Upload
hoangkiet
View
226
Download
5
Embed Size (px)
Citation preview
4/28/2014
1
MACPA’s 2014 Government & Not-for-Profit Conference
New Audit Guide: The AICPA’s Overhauled Audit and Accounting Guide,
Not-for-Profit Entities
1
Ellen K. Hobby, CPA, CAEChief Operating Officer, Chief Financial Officer
National Academy for
State Health Policy
(202) 903-2784
2
MACPA’s 2014 Government & Not-for-Profit Conference
4/28/2014
2
NEW Audit Guide: Agenda
To help you better understand the AICPA’s Not-For-Profit Guide Overhaul project:
Learn how the Guide has changed
Understand auditor objectives and expectations
Hear issues, scenarios and interpretive conclusions
3
AICPA Audit and Accounting Guide –Not-For Profit Entities
4
The Guide can be purchased at:
http://www.cpa2biz.com/AST/Main/CPA2BIZ_Primary/AuditAttest/IndustryspecificGuidance/NotforProfit/PRDOVR~PC-012645/PC-012645.jsp
4/28/2014
3
Focus of the NFP Guide
Not-for-profit entities
GAAP-basis financial statements
Audited financial statements
Provides assistance in the unique preparation, auditing, accounting and reporting of NFP financial statements
5
Issuance of Overhauled 2013 Guide
The AICPA 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
6
4/28/2014
4
Issuance of Overhauled 2013 Guide
New edition released on March 1, 2014
Includes additional guidance on: Reporting donated services between affiliated NFP’s
Split interest agreements
Contributions and grants
Functional expenses and joint costs
Includes FASB ASU No. 2013-06 Not-for-Profit Entities (Topic 958): Services Received
from Personnel of an Affiliate; a consensus of the FASB Emerging Issues Task Force
7
Issuance of Overhauled 2013 Guide
Includes FASB ASU No. 2012-02 Intangibles – Goodwill and Other (Topic 350): Testing
Indefinite-Lived Intangible Assets for Impairment
8
4/28/2014
5
Source of New Guide Content
Considered over 100 unique questions asked by members who called the AICPA Help Line
Authoritative guidance from FASB Codification
Non-authoritative guidance from FinREC conclusions
Incorporated relevant non-authoritative AICPA literature
NFP-related Technical Questions and Answers (TIS) section 6140
AICPA White Paper on Fair Value Measurement
Alternative investments TIS section 2220.18–.27
9
Authoritative Status of AICPA Guides
Accounting & Financial Reporting
Basis of accounting content is from GAAP, but Guide provides 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
10
4/28/2014
6
Guide: Table of Contents
Chapter 1 – Introduction
Chapter 2 – General auditing considerations
Chapter 3 – Financial statements, the reporting entity, and general financial reporting matters
Chapter 4 – Cash, cash equivalents, and investments
Chapter 5 – Contributions received and agency transactions
Chapter 6 – Split-interest agreements and beneficial interests in trusts
Chapter 7 – Other assets
Chapter 8 – Programmatic investments
Chapter 9 – Property and equipment
Chapter 10 – Debt and other liabilities
Chapter 11 – Net assets and reclassifications of net assets
Chapter 12 – Revenues and receivables from exchange transactions
Chapter 13 – Expenses, gains, and losses
Chapter 14 – Reports of independent auditors
Chapter 15 – Tax and regulatory considerations
Chapter 16 – Fund accounting
Appendices
11
Chapter 1: Introduction
Lists types of entities covered by the audit guide
Basis of accounting – GAAP!
Definition of fund accounting vs. net asset classes
Other resources for financial reporting by NFP’s
12
4/28/2014
7
Chapter 2: General Auditing Guidance
Conformed to the Clarity project; includes NFP-specific guidance (e.g. fraud risks specific to NFPs)
Other guide chapters have NFP-specific suggested audit procedures relating to the chapter’s topic
13
pReporting Entity, and General Financial Reporting Matters
Expanded guidance and FinREC Comments Financial Statements Reporting Related Entities Mergers & Acquisitions; Collaborative
Arrangements; Use of Fair Value; and Disclosures
14
4/28/2014
8
Chapter 3: continued
Financial Statements & Presentation Issues
Sequencing assets according to nearness of conversion to cash How is this impacted by restrictions?
Classified Balance Sheet – helpful observationsAssets restricted to payment of LT debt is noncurrent to
extent they exceed current portion of debt
If governing board identifies specific assets to be invested/held to a designation for noncurrent purposes, these assets would also be noncurrent
15
Chapter 3: continued
Significantly expanded guidance on interests in related entities
Summary chart of examples that reference to sections of both the Guide and the FASB ASCNFP entities
For-profit entities
Special-purpose leasing entities
16
4/28/2014
9
17
Chapter 3: continued
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 publicCost benefit, preparation and auditing
NFP with contributions of 20-30% of total revenue presumed to be supporteed by general public (excluding government support)
Consider the facts and circumstances and use judgment
18
4/28/2014
10
ASU 2012-05 – Statement of Cash Flows – Sale Proceeds of Donated Financial Assets
If donated financial asset was converted nearly immediately to cash upon receipt
Requires NFPs to classify cash receipts from the sale of those financial assets as cash inflows from operatingactivities
Unless the donor restricted the use of the contributed resources to long-term purposes, which are financing
Otherwise, classify as investing activities
19
20
4/28/2014
11
Chapter 4: Cash, Cash Equivalents and Investments
Not all “cash” is cash!
Discussion of centralized cash management arrangements
Significantly expanded guidance on common investments held by NFPs
Recommended guidance on investment expenses
21
Chapter 4: continued
Accounting for investments where
NFP is the general partner in a for-profit partnership
NFP is a limited partner in a for-profit partnership NFP holds derivative instruments NFP has an interest in an investment poolOther specific situations
22
4/28/2014
12
Excerpt from Exhibit 4-1
23
Chapter 5: Contributions Received and Agency Transactions
Receipt of resources by a NFP – is it a contribution or an exchange transaction?
Flowchart (Table 5-1)
Table of indicators (FASB ASC 958-605-55-8)
When elements of both are present, divide the transaction in two, measuring exchange first
Examples
Membership Dues
Grants
University athletics
Naming opportunities
24
4/28/2014
13
Contributions vs. Exchange Transactions
25
Chapter 5: continued
Grants
Use Table 5-1 to determine if grant is contribution or exchange based on the facts and circumstances
If contribution – consider if any conditions exist, consider donor restrictions
If exchange – determine revenue recognition
NFP should establish accounting policy for grants so they are accounted for consistently
Government grants Apply the above guidance
FASB Not-for-Profit Advisory Committee topic
26
4/28/2014
14
Chapter 5: continued
Membership Dues Is the value received by the member commensurate with the
dues paid?
Often elements of both contribution and exchange Measure the exchange portion first and recognize as revenue as the earning
process is completed
Remainder is a contribution, recognize as revenue upon receipt
Performing Arts The Kennedy Center
$ free parking
$$ access to private receptions
27
Chapter 5: continued
University Athletics Some universities offer “perks” for higher levels of
donation. For example:$ support student athletic experience
$$ university logo jacket
$$$ passes to stadium skybox
$$$$ travel with the team to an away game
28
4/28/2014
15
Chapter 5: continued
Naming Opportunities May be accompanied by additional rights & privileges
Is it acknowledgement of a gift or advertising?Donor sponsors a faculty position
Donor sponsors a major event
Building named after a significant donor
29
Chapter 5: continued
Recognition and Measurement of Contributions Contributed fundraising material, informational
material, or advertising, including media time or space
Administrative costs of restricted contributions
Below-market interest rate loans
30
4/28/2014
16
Chapter 5: continued
Contributed Fundraising Material, Info Material, or Advertising, Including Media Time or Space
Examples –radio advertising time, newspaper print space
Donated asset, not a donated service –Record contribution even if the asset would not typically
needed to be purchased if not provided by donation
FinREC recommends: Recognize a contribution if NFP has active involvement in determining and managing the message and use of the materials; otherwise not a contribution
31
Chapter 5: continued
Administrative costs of restricted contributions Policy of designating a certain % of restricted gifts to
offset the costs of raising and administering those giftsExample – Policy that 5% of contributions to scholarship fund
go to pay administrative costs; so $95 of a $100 gift is restricted for the scholarship fund
Policy needs to be effectively communicated to or from the donor prior to receipt of the contribution If not, then 100% of gift should be donor restricted
32
4/28/2014
17
Chapter 5: continued
Below-Market Interest Rate Loans No or low-interest of funds is a contribution to the
NFP
Record contribution revenue and interest expense for fair value of the contributionFair value typically estimated at difference between market
rate interest and actual interest.
Related party status doesn’t impact recording
Recognition of contribution /interest different for long-term loan versus due on demand loan
33
Chapter 5: continued
Example 1 – Long-term Loan from a Foundation On 1/1/2013 NFP receives 0% interest loan of
$200,000 payable on 12/31/2015
Market interest rate is 6%
34
4/28/2014
18
Chapter 5: continued
Record receipt of loan -1/1/2013 DR Cash $200,000
CR Loan payable (200,000)
Record annual interest and contribution (same entry also booked at 12/31/2014 and 12/31/2015)12/31/2013 DR Interest expense $12,000
CR Contribution Revenue (12,000)
Record repayment of loan12/31/2015 DR Loan payable $200,000
CR Cash (200,000)
35
Chapter 5: continued
• Loans - Other issues Government loans at below-market interest
rates Forgivable Loans
36
4/28/2014
19
Chapter 6: Split Interest Agreements and Beneficial Interests in Trust
Beneficial interest in a trust held by another entity – Questions:
What if NFP isn’t notified about trust until years after it is created?
What if NFP is unable to obtain information to verify it is named as an irrevocable beneficiary?
What if NFP is unable to obtain information to measure the beneficial interest?
37
Chapter 6: continued
Answers: NFP generally needs the following information in
order to record beneficial interest in the trust:Copy of executed trust document, statement from the trustee,
or other information to verify existence
Sufficient information about the trust in order to value it (e.g. trust assets, payout rate/amount, age of life beneficiaries)
Make reasonable efforts to obtain necessary information
38
4/28/2014
20
Chapter 6: continued
Answers, continued: Recognize beneficial interest in the trust and
contribution revenue in the first year the necessary information becomes available.
Should not record a prior period adjustment if the NFP made, and continues to make, reasonable efforts to obtain necessary information
39
Chapter 7: Other Assets
Inventory
Acting as an Agent in a Sale of Commodities
Prepaid Expenses and Deferred Costs
Collections and Works of Art and Historical Treasures
Goodwill
Intangible Assets Other than Goodwill
40
4/28/2014
21
Chapter 8: Programmatic Investments (New!)
Programmatic investments are any investment by an NFP that meets the following two criteria:
Its primary purpose is to further the tax exempt objectives of the NFP.
The production of income or the appreciation of the asset is not a significant purpose (that is, an investor seeking a market return would not enter into the investment).
Similar to program-related investment, IRS Sec. 4944(c).
41
Chapter 8: continued
Specific examples discussed in the chapter:
LoansLow or no interest loans
Forgivable loans
GuaranteesGuarantee provided without commensurate return
Equity investmentsOften no contribution element
42
4/28/2014
22
Chapter 8: continued
Core Considerations Determine when the initial transaction occurs whether
the investment is programmatic
If there is a contribution element, report it as contribution expense
Use GAAP for similar financial instruments, except for the contribution element, if any
Significance of the investments and the quantitative and qualitative risks determine the type of financial statement presentation and the extent of disclosures
43
Chapter 9: Property and Equipment
Contributed Property and EquipmentUse of P&E Owned by OthersCapitalized Interest Expiration of Restrictions on Property and
Equipment Impairment or Disposal of Long-lived
Assets Asset Retirement Obligations
44
4/28/2014
23
Chapter 10: Debt and Other Liabilities
New section on tax-exempt (municipal bond) debt based on the AICPA Audit and Accounting Guide Health Care Entities
Expanded discussion of credit enhancements, debt extinguishments, debt modifications, and classification
45
Chapter 10: continued
Public Entity - Any entity that meets any of the following conditions: Its debt or equity securities trade in a public market either on a
stock exchange (domestic or foreign) or in an over-the-counter market, including securities quoted only locally or regionally.
It is a conduit bond obligor for conduit debt securities that are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local or regional markets).
It files with a regulatory agency in preparation for the sale of any class of debt or equity securities in a public market.
It is required to file or furnish financial statements with the Securities and Exchange Commission.
It is controlled by an entity covered by criteria above.
46
4/28/2014
24
Chapter 10: continued
Fair Value Measurement
Municipal Bond Financing and Other Long-term Debt
Conduit Bonds that Trade in the Public Markets
Credit Enhancement
Extinguishment and Modification Transactions
Calls and Made Conversions
Defeasance
Bond Modifications and Exchanges
Debt Issuance Costs
Puts/Tender Options
IRS Considerations
47
Chapter 10: continued
Tax Liabilities
Deferred Revenue
Refunds Due to and Advances from Third Parties
Promises to Give
Split-Interest Agreements
Amounts Held for Others Under Agency Transactions
Revenue Sharing and Other Agreements
Guarantees
Contingencies
Pension and Other Defined Benefit Postretirement Plan Obligations
Multi-employer Plans
48
4/28/2014
25
Chapter 11: Net Assets and Reclassifications of Net Assets
Significantly expanded guidance on expiration of restrictions
Using restricted contributions first
Restrictions met in the same year as the contribution was received
Promises to give, including implied time restriction on multi-year pledges
Gifts of long-lived assets or gifts for their purchase
Donor restricted endowments (e.g. term endowments)
49
Chapter 11: continued
Expiration of restrictions on promises to give By specifying future payment dates donors indicate that
their gift is to support activities in each period in which a payment is scheduled (i.e. an implied time restriction)
Time restrictions lapse when the receivable is due; gift becomes available for the donor-specified purpose
If the gift is for the construction or purchase of a specific long-lived asset, the donor supports activities of the period in which that asset is constructed or placed in service, even though the payment dates may extend beyond that period.
50
4/28/2014
26
Chapter 12: Revenues and Receivables from Exchange Transactions
Modest expanded guidance
FASB Revenue Recognition Project
Guidance on Conceptual Principles
When is revenue recognized?
Revenue vs. gainsGains commonly result from transactions or other events that
involve no earnings process
Exchange Transactions
Loan Receivable Examples
51
Chapter 13: Expenses, Gains and Losses
Fund-raising costs
Financial Aid and Other Reductions in Amounts Charged for Goods and Services
Advertising Costs
Start-up Costs
Contributed Use of Facilities
Functional Reporting of Expenses
52
4/28/2014
27
Chapter 14: Reports of Independent Auditors
Reports on Financial Statements
Unmodified Reports
Modified Reports
Gong Concern
Supplementary Information
Reports Required under Government Auditing Standards and OMB Circular A-133
53
54
The Board of DirectorsThe Global Not-for-profit
Report on the Financial StatementsWe have audited the accompanying financial statements of The Global Not-for-profit (GNFP), which comprise the statements of financial position as of June 30, 2013 and 2012, and the related statements of activities and cash flows for the years then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to GNFP’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of GNFP’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Global Not-for-profit as of June 30, 2013 and 2012, and the changes in its net assets and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
[Auditor’s signature][Auditor’s city and state][Date of the auditor’s report]
4/28/2014
28
Chapter 15: Tax and Regulatory Considerations
Greatly expanded discussion about legal and regulatory environment
Maintaining the NFP’s tax-exempt status
Unrelated business income and income tax positions
State and local regulations issues (state charitable solicitation laws, state and local gaming regulations, UPMIFA)
55
Chapter 16: Fund Accounting
Few Changes
Fund Accounting: Is it still needed?
Converting Fund Balances to Net Asset Classes
Current funds
Plant funds
Loan funds
Endowment funds
Annuity funds
56
4/28/2014
29
Resource Decision Tree
57
Own the resource?
Unrestricted?
Current Operations?
Plant Funds?
Board designated-endowment or other?
Restricted?
Expendable?
Purpose restriction?
Current Operations?
Plant Fund?
Time restriction?
Expendable Term
Endowment?Income
restricted?
Expendable in future year?
Non-expendable?
Endowment?Income
restricted?
Split interest agreement?
Purpose restricted?
Affiliate?
Agency?
58
Unrestricted Net Assets
Temporarily Restricted Net
Assets
Permanently Restricted Net
Assets
Current Unrestricted The general operating budget. It contains no restricted resources.
Current Restricted Only if entity adopts policy to record “restricted” receipts as UNA if expended in the same period
Donor restricted funds available for current operations E.g., restricted gifts and restricted endowment spending accounts.
Loan Funds Loans available to students under the Federal Perkins Loan program.
Established by donors that become fully expendable w/ the passage of time or lifting of restriction
Established by donors [if funds to be used for loans perpetually] that are available to students
4/28/2014
30
59
Unrestricted Net Assets
Temporarily Restricted Net
Assets
Permanently Restricted Net
Assets
Endowment Funds Underwater portion of Donor-endowment, or UMIFA: Accumulated and reinvested endowment return whose income use is unrestricted
Accumulated and reinvested endowment return whose income use is restricted by donor; also term endowments
The endowment corpus or original historic gift value of endowment gifts. Includes perpetual trusts controlled by 3rd parties.
Quasi-endowment Funds or Board-designated endowments
Board has designated unrestricted and expendable funds to function as an endowment.
Board has designated funds to function as an endowment that were from expendable restricted gifts
Life Income Funds (deferred giving trusts and annuities)
Charitable gift annuities where purpose restrictions do not exist.
Time or purpose restriction exists but is expendable upon maturity
The fund remainder is designated as a permanent endowment
60
Unrestricted Net Assets
Temporarily Restricted Net
Assets
Permanently Restricted Net
Assets
Plant Fund-Unrestricted
Funds designated for department capital replacement/renewal, campus repair, and debt service
Plant Fund-Restricted
Donor restricted funds available for the acquisition of long-lived / capital assets
Investment in Plant Includes land, building, and equipment and related liabilities. Depreciation expense is recorded in this fund
Long-lived assets acquired by restricted gifts and policy adopted to imply a time restriction on the long-lived asset & release restriction over life of asset
4/28/2014
31
Questions….
61
Resources
AICPA Financial Reporting Whitepaper: Measurement of Fair Value for Certain Transactions of Not-for-Profit Entities(Link is for AICPA Members Only)
Update No. 2013-06—Not-for-Profit Entities (Topic 958): Services Received from Personnel of an Affiliate (A Consensus of the FASB Emerging Issues Task Force)
Update No. 2012-05—Statement of Cash Flows (Topic 230)
62
4/28/2014
32
Resources
Update No. 2012-02—Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment
Financial Accounting Standards Board (FASB) Website
Alternative Investments – TIS Section 2220.18-.27
AICPA AU-C Section 200
AICPA – Improving the Clarity of Auditing Standards
63
Ellen K. Hobby, CPA, CAEChief Operating Officer, Chief Financial Officer
National Academy for
State Health Policy
(202) 903-2784
64