Title: FASB Up-date For the Government
1FASB Up-dateFor the Government Nonprofit
Sections 2008 Mid Year Meeting in San Antonio
- Presented by
- Teresa P. GordonUniversity of
Idahotgordon_at_uidaho.edu208-885-8960
2Uncle Sam is Watching NFPs
- Charitable reform still on the
Congressional agenda - Reforms to Red Cross governance structure
- GAO report on uncompensated care and community
benefits provided by hospitals - Senate Finance Committee - Endowment info
requested from CUs with endowments gt 500
million
3Key Issues Ill Cover
- Revisions in Form 990
- New standards impacting NFP entities
- UPMIFA
- Other standards in progress at FASB
4and
improved
Radically redesigned with many more
schedules For 2009 filings(fiscal years
beginning in 2008)
Form 990
5Compensation reporting now based on W-2 and Form
1099
- Part I, number of employees volunteers
- Part V, number of W-2 and 1099 forms issued
- Part VII, Reports on compensation of officers,
directors, key employees, and five highest paid
employees (gt 100K) - Schedule J Discloses compensation for all
(other) individuals with reportable compensation
greater than 150K or total compensation of 250K - Part IX - Statement of functional expenses will
still be based on fiscal year
6Partial list of schedules
- Schedule A - Public Charity Status and Public
Support. - Schedule D - Supplemental Financial Statements.
- Schedule E - Schools
- Schedule F - Statement of Activities Outside the
United States. - Schedule G Supplemental Info Regarding
Fundraising - Schedule H - Hospitals
- Schedule J - Compensation Information.
- Schedule K - Supplemental Information on Tax
Exempt Bonds. - Schedule L - Transactions with Interested
Persons. - Schedule M Non-cash Contributions
- Schedule R - Related Organizations and Unrelated
Partnerships.
7Overall Analysis of Changes?
- An exciting bonanza of new information for future
researchers! - Corporate governance compensation
- Fund raising noncash contributions
- Schedule D almost like notes to FS!
- A burden on charities to prepare many more
schedules and disclose more information - Donors should benefit from clearer information on
the cover page
8Recent FASB publications relevant to
not-for-profit organizations
- FAS155, Accounting for Certain Hybrid Financial
Instruments - FAS157, Fair Value Measurements
- FAS158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans - FAS159, The Fair Value Option for Financial
Assets and Financial Liabilities - FIN48, Accounting for Uncertainty in Income Taxes
- FSP FAS 126-1, Applicability of Certain
Disclosure and Interim Financial Reporting
Requirements for Obligors of Conduit Debt
Securities - EITF 06-2, Accounting for Sabbatical Leave and
Other Similar Benefits Pursuant to FASB Statement
No. 43 - EITF 06-3, How Taxes Collected from Customers
and Remitted to Governmental Authorities Should
Be Presented in the Income Statement (That Is,
Gross versus Net Presentation)
9How a NFP can be a public entity
- FSP FAS 126-1 - An entity that is an obligor for
conduit debt securities that are traded in a
public market meets the definition of a public
entity - Result
- Required disclosures under FAS60 (oil gas) and
FAS126 (financial instruments) - APB28 Interim reporting
- FAS109 FIN48 Income taxes
- Pension disclosures (FAS132R, FAS158)
- Both NFP industry audit guides
10Statement 157Approach to Measuring Fair Value
Highest and Best Use
11From Journal of Accountancy, November 2007
article by Miller and Bahnson
12Statement 157, Resource Slide 7Fair Value
Hierarchy
Level 1 Quoted prices in active markets for identical assets/ liabilities (unadjusted) no blockage factors (Price x Quantity)
Level 2 Other observable inputsinclude quoted prices for similar assets/ liabilities (adjusted) and market-corroborated inputs
Level 3 Unobservable inputsentitys own assumptions about market participant assumptions, including assumptions about risk, developed based on the best information available in the circumstances (subject to cost-benefit constraint) might include the entitys own data
13FAS157 particular issues for NFPs
- FAS116 All contributions are recorded initially
at fair value, with the exception of certain
collections and contributed services - FAS124 Most investments are carried at fair
value. - FAS136 Requires assets held in a trust to be
carried at fair value - Valuation issues restrictions on assets
14Partial delay on FV implementation
- FSP-FAS157-2 (issued Feb 14, 2008)
- Provides for delayed application for certain
nonfinancial assets and nonfinancial liabilities
until fiscal years beginning after November 15,
2008 - Examples
- Impairment of assets, asset retirement
obligations implementation deferred - Land carried in investments at fair value
deferral does not apply
15FAS158 Recognition Provisions
- Funded status on balance sheet
- Net periodic benefit cost unchanged
- Reconciling amounts between funded status and
cumulative amounts recognized in net periodic
benefit cost - Gains and losses
- Prior service costs and credits
- Transition assets and liabilities
- Separate line item(s) apart from expenses
- Either within or outside an intermediate measure
of operations
16Derivatives Fair Value Option
- Rules on derivatives, hedging and the fair value
option (FAS159) could affect NFPs - Many CUs have interest rate swaps where FV
option might be used - Another DIG item (B35) is related to the kind of
split-interest agreements (life-income and gift
annuities) that many NFPs have - In this case, permitted use of current interest
rates would be simpler than bifurcation
17FIN 48 Uncertainty in Income Taxes
- Applies to all entities, including NFPs
- Unrelated taxable income
- For-profit subsidiaries
- Jeopardized tax-exempt status?
- Assumes all tax positions will ultimately be
examined by knowledgeable authorities
IRS
18FIN 48 Uncertain Tax Positions
- The key points in the Interpretation are
- A tax benefit may be reflected in the financial
statements only if it is more likely than not
that the company will be able to sustain the tax
return position, based on its technical merits - A tax benefit should be measured as the largest
amount of benefit that is cumulatively greater
than 50-percent likely to be realized
IRS
19FIN 48 Inventory of tax positions
- Ability to sustain tax-exempt status for entity
as a whole (are activities consistent with
mission?) - Justification for classifying certain types of
revenues as not subject to taxes on unrelated
income - Potential intermediate sanctions for salaries
and other issues - Interest on unrecognized tax benefits that are
not deemed more likely than not
20FSP FIN48-2 (issued 2/1/08)Effective Date of
FASB Interpretation No. 48 for Certain Nonpublic
Enterprises
- FIN48 deferred for many but not all nonprofits.
Now to be implemented for fiscal years beginning
AFTER 12/15/07 - Not-for-profit that has publicly traded conduit
debt is defined to be a PUBLIC entity and must
apply FIN 48 for fiscal year 2007-2008 - See definition in amended FAS109 glossary (289)
21Coming Soon!
- Proposed FSP SOP 94-3-a and AAG HCO-a Omnibus
Changes - Consolidation and equity method issues for NFPs
- NFP Mergers Acquisitions
- Revised limited ED in 2nd Qtr 2008
- Final versions to be issued later in 2008
- Proposed FSP on UPMIFA
22NFP Mergers Acquisitions ProjectAnother ED
this spring
- Tentative Merger ? Acquisition
- Merger means original entities cede control to a
new entity - Carryover method for mergers
- Otherwise, acquisition method must be used
- Other issues for re-deliberation
- Donor-related intangible assets
- Goodwill
- Definition of a business or non-profit activity
Pooling
Purchase
23Codification identifies gaps and discrepancies
- FSP SOP 94-3a and AAG HCO-a
- Eliminate temporary control exception to
consolidation - Require equity method for investments in
for-profit partnerships LLCs unless carried at
fair value - Confirm applicability of several decisions
regarding leases - EITF 07-1 (pending)
- Equity method not permitted for virtual joint
ventures
24Uniform Prudent Management of Institutional
Funds Act (UPMIFA)
- Approved July 2006 to replace 1972 UMIFA
- Modernizes the law around investment management
and endowment spending - Thus far, enacted by 13 states and being
considered for enactment by several others (see
table in handout) - Eliminates the concept of historic dollar value,
in favor of more robust guidance on what
constitutes prudent endowment spending - More short-term flexibility to handle declining
investment markets - Optional 7 rebuttable presumption of imprudence
25Lone Star Differences
- UPMIFA is unique in Texas
- Spending gt 7 is the rebuttable presumption of
imprudence EXCEPT FOR - Endowments less than 1 million, spending
threshold gt 5 - Endowments over 450 million,spending threshold
gt 9
26UPMIFA Issues
- How will SFAS 117 and 124 be applied in states
that adopt UPMIFA? - What amount of an endowment will be considered
permanently restricted? - Will the concept of underwater endowments as
described in SFAS 124 be relevant in states
following UPMIFA?
27Proposed FSP No. FAS 117-a
- Tentative Title Not-for-Profit Endowments Net
Asset Classification under the Uniform Prudent
Management of Institutional Funds Act and
Enhanced Disclosure Requirements - Objectives
- Provide guidance on net asset classification of
donor-restricted endowment funds for
not-for-profit organizations subject to UPMIFA - Improve disclosures about an organizations
endowment funds (both donor-restricted and
board-designated), whether or not the
organization is subject to UPMIFA
28Proposed FSP FAS 117-as Disclosure Requirements
- Description of governing boards interpretation
of relevant law underlying net asset
classification - Endowment spending policy
- Endowment investment policy
- Composition of endowment by net asset class with
roll-forward by net asset class - Planned endowment distribution for next year
29Sample Endowment Composition Disclosure(presented
for each balance sheet date)
30Sample Endowment Roll-Forward Disclosure(presente
d for each statement of activities period)
31Proposed FSP FAS 117-a Comment Period and
Effective Date
- Proposed FSP to be released in mid-February for
60-day public comment period - Will be available on the FASBs website
www.fasb.org - Final FSP expected to be issued in mid-June
- Would be effective for fiscal years ending after
June 15, 2008, with early adoption (e.g., for May
31st year ends) permitted.
32Ongoing Projects of Interest to Not-for-Profit
Sector
- Conceptual Framework
- Financial Statement Presentation
- Revenue Recognition
- Leases
- Postretirement Benefit Obligations, including
Pensions (Phase 2)
33Who sets standards?
search
- Convergence and related issues
34Changing Structure at FAF, FASB and GASB?
- More sources of nominees for FAF with final
decision made by trustees. Size would be 14 to 16
each serving a single 5-year term. - Reduce the size of the FASB from seven members to
five, simple majority to pass standards (3 to 2) - FASB ( GASB) chairs given authority to set
technical agenda.
35Long-term Even bigger issues!
- As FASB and IASB converge, what will be the role
of FASB? - IASB does not set standards for not-for-profit
entities - IPSASB (International Public Sector Accounting
Standards Board) does not set standards for
not-for-profits - Does that leave FASB as the not-for-profit
standard setter?
36For a copy of these slides
- From my web sitehttp//www.cbe.uidaho.edu/tgordo
n - From the first page, click on presentations
- Or send email to tgordon_at_uidaho.edu