Colorado has over 23,000 Not-for-profit entities and private foundations, one for every 250 people living within its borders. These entities provide vital community services and contribute greatly to enhancing the vibrant communities we enjoy. They also work tirelessly to advance solutions for the many challenges we face in our society and give an advocate’s voices to the people they serve.
Large and small not-for-profits alike are required to file annual reporting with the Internal Revenue Service to maintain their status and those that raise funds must register/file annually with the State. Many Colorado not-for-profits also chose to issue annual financial reports. The reports typically include Audited or Reviewed financial statements. Financial statements for not-for-profits, although similar to for-profit financial statements, have several significant twists and special requirements designed to make the statements more beneficial to boards, members and donors.
From time to time the Financial Accounting Standards Board, which sets accounting standards for all entities in the United States, issues an Accounting Standards Update ("ASU") to modify or improve the quality of reporting. While not-for-profits all experienced the recent presentation changes resulting from ASU 2016-14, there are a few additional happenings that we’d like to keep on your radar. Whether you’re a not-for-profit director or board member preparing for your upcoming audit or review or simply a donor looking to better understand the entities you support, these are important updates for consideration.
NEW ASU EFFECTIVE DECEMBER 15, 2019
ASU 2018-08: Not-for-Profit Entities (Topic 958): Clarifying the Scope and The Accounting Guidance for Contributions Received and Contributions Made.
This accounting standard was issued to help clarify the differences between contribution (nonreciprocal transactions) and exchange revenue (reciprocal transactions) and to assist in determining whether a contribution is conditional.
Who is affected by this update? Any entity that receives or makes contributions. For Not-for-Profit entities the update will require an additional analysis of all contributions and grant agreements, under the new framework, to determine proper recognition.
This ASU is effective for most not-for-profits for annual reporting periods beginning after December 15, 2019.
DEFERRAL OF FASB STANDARDS
ASU 2014-09: Revenue from Contracts with Customers (Topic 606)
ASU 2016-02: Leases (Topic 842)
Any not-for-profit that did not adopt ASU 2014-09 related to revenue recognition for their 2019 fiscal year-end may defer adopting the update to reporting periods beginning after December 15, 2019 (December 31, 2020 year-ends and those following).
ASU 2014-09 impacts not-for-profit entities that have significant exchange revenue. Exchange revenue would include any contracts with customers where the not-for-profit entity is receiving payment in exchange for goods or services provided to that customer.
Any not-for-profits that have leases will adopt ASU 2016-02, the updated lease accounting standard, for reporting periods beginning after December 15, 2020 (December 31, 2021 year-ends and those following).
The updated lease accounting standard came about to bring “off balance sheet” assets and liabilities onto the balance sheet. The ASU requires, amongst other things, that a right-of-use asset and related liability be recorded on the balance sheet for each lease.
Now is a great time to contact your trusted advisor at Reese Henry to begin the discussion of potential impacts of these changes to your organization’s accounting and financial reporting.