There is always something new related to accounting for non- profit organizations (NPOs) and often it is hard to keep up with new accounting rules and requirements when you are in the trenches of your non-profit organization. To keep you informed, here are just a few of the more recent developments:
NPO Cash Flow Statements – Proceeds from the Sale of Donated Financial Assets
The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-05 in October 2012, effective for years beginning after June 15, 2013, although early adoption is permitted.
This ASU requires a non-profit to classify cash receipts from the sale of donated financial assets (such as marketable securities) consistently with cash donations received in the statement of cash flows as follows:
Fair Value Disclosures for Financial Instruments
The FASB issued ASU 2013-03 in February 2013, effective upon issuance, which is specific to private companies and non-public non-profit organizations. This ASU clarifies the scope and applicability of ASU 2011-04 related to fair value measurement. ASU 2013-03 clarifies that the disclosure for the level of the fair value hierarchy within which the fair value measurements are categorized (Level 1, Level 2 or Level 3) does not apply to non-public entities for items that are not measured at fair value, but for which fair value is disclosed. This is important if you have a financial instrument measured and recorded at cost, but the fair value is disclosed in the footnotes. Note that this does not change the disclosure requirements for marketable securities measured at fair value, which still must be categorized by level of the fair value hierarchy within the disclosures.
There had originally been additional requirements under ASU 2010-06 to include expanded information about transfers between Levels 1, 2 and 3 for assets reported at fair value. However, this was modified by ASU 2011-04 less than a year later which no longer required information about transfers between Level 1 and Level 2 for non-public entities or information about the sensitivity of a fair value measurement within Level 3 to changes in unobservable inputs.
Auditing Standards Board Clarity Standards
Although the clarity standards are more focused on what your auditor is doing, you will see a few new things during your audit this year. Most significantly, your engagement letter, auditor’s opinion and management representation letter should look different from last year, with the changes being focused towards identifying management’s responsibilities and the auditor’s responsibilities more clearly. Additionally, if you receive reports on internal controls and compliance under Government Auditing Standards and OMB A-133, these reports will look significantly different from your reports last year.
Overhaul of the Audit and Accounting Guide for Not-for-Profit Entities
In late 2012, a revision of the A&A Guide was released for review and comments from the public. This provided additional guidance related to gifts-in-kind, reporting relationships, municipal bond debt, and reporting the expiration of donor-imposed restrictions, among other topics. No final guide has been released at this time.
The Office of Management and Budget (OMB) Circular A-133
We have previously shared the reform to audit requirements that could increase the requirement to have a single audit from $500,000 to $1,000,000 in federal expenditures in one fiscal period. Additionally, for those entities expending between $1 million and $3 million in federal expenditures, only two compliance requirements would need to be tested. No final decision was made on this reform after comments were received.
The next step in the OMB’s federal grants improvement initiative was to release a second document for comments, which proposes broad revisions to OMB A-133. This summary includes a proposed increase for the single audit threshold to $750,000, up from the current $500,000 of federal expenditures requirement, but less than the $1,000,000 requirement initially suggested. There are additional changes proposed related to major program determination – this is the process your auditor goes through to determine which programs need tested as a major program. There are also suggested changes to the percentage of coverage of testing, an increase in the questioned cost threshold, changes in the criteria for low-risk auditee status and a potential reduction in types of compliance requirements to be tested.
The new suggested revisions are available for review and comment until May 2, 2013 at the following: