(Following discussion of nonprofit accounting issues was posted at my other blog, Attestation Update, since the string of posts are more focused on the audit community. These comments may be helpful for the nonprofit community so the discussion is cross-posted here.)
Here are some fun or interesting or useful tidbits from the October 2018 A&A and the June 2019 Not-for-profit conferences presented by California Society of CPAs that apply to not-for-profit organizations.
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Non-attest services and Yellow Book independence. Everyone probably knows that charities with more than $2 million of revenue who are registered with the California Attorney General must have an audit. Excluded from the requirement would be religious organizations, who are exempt from registering with the AG.
That requirement was created by the Nonprofit Integrity Act of 2004, so it’s old news.
The best payoff from attending CPE conferences is to compare every piece of information you hear to what you think you know. So, here is one of the big rewards for me attending this class…
One speaker mentioned that audits under that law are required to be performed following the independence rules of the Yellow Book if the auditor provides any non-attest services.
Huh? That was new to me. Had not realized that before. (In my flimsy, weak defense, I don’t have any clients over the $2M point of revenue who aren’t religious organizations.)
I double checked, and sure enough, when providing non-attest services as part of the engagement, auditors must follow Yellow Book independence rules for NFP clients meeting those revenue thresholds.
Check out this brochure from the AG for yourself: Nonprofit Integrity Act of 2004 – Summary of Key Provisions.
Just a few other reminders, aah, in case the details of the law had, um, slipped your mind:
- Audited financials are due to the AG and available to the public 9 months after end of the fiscal year.
- The $2M revenue threshold does not include government grants.
- Covered charities must have an audit committee.
- The audit committee has specific required duties, including items such as making recommendations on the audit firm, meeting with the auditor, and approving non-attest services.
- The audit committee may include board members and may include non-board members, but no more than 50% of the audit committee members may also be members of the finance committee.
Tidal wave of new accounting. There are a lot of new accounting rules on the horizon. If you are a bit fuzzy on what that means, you might want to do some reading. Quickly.
For an overview, check out this post. Updated warning for tsunami on the horizon for charity financial statements.
Goodwill amortization. The option created by the Private Company Council to allow goodwill to be depreciated over 10 years has been extended to not-for-profit organizations. That is the first PCC item that can be used by NFPs.
ASU 2016-14. One speaker mentioned the new presentation requirements (ASU 2016-14) don’t require prior year liquidity disclosure or the grid of functional expenses (i.e. the Statement of Functional Expenses) in the year of adoption. However, previous requirements do apply for prior year to show expenses by function, just not in a grid. Obviously voluntary health and welfare entities would have to show the SOFE for the prior year.