Previous post mentioned the Assembly of the California legislature has passed Assembly Bill No. 1181 (A.B. 1181) which, if passed by the Senate, would require charities to use overseas valuations for donated items which are restricted by donors for distribution overseas.
Paraphrase of proposed changes
The wording is simple enough that readers of this blog can figure it out for themselves. I will summarize the changes anyway.
There are three main changes.
First, the AICPA and GASB are removed as authors of GAAP.
Before you hyperventilate on that idea, please keep in mind FASB has defined the Accounting Standards Codification ™ as the sole source of GAAP. Everything else, including every document from the AICPA, is an interpretation. The legislative analysis of the bill points out that fact. Removing the AICPA as a source of GAAP does not remove the authority of any AICPA documents. This conforms state law to what FASB has already declared.
Second, donated materials (GIK) that are restricted for use overseas must be valued at the fair value in the end market. If fair value is not known, an estimate can be made. If the destination country is not known, a charity values the GIK based on the fair value in the country where the GIK is “reasonably likely to be distributed.”
The core issue in one simple sentence: GIK restricted by donors for distribution overseas is valued at overseas prices, not US prices.
Third, there is a new catchall prohibition in section 12599.6 (f) (13) that valuation of GIK in audited financial statements, reports filed with the AG, and solicitation materials may not be misleading or likely to cause confusion.
That means no financials sent to donors in the state, reports to the AG (such as the RRF-1, 990, and audited financials) can be misleading in terms of valuing GIK restricted for overseas distribution. Neither can any solicitation materials sent to donors be misleading regarding valuation of GIK.
Also notice there is not a requirement for the AG to show any injury to any consumer in order to be charged with violating this prohibition.
Overwhelming approval in Assembly
The bill passed the Assembly Privacy and Consumer Protection committee by a vote of 11-0.
It passed the Appropriations committee by vote of 17-0 with one person not voting.
It passed the full Assembly on an overwhelming vote: 69-1 with 10 not present or not voting. If state rules are anything like congressional rules, there may be a parliamentary reason the minority leader voted against the legislation. There may be some procedural grounds that call for at least one no vote or for the minority leader to vote no.
Those are massive margins. I don’t follow state politics closely, but know the Assembly and Senate are quite divided on partisan lines. I don’t know if anything more contentious than a declaration there is a lot of sunshine in California could pass with that lop-sided of a vote.
Authorship and speed of approval
According to the bill analysis by the Assembly Privacy and Consumer Protection Committee, the bill was sponsored by the Office of Attorney General.
(Rhetorical question: Do you suppose, just maybe, the AG has a rather strong opinion on this issue?)
The committee analysis provides lots of background on the GIK valuation issue. I might just post it verbatim later. The discussion cites an article by Mr. William Barrett in Forbes back in November 2012 saying regulators had problems with valuation. High visibility has attended this issue for at least 7 years.
Look at the speed of this legislation:
- As mentioned above, the ALJ told the AG on December 11, 2011 he would rule in the charities’ favor based on the persuasiveness of their expert witness.
- The bill was introduced on February 21, 2019.
- The Assembly Privacy and Consumer Protection committee approved the bill on April 23, 2019.
- The Appropriations committee approved the bill on May 8, 2019.
- The full Assembly approved AB 1811 on May 13, 2019.
- The Senate read the bill on May 14, 2019 and referred it to the Rules committee.
By my calculation that is:
- 72 days from day the ALJ announcing how he would rule to the day the bill was introduced.
- 81 days from when the bill was introduced to when the Assembly overwhelming approved it.
Like I said, I don’t follow the California legislature much (actually, make that not at all), but that seems fast to me.
I’ll make a wild guess it will move through the Senate quickly.
Next post: Has time run out to clean up GIK valuation?