On Monday, February 10, 2020, the Financial Accounting Standards Board (FASB) issued a Proposed Accounting Standards Update (ASU) – “Not-for-Profit Entities (Topic 958).” The update aims to improve transparency of contributed nonfinancial assets — or more commonly referred to as in-kind donations — for not-for-profits by enhancing presentation and disclosure.

a box wrapped in pink paper with a gold ribbon tied into a bow, sprinkled with heart-shaped gold confetti; image used for blog post about proposed amendments for NFP nonfinancial assets from FASB

According to the draft of the Proposed ASU for Topic 958, the provisions would require a not-for-profit to:

  1. “Present contributed nonfinancial assets as a separate line item in the statement of activities, apart from contributions of cash or other financial assets
  2. Disclose:
    • a) Contributed nonfinancial assets received disaggregated by category that depicts the type of contributed nonfinancial assets
    • b) For each category of contributed nonfinancial assets received (as identified in (a)):
      • Qualitative information about whether the contributed nonfinancial assets were or are intended to be either monetized or utilized during the reporting period and future periods. If utilized, an NFP would disclose a description of the programs or other activities in which those assets were or are intended to be used.
      • A description of any donor restrictions associated with the contributed nonfinancial assets.
      • The valuation techniques and inputs used to arrive at a fair value measure, including the principal market (or most advantageous market) if significant, in accordance with the requirements in Topic 820, Fair Value Measurement.”

Comments are due April 10, 2020, and after the Board considers stakeholders’ feedback on the amendments, an effective date will be decided. If accepted, the amendments will be applied retrospectively to the first set of financial statements following the effective date.

For the full proposed amendments, visit www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176174168241

To learn more about how PKF Texas serves the not-for-profit sector, visit www.PKFTexas.com/NotForProfit.

In response to the American Institute of Certified Public Accountants Private Companies Practice Section’s Technical Issues Committee (TIC) request letter from May 13, 2019, the Financial Accounting Standards Board (FASB) has voted to delay effective dates for three major standards for private companies and certain other entities. These standards include accounting for leases, credit losses (known as CECL) and hedging activities.

through a window, several black rolling chairs sit around a wooden table, a meeting room, maybe for FASB voting on delaying major standards

Currently, an Accounting Standards Update (ASU) is being drafted, which will change the effective dates. This will be issued after a formal written ballot by the board, expected to occur in November. FASB members shared that one of the advantages of the delay is to “allow preparers with limited resources to learn from the implementation performed by large public companies that possess more staffing and resources.”

Continue Reading Under FASB Vote, Effective Dates for Three Major Standards are Delayed

The Financial Accounting Standards Board (FASB) issued new guidance that will allow not-for-profit organizations to elect two of the private company alternatives. This new guidance will allow not-for-profit organizations to elect to amortize goodwill and provide an option to subsume certain customer-related intangible assets and all non-compete agreements into goodwill.

These alternatives are expected to reduce the cost of accounting for goodwill and measuring identifiable intangible assets for not-for-profits as goodwill would only be tested for impairment upon a triggering event, instead of annually, and additional time and costs would not be incurred to determine the fair value of customer-related intangible assets and non-compete agreements.

Continue Reading New Guidance from FASB Impacts Not-for-Profit Goodwill

The Houston Business Journal recently published an article written by PKF Texas Audit Senior Manager and the face of the not-for-profit team, Nicole Riley, CPA, CFE, about the new Financial Accounting Standards Board (FASB) guidance.

Titled “Under new FASB guidelines do nonprofits receive contributions from governments?,” Nicole discusses how the new guidance affects governmental grants and contributions and what it means for not-for-profit organizations.

She incorporates explanation from Accounting Standard Update (ASU) 2018-08 and ASU 2014-09 to further supplement the new guidance’s impact. In addition, Nicole provides examples of the guidance’s application to different scenarios of not-for-profits’ service and contribution.

For the full article, visit www.bizjournals.com/houston.

Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, and I’m here today with Ryan Istre, an audit director and a member of the PKF Texas SEC team. Ryan, welcome back to the Playbook.

Ryan: Thanks, Jen. Appreciate it.

Jen: So, I’ve heard FASB is making some changes to share-based payment accounting. What do public companies need to know about this?

Ryan: Changes to the share-based payment accounting is happening pretty soon. A lot of companies will issue share-based payments to some of their employees, sometimes they’ll issue it to some of their consultants, and in the past, the accounting for those two may differ significantly.

Jen: It seems like that would be a little bit confusing to companies.

Ryan: It could be. The FASB issued this new standard to try to simplify the problem of divergent accounting. Now, one of the items, for example, that’s going to change with the new rules is that the point in time when you have to measure and the amount that you have to measure the compensation at, was different if it was a non-employee versus an employee. And historically it was at the commitment date, and now it’s going to be at the grant date of the actual share-based payment, so that’s going to bring the two in line and make it a little bit simpler for companies to apply.

Jen: Sounds good. Now when is this actually going to be effective?

Ryan: For most public companies, it’s going to be effective starting January 1, 2019, but an earlier option is permitted.

Jen: And what do they need to do to get ready for that?

Ryan: They just need to assess how much share-based payments they issue to non-employees and determine whether it benefits them to early adopt or to wait until the normal adoption date.

Jen: Perfect, sounds good. Well, we’ll get you back to talk about some public company information.

Ryan: Sure.

Jen: For more about this topic, visit PKFTexas.com/SECdesk. This has been another Thought Leader production brought to you by PKF Texas The Entrepreneur’s Playbook. Tune in next week for another chapter.

The Financial Accounting Standards Board (“FASB”) recently issued Accounting Standards Update (“ASU”) No. 2018-11 with targeted improvements to ASC Topic 842, Leases, to (1) add an optional transition method that would permit entities to apply the new requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption, and (2) provide a practical expedient for lessors regarding the separation of the lease and non-lease components of a contract.

Prior to the amendments in ASU No. 2018-11, the upcoming requirements in ASC 842 had to be initially applied using a modified retrospective transition method under which lessees were required to recognize lease assets and lease liabilities on the balance sheet for all leases and provide the new and enhanced disclosures for each comparative period presented. In response to constituents’ concerns about unanticipated costs and complexities, ASU No. 2018-11 now allows entities, upon initial adoption, to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Under the new optional transition method, reporting for comparative periods presented must continue to follow the guidance under existing U.S. GAAP.

Continue Reading FASB Issues Targeted Improvements to New Lease Accounting Standard

The Financial Accounting Standards Board (“FASB”) recently issued Accounting Standards Update (“ASU 2017-1”) that clarifies the definition of a business under Accounting Standards Codification Topic 805, Business Combinations, and affects all companies and other reporting organizations that must determine whether they have acquired or sold a business.

The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation.  The new standard is intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or of a business.

The amendments in ASU 2017-1 provide a more robust framework to use in determining when a set of assets and activities is a business.  They also provide more consistency in applying the guidance, reduce the costs of application, and make the definition of a business more operable.  Specifically, ASU 2017-1 provides a “screen” to determine when a set of assets and activities is not a business.  The screen requires that when substantially all the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set of assets and activities is not deemed a business.  This screen reduces the number of transactions that need to be further evaluated.  Under the ASU, if the screen is not met, the amendments: a) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output, and b) remove the evaluation of whether a market participant could replace missing elements.  The ASU also provides a framework to assist entities in evaluating whether both an input and a substantive process are present.

According to FASB Chairman Russell Golden, “Stakeholders expressed concerns that the definition of a business is applied too broadly and that many transactions recorded as business acquisitions are, in fact, more akin to asset acquisitions.”  Golden continued, “The new standard addresses this by clarifying the definition of a business while reducing the cost and complexity of analyzing these transactions.”

For public companies, ASU 2017-1 is effective for annual periods beginning after December 15, 2017, including interim periods within those periods.  For all other companies and organizations, the ASU is effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019.  Early application of the ASU is allowed as follows:

  • For transactions for which the acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance
  • For transactions in which a subsidiary is de-consolidated or a group of assets is derecognized that occur before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance.

Details can be found at www.fasb.org/News&Media/InTheNews

Contact me at cschweiger@pkftexas.com or any other member of your PKF Texas service team for more information.

Last week, the Financial Accounting Standards Board (FASB) issued a GAAP alternative which allows private companies to elect not to consolidate variable interest entities (VIEs) in common control leasing agreements.

Who is affected by this update?

This applies to all entities other than a public business entity, a not-for-profit entity, or an employee benefit plan within the scope of topics 960-965 on plan accounting.

Why is this important?

The new guidance allows a private company to elect—when certain conditions exist—not to apply VIE guidance to a lessor under common control. Instead, the private company would make certain disclosures about the lessor and the leasing arrangement.

According to FASB, “This will improve financial reporting for users of private company financial statements, while reducing the cost and complexity associate with applying VIE guidance to leasing arrangements under common control. The alternative is intended to help lenders and other users better align the information used in assessing the financial information using financial statements.”

Where can I learn more?

The ruling is on the FASB website.  They also have a brief video from Larry Smith and Larry Weinstock, FASB and Private Company Council board members, explaining the update.

PKF Texas can help you interpret if and how it is applicable to your business.

Jen: This is PKF Texas the Entrepreneurs Playbook. I’m Jen Lemanski, and I am back again with Danielle Supkis Cheek, a director and one of the faces of our PKF Texas Consulting team. Danielle, welcome back the Playbook.

Danielle: Always happy to be here.

Jen: So, we’ve had a few other directors in here talking about lease accounting, and I know the standards have changed a little bit since the last time we had—I think it was Chris Hatten was here. Can you give us a little bit of an overview about what’s happened with the delayed lease accounting standards?

Danielle: Yeah sure. The AICPA’s Technical Issues Committee actually wrote an unsolicited letter to the FASB requesting an extension related to… it was really mainly tied to… that we have a lot going on with the Revenue Recognition implementation, I think we talked about the past. And then adding it to the leases, the leases can change your balance sheet a lot, and I think we’ve had a lot of people talking about the implications to your balance sheet of the actual standard, that it can impact your covenants or various ratio analysis.

Continue Reading Get Started on Lease Accounting Now!