Transcript Slide 1

WSU Accounting & Auditing Conference
Not-For-Profit Update
Shelly L. Hammond
Vice President, Assurance Services
Allen, Gibbs & Houlik, L.C.
[email protected]
Objectives
• FASB updates: new for 2010
• FASB updates from 2009: reminders and
best practices
• New OMB Circular A-133 & related
compliance guidance
FASB update: ASC 740 (FIN 48)
• Uncertain tax positions
• Effective date: years ending December 31,
2009
• Model for recognizing, measuring,
presenting and disclosing tax positions
• Application to NFPs: two universal tax
issues:
– Exempt status
– Unrelated business income tax (UBIT)
FIN 48
• Exempt status
– Claiming tax exempt status without
corresponding proof of recognition of exempt
status from federal / state authorities
– Substantial activities not related to activities that
formed basis of original exemption
– Egregiously high compensation to insiders
– Egregiously undervalued asset sales to insiders
– Website links to political campaign activity
websites outside scope of allowable lobbying
activities
– Other substantial lobbying activities where entity
does not have a 501(h) election in place
FIN 48
• UBIT
– Treatment of an income flow as exempt when
it should be subject to tax
– Over-allocation of expenses against UBI
– Not filing returns in local, state or other
jurisdictions for UBI
– Dual use of facilities and personnel; expenses
not allocated on a reasonable basis
– Positions taken related to use of NOLs
generated from UBI
FIN 48
• Step 1: Recognition
– Determination of whether it is more likely than
not (MLTN = >50%) that a tax position will be
sustained on taxing authority examination
• Step 2: Measurement
– If tax position meets MLTN threshold, measure &
recognize the largest amount of benefit that is
greater than 50% likely of being realized upon
settlement by taxing authorities
– Tax positions not meeting the MLTN threshold
should not be recognized
FASB update: ASC 958-805 and 810 (FAS 164)
• NFP entities: mergers & acquisitions
• Effective date:
– For mergers where merger date is on or after
a reporting period beginning December 31,
2009
– For acquisitions where acquisition date is on
or after annual reporting period beginning
after December 31, 2009
FAS 164
• Guidance on how an NFP determines if a
transaction is a merger vs. acquisition
• Applies “carryover method” in accounting
for a merger
• Applies “acquisition method” in accounting
for an acquisition, including determination
of which entity is the acquirer
• Provides for additional disclosures
FAS 164
• Merger
• The governing bodies of two or more NFPs
cede control of those entities and create a
new NFP entity
• Acquisition
• An NFP obtains control of a NFP or business
FAS 164
• Carryover method: combining the assets
and liabilities recognized in the separate
F/S of the merging entities as of the
merger date
• Acquisition method: same as that
described in Topic 805 (Business
Combinations)
FAS 164 Disclosure & Presentation
• Merger: Forms a new reporting entity, which had
no activities prior to the merger date
– Merger itself shall not be reported as an activity
of the new NFP’s initial reporting period.
– Disclose name of merging entities, merger
date, reasons for the merger, amounts of
assets / liabilities recognized on merger date,
any adjustment made to conform accounting
policies.
• Acquisition: Similar to disclosures under ASC 805
– Additionally: qualitative factors, such as
expected synergies from combining operations;
conditional promises to give acquired or
assumed
FASBs from 2009: reminders
• FAS 165 (ASC 855) – Subsequent Events
– Effective for periods ending after June 15,
2009
• FAS 157 (ASC 820) – Fair Value
Measurements
• FSP 117-1 (ASC 958-205-45/50) –
Endowments
FAS 157
• NFP resources:
– ASU 2009-12 on alternative investments
• Use of Net Asset Value (NAV) for fair value
– AICPA draft Issues Paper from January 2010:
addresses unconditional promises to give,
beneficial interests in perpetual trusts, split
interest agreements
FAS 157
• Not all assets / liabilities measured at FV must
be included in the tabular disclosures
– Only those subject to subsequent re-measurement
• Yes: investments, beneficial interests, asset
impairments
• No: contributions (pledges) receivable, split-interest
obligations (generally)
• No need to “look through” to how underlying
investments categorized by investment manager
– Determine “unit of account” – which is the actual
investment held (not the underlyings) – generally
ownership interest in the fund
FAS 157
• ASU 2009-12: allows use of NAV as practical
expedient for FV if NAV is as of the entity’s
balance sheet date, and is computed in
accordance with Investment Companies Guide
– Use for hedge funds, private equity funds
– Provides guidance on Level 2 vs. 3 classification
(redeemable vs. not)
– Requires disclosure about attributes of investment:
redemption restrictions, investment strategies
– Effective for period ending after December 15, 2009
FAS 157
• AICPA Draft Issues Paper:
– Contributions (pledges) receivable
• Discussion of valuation techniques and factors to consider
in determining FV, including risk factors to be considered
if using a present-value technique (i.e., risk-adjusted
discount rate)
– Split interest agreements / obligations
• Prior to FAS 157, FV estimated using income approach
(present-value techniques) – Issues Paper discusses
other approaches, and appropriate discount rates if using
PV technique
– Perpetual trusts
• FV measured using the FV of assets contributed to the
trust – Issues Paper addresses situations where this may
not be the case
FSP 117-1
• Endowments / classification of net assets
• Application of UPMIFA
• Donor-restricted endowments vs. boarddesignated endowments
• New disclosure requirements
FSP 117-1
• Donor-restricted endowments:
– Permanently restricted portion
– Amounts in excess of permanent restriction
are all temporarily restricted
• Net appreciation is time-restricted until
appropriated
• Reclass to unrestricted upon appropriation, if no
purpose restriction by donor
• If purpose-restricted, reclass to unrestricted net
assets only when spent or deemed spent
FSP 117-1
• Disclosures:
– Description of governing board’s interpretation of laws
(may require legal advice on application of UPMIFA
laws)
– Description of the entity’s spending policy
– Description of the entity’s endowment investment
policies
– Composition of endowment funds (separating donorrestricted from board-designated)
– Reconciliation of beginning / ending balances
– Nature and types of restrictions
– Information on deficiencies (where FV of assets is less
than the level required by donor stipulations)
FSP 117-1
• Under-water funds:
– In the absence of donor stipulations or law, losses on
investments of donor-restricted endowment funds shall
reduce temporarily restricted net assets, with
remaining losses reducing unrestricted net assets.
– Gains that restore donor-restricted endowments shall
be classified as increases in unrestricted net assets.
– For board-designated endowments, losses are
classified as reductions in unrestricted net assets (no
donor restrictions).
OMB Circular A-133 update
• Resources:
– GAQC website
– GAQC Recovery Act Resource Center
• Implementation of SAS 115: changes to
GAS and A-133 opinion language
• New AICPA sampling chapter issued in
December 2009
OMB Circular A-133
• New Compliance Supplement to be issued
in May
• Expect clarification on major program
determination for ARRA programs.
– Specific Type A and B criteria
• Official statement of no low-risk auditee
status when filing late (no extensions either)
Questions?
Thank you!
Shelly L. Hammond
Vice President, Assurance Services
(316) 267-7231
[email protected]