Our recent webinar offered a comprehensive overview of the latest developments and standards in not-for-profit accounting, aimed at keeping our clients abreast of significant changes and challenges in the field.
Specifically, we discussed the applicability of new and future accounting pronouncements, including ASC 326, Financial Instruments – Credit Losses. We also looked back at some challenging ones, such as the leases standard and accounting for the Employee Retention Tax Credit, and covered important tax-related issues. Below provides a snapshot of the event.
We began our presentation with a GAAP update, focusing on recently implemented standards and their potential challenges. Key areas include revenue recognition, contributed nonfinancial assets, leases and COVID-related government assistance programs. A focal point of discussion centered around the implications of ASU 2016-13, which introduces significant changes in the measurement of credit losses on financial instruments under the new CECL model.
For not-for-profit organizations, CECL will primarily apply to receivables and contract assets that arise in accordance with Topic 606, or those that arise from exchange transactions. CECL does not apply to conditional contributions or promises to give (contributions and grants receivable).
Revenue recognition remains an important area of compliance for all organizations, particularly the distinctions between exchange transactions and contributions. We clarified these concepts with the help of a discussion around ASU 2018-08, which helps entities determine whether to classify their revenue as a contribution or an exchange transaction. This is crucial for not-for-profits, as it affects how they recognize and report revenue.
One of the most important indicators in determining if revenue is received in an exchange transaction or as a contribution is who receives the primary benefit. If it is the public, rather than a specified and directed entity or individual, it is a contribution. There are also incidences where revenue may have elements of both and should therefore be bifurcated between exchange and contribution recognition.
The lease accounting standard, ASC 842, requires leases to be reported on the statement of financial position, increasing transparency and comparability across organizations. This results in virtually all leases being reported on the statement of financial position as a right-of-use asset and related lease liability. In-kind donations of the use of property still fall under contribution guidance, as the contracted amount to pay is nominal. Another important update involves ASU 2020-07, which relates to the presentation and disclosure of contributed nonfinancial assets. This standard mandates these assets be presented as separate line items in the statement of activities along with enhanced disclosure requirements — which include valuation techniques. Therefore, it is important to carefully consider how in-kind donations are valued.
In our Single Audit update, we highlighted the requirements and changes applicable to the current year, along with upcoming revisions to the Uniform Guidance. Most notable is the upcoming change to the threshold for Single Audit, which will NOT be effective before fiscal and calendar years ending in 2025. Upon the effective date, the current $750,000 federal expenditure threshold will increase to $1 million.
In our tax update to our webinar audience, we covered a variety of topics. First, we discussed common revenue streams that may result in unrelated business income taxes (UBIT), including advertising revenue, rental income from debt-financed property and merchandise sales. Next, we introduced beneficial ownership information (BOI) reporting and the applicability to not-for-profit entities. BOI reporting is applicable to not-for-profit entities only if they have not received a formal tax-exempt letter for the IRS. Finally, we detailed the implications of new DOL rules under the Fair Labor Standards Act, effective July 1, 2024, which require most salaried workers who earn less than a certain threshold to be eligible for overtime pay.
As the not-for-profit world continues to evolve its compliance obligations, we are happy to bring impactful updates and insights to our clients and friends in this format and thank everyone for their participation!
Listen now to our not-for-profit webinar in its entirety!
Contact Marie Brilmyer, Sean Kilcher or a member of your service team to discuss this topic further.
Cohen & Co is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law with your professional advisers.