would be happy to consult with you and assist in directing your concerns to the FASB.

If you have any questions about financial reporting for not-for-profit organizations, contact Lisa Blankman at (317) 613-7856 or email

Private Company Accounting Update: New Option for Common Control Leasing

Mike_Bedel_smallLast week during the madness of the NCAA Men’s Basketball Tournament, the Financial Accounting Standards Board (FASB) approved an opportunity for privately held companies to cease consolidating certain related entities.

The practice of consolidating “variable interest entities,” originally referred to as “FIN46,” has been one of the most discussed and disliked accounting standards implemented in the last 10 years. FASB just released Accounting Standards Update 2014-07, which provides an elective accounting alternative on consolidation requirements for certain common control leasing arrangements.

This election is available to privately held companies in situations where four specific conditions exist in their relationship with a lessor entity:

  1. The private company lessee and the lessor entity are under common control
  2. The private company lessee has a lease arrangement with the lessor entity
  3. Substantially all of the activities between the private company lessee and the lessor entity are related to leasing activities between those two entities
  4. If the private company lessee explicitly guarantees or provides collateral for any obligation of the lessor entity related to the asset leased by the private company, then the principal amount of the obligation at inception of such guarantee or collateral arrangement does not exceed the value of the asset leased by the private company from the lessor entity.

 This elective accounting alternative is available to all entities except public business entities, non-profit entities and certain employee benefit plans. When elected, it must be applied to all current and future lessor entities that meet the criteria above.

By electing this alternative, an entity will not be required to provide the traditional variable interest entity disclosures about the related lessor. In place, the FASB has established other disclosures for the private company lessee to include in their statements.

This is the third accounting standards update in 2014 designed to provide an elective accounting alternative for privately held companies. ASU 2014-02 and ASU 2014-03 were released in January 2014. Like the other two, early adoption of ASU 2014-07 is permitted for financial statements that have not yet been issued.

If you are interested in learning more about this most recent elective accounting alternative, please contact Mike Bedel at (317) 613-7852 or email

Popular Tags