Non-profit accounting

Behold the creativity of cheaters.

Need to fabricate an excuse to bail on your meeting? There’s an app for that. Image courtesy of Adobe Stock.

I am continually amazed at the creativity of cheaters. A few examples in the news recently:

  • Restaurant offering receipts with menu items relabeled as office supplies
  • Generate disruptions to get out of a zoom meeting
  • Fake Covid test results

I mentioned these for the laughter value and more importantly for the educational value.

The stories are amusing. If you work in the finance area or are leading an organization, having an awareness of these schemes might help you recognize one if presented to you.

Your entertainment and anti-fraud training for the day:

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Jim Ulvog

Increased disclosures for gifts-in-kind required by new accounting rule.

Image courtesy of Adobe Stock.

In September 2020 the Financial Accounting Standard Board issued ASU 2020-07.  Formal title for the document is Not-for-Profit Entities (Topic 958) – Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets.

Contributed nonfinancial assets means gifts-in-kind. The ASU does not apply to donated services or donated financial assets such as stocks and bonds.

ASU 2020-07 will only change the presentation of GIK on the statement of activity and require additional disclosures in the notes. It will not require any change to the valuation of donated pharmaceuticals (accountants call that recognition).

You can get your own copy of ASU 2020-07 here.

Statement of activity

The total of GIK will need to be presented as a separate line within the revenue & contribution section of the statement of activity, separate from donated cash and any donated financial assets.

Note disclosures

There are a number of new note disclosures which will be required for gifts-in-kind:

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Jim Ulvog

A few highlights from CalCPA’s Not-for-profit Conference.

Image courtesy of Adobe Stock.

Listened to CalCPA’s virtual Not-for-profit conference today.

Lots of great stuff during the sessions. Three items were worth sharing on Twitter during the day. Thought I’d share them here as well:

How to account for PPP forgiveness.

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Jim Ulvog

Forgiveness of PPP loans.

Image courtesy of Adobe Stock.

There are lots of details and nuances to the federal Paycheck Protection Program. I’m not up to speed on PPP so I won’t be commenting on the program, especially the forgiveness rules.

There is a growing volume of information on the ‘net describing the program. Here are some resources you can check out to learn more.

SBA forgiveness application

5/15/20 – Small Business Administration – Paycheck Protection Program Loan Forgiveness Application,” Small Business Administration, – The SBA published the text of the forgiveness application.

Commentary on forgiveness application

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Jim Ulvog

Guidance from SBA for faith-based charities applying for PPP loans.

Image courtesy of Adobe Stock.

If you are in leadership or on the finance team of a faith-based not-for-profit organization, you really, really need to read the Faith-Based Organizations FAQ From The Small Business Administration:

The document is dated 4/3/20.

Read this document if you have applied or are thinking about applying for a loan under the Paycheck Protection Program.

An issue in the back of many people’s mind is whether any federal assistance under this program will infringe on religious freedom. I think you will be quite pleasantly surprised by reading the FAQ.

Please read the article. You might want to make a copy for your file.

Jim Ulvog

Legal issues arising from the pandemic. It’s gonna’ get messy…

Time to read that insurance policy. Image courtesy of Adobe Stock.

ECFA presented a webcast Navigating Critical Legal Issues in the COVID-19 Crisis on 4/7/20. If this condensed summary of issues is at all interest to you, check out their website,www.ECFA.org. Webcast is now available at no charge if you are a registered member or if you are an ECFA member. Registered status is free.

I won’t be giving any legal advice here. Instead I will merely identify issues for you to consider. Consult with your attorney if you need to go in depth.

A long yet partial list of legal issues to consider

Intentionally assess whether you perceive taking a PPP loan under the SBA rules will have any effect on your ability to exercise your religious freedom. Webcast provides good guidance.

OSHA – there are general rules under federal OSHA and state equivalent regulations affecting the workplace. These may be more significant in a coronavirus environment.

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Jim Ulvog

Pondering impact of coronavirus prevention steps on a charity’s financial statements. An auditor’s perspective.

Image courtesy of Adobe Stock.

If you are on the finance team of a not-for-profit organization and have a December 31 year end, you are likely working with your CPA on the annual financial statements. Or, you may have just released your financials to lenders and donors.

If so, very soon your CPA may be having an uncomfortable conversation about what we CPAs call ‘subsequent events.’ Those are things that happen after the end of the year and are so significant that the events might need to be disclosed in the financial statements.

In the last week or so, major sectors of the U.S. economy have been shut down for the immediate future.  These actions will have a radical impact on certain industries and a mere dramatic impact on other industries. There may be direct impact on many charities, (such as performing arts companies, or conference centers). There will likely be indirect ripple effects on lots more charities.

To help you ponder the possible impact on your organization, read the following comments. The discussion is focused on other industries, but consider whether the broad trend might affect your charity.

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Jim Ulvog

Financial fallout from fiascos at Willow Creek Community Church and Harvest Bible Chapel

Willow Creek Church by Mary Fairchild is licensed under CC BY-SA 2.0

If you read this blog and haven’t yet tuned in to the disasters at Willow Creek Community Church or Harvest Bible Chapel, it would be worth your time to do so. It is painful to read of the fiascos in those high profile churches, but those of us working in or serving the Christian community need to pay attention and learn.

Bill Hybels resigned from Willow Creek in April 2018.

James MacDonald was released from Harvest in February 2019.

There has been a lot of coverage of both situations. Because there is so much here to learn, I want to write about both situations. To this point, I’ve only written a few twitter comments pointing to some of the coverage.

An article on 2/13/20 in Christianity Today provides some information from the ripple effects on finances and attendance: Willow Creek and Harvest Struggle to Move On / The departures of Bill Hybels and James MacDonald leave churches waiting for new leadership and hoping to rebuild trust.

I will try something new for this post. Following discussion was first written for Twitter. Will try bringing that into a blog post. Let’s see how it works. My comments on Twitter:

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Jim Ulvog

Summary of GIK exposure draft

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FASB has provided an explanatory article and video for the exposure draft on gifts-in-kind disclosures.

The ED would require presenting GIK on a separate line of the statement of activity and additional disclosures in the notes. Most significant new disclosure would be the valuation techniques and inputs used for calculating value of the GIK.

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Jim Ulvog

FASB releases exposure draft on presentation and disclosure for gifts-in-kind.

    Image courtesy of FASB under Fair Use.

The exposure draft will require the amount of donated nonfinancial assets to be disclosed on a separate line in the statement of activities.  Some additional disclosures will be required. The main new disclosure is the technique and inputs used to value the GIK along with the principal market for the items.

The draft is titled Not-for-Profit Entities (Topic 958) / Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets.

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Jim Ulvog

Cost to develop one new drug

Federal Trade Commission Building in Washington, DC. Image courtesy of Adobe Stock.

How much does it cost for a pharmaceutical company to get one new drug onto the market? As with all variations of “what does it cost” questions the answer is complicated. Any such answer requires explanation of what the calculation means.

Other posts discussing this issue:

According to a 2016 study by Tufts Center for the Study of Drug Development, here is their calculation of what it takes to get one compound to the point of where it is approved for sale:

  • $1.395 billion – out-of-pocket costs – actual cash expended at the point approval is obtained to sell the compound
  • +$1.163 billion – “time costs”, in other words the capitalization of having to invest more than a billion dollars over many years – this represents the opportunity cost of having otherwise been able to invest that money in something else that would have produced a return earlier
  • =$2.558 billion – total capitalized cost at point of receiving approval to sell one compound
  • +0.312 billion – costs incurred for follow-up required by FDA as a condition of obtaining approval – this includes factors such as monitoring long-term side effects, monitoring safety, looking at new formulations or dosage strength
  • =$2.870 billion – total lifecycle costs to develop one new medicine that is approved by the FDA for sale

The study was based on a random selection of 106 drugs from 10 pharmaceutical companies. Since that is a random selection presumably the calculation would apply to all medicines.

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Jim Ulvog

Update on exposure draft for increased GIK disclosures

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FASB update presentation today (12/19/19) indicated the GIK disclosures project is moving forward as previously outlined.

An exposure draft is expected to be released in January 2020.  There will be a 60 day comment period.

Previous post described the outline and limited scope of the project as approved by FASB:

In condensed form, the project will require separate disclosure of donated goods on the face of the statement of activities and require some additional disclosures in the notes. There will not be any change in valuation of donated medicine.

Jim Ulvog

More articles on GIK valuation. The issue isn’t going away.

Image courtesy of Adobe Stock.

Nicola White, writing at Bloomberg Tax, has several articles following up on the GIK valuation issue after the veto of California AB 1181 by the governor. If you have been following the issue, you will want to check her recent writing.

End of this post discusses the departure from FASB of a project manager long involved with nonprofit rulemaking.

The articles, with a few highlights:

11/4/19 – Bloomberg Tax – Small Fixes Eyed for Charity Accounting as California Backs Off – Article describes why FASB is strongly resistant to any change in GIK valuation.

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Jim Ulvog

FASB provides outline for new disclosures on GIK

Image courtesy of Adobe Stock.

On November 6, 2019, FASB discussed the GIK valuation project.

Back on August 21, 2019, FASB set the scope for the project to include only nonfinancial GIK with measurement (that means valuation) off the table. Staff was directed to work toward an exposure draft (ED) that would address only presentation and disclosure. That means an ED will only describe how GIK is presented on the statement of activity and what information is explained in the notes.

According to minutes of the 11/6/19 meeting, available here, FASB ratified that previous scope.

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Jim Ulvog