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

March 14, 2020, 9:50 am

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

February 15, 2020, 10:42 am

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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Summary of GIK exposure draft

February 12, 2020, 8:48 am

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

February 11, 2020, 11:18 am

    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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Cost to develop one new drug

January 13, 2020, 7:00 am

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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Federal mileage rates for 2020

January 2, 2020, 6:00 am

Image courtesy of Adobe Stock.

On 12/31/19 the IRS published the reference amounts for mileage rates for 2020. Their announcement:

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Update on exposure draft for increased GIK disclosures

December 19, 2019, 11:17 am

Image courtesy of Adobe Stock.

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.