AB 1181 was approved by California Assembly on a 56 to 0 vote. Their vote concurs with changes by the Senate yesterday, which means the bill has been passed by the legislature.
Final vote count: 31 in favor, 8 opposed, 1 no vote recorded. Holding the vote on call drew an additional 3 ayes, 1 nay, and 1 NVR.
First report 2:30 p.m. on 9/11: AB 1181 passed the California Senate on a 28 to 7 vote with the bill moved on call, which means the 5 members who did not vote will be able to vote. Even if all vote no, the bill will still pass.
Update 4 p.m. on 9/11:
Senator John Moorlach, who is a California CPA in good standing, opposed the bill. He wished the bill had gone to two additional committees since it would be in their area of responsibility.
He suggested the bill should be postponed until FASB addresses the issue. He mentioned the Nonprofit Working Group formed by FASB and their efforts to address the issue.
An amendment to AB 1181 establishes an effective date of January 1, 2021 for the revised reporting requirement to go into effect.
My understanding (for whatever that may be worth!) is that bills passed by the California legislature go into effect on January 1 of the following year unless there is an urgency clause, in which case the bill goes into effect immediately.
This means the new reporting requirement to value donated medicine restricted by donors for distribution overseas at the overseas values would be effective on January 1, 2020. This further means (if my thought process is correct) that reports filed with the Registry of Charitable Trusts in 2020 would have to be compliant. This finally means that financial statements for years ending 12/31/19 would have to reflect the new valuations.
That is a really, reaaaaaally short time to implement.
A revision to AB 1181 posted on September 6, 2019 sets the effective date at January 1, 2021.
It does two other things.
First, retains the AICPA as an official source of GAAP. Um, this might be a surprise to those of us who have read the ASC, but that is topic for another day. Might also be a surprise to FASB and FAF.
That definition of the AICPA as an official source of GAAP expires on January 1, 2021.
Second, the AG is authorized to “adopt rules and regulations” needed to carry out the new valuation requirement.
Now that the bill has been amended again, it has to go back to the Senate floor for second read. That is scheduled for Monday 9/9/19. Having watched the Senate action a bit over the last two weeks, it will take a few moments at the start of the session to do a second read of every bill in that status. (That’s a few moments as in “the bills listed for second read are deemed read.”)
After that official step the bill may be called up for third reading and voted on during that reading.
At least that is my newly found understanding. If I’m missing something, let me know.
Amendments made on 9/6/19
I will quote the changes made on September 6, 2019 so you may see the change for yourself and assess whether my description is accurate.
No GAAP violation but charitable solicitations are misleading – – Preliminary Decision issued for appeal of California AG’s Cease & Desist Order against MAP International, Food for the Poor, and Catholic Medical Mission Board.August 30, 2019, 8:13 am
A Preliminary Decision has been written by the administrative law judge (ALJ) hearing the appeal over the California Attorney General’s cease and desist order (C&DO) against MAP International (MAP), Food for the Poor (FFP), and Catholic Medical Mission Board (CMMB).
I have obtained and read a copy of the Preliminary Decision for each of the charities.
Top line summary: The ALJ concluded the charities did not violate GAAP in their accounting but did find their charitable solicitations were misleading and deceptive.
This will be a long read at over 3,400 words so you might want to get a fresh cup of coffee.
Two other notes. References to “Complainant” mean the California Attorney General. This post will focus on the content of the decisions with lots of quotations and minimal interpretation. Several longer posts are needed to interpret, explain, and describe the implication of this case. I may add more discussion later. As I see others discuss this case, I’ll try to link to those discussions.
After describing the decisions, responses from each charity are listed.
I’m a bit fuzzy on the where this goes from here. It is seems obvious to me that the ruling is not yet effective. I will string together a bunch of guesses on the next steps. Anyone bold enough to correct my wildly aimed guesses is welcome to do so.
So here go my guesses – – I think the decision will not go into effect until it is accepted or modified by the Attorney General. So my guess is the AG will issue a letter declaring the Preliminary Decision in effect or reissue a modified C&DO or take some other specified action to make the decision effective. I’ll guess some sort of additional communication is also necessary to address a variety of technical issues not covered in the decision, such as address to send the check, contact point for future communications, consequences of violating the C&DO, and notice of appeal options.
The Preliminary Decisions say the charities must pay the penalty 30 days after the effective date. There is a separate requirement to provide a copy of the decision to all officers, directors, and employees within 15 days of the effective date.
Since one charity (MAP) indicates in their response to me that they will appeal, I’ll guess their appeal will be filed soon after the effective date, well before that 15 day time frame expires. I’ll also make an even bigger guess that given the strength of the proposed sanction on how to refer to program ratios, the other charities will also file an appeal.
Background on timing
In December 2018, the ALJ gave verbal explanation that he would rule in favor of the charities on the issue of whether the their financial statements complied with GAAP.
In January and February 2019 additional written briefs were submitted by the Attorney General (AG) and charities on whether the written appeals sent to citizens of the state were accurate or misleading.
On April 24, 2019 additional oral arguments were heard.
Then on May 24, 2019 the administrative law judge (ALJ) issued his preliminary ruling for each of the cease and desist orders.
Food for the Poor
California Senate does not take up AB 1181 on 8/26, but does provide a carve out from GAAP for escrow companies.August 26, 2019, 8:56 pm
Although AB 1181 (which would change accounting for donated medicine which donors restrict from use in the U.S.) was scheduled for a vote today, the Senate choose not to take up the bill. They addressed maybe around half or more of the bills on the schedule.
Next session was announced as Friday, August 30. Perhaps they will address 1181 then.
Another carve out from GAAP
AB 412 was passed by the Assembly on 76-0 vote and passed today by the Senate overwhelmingly. Didn’t jot down the vote, but think there were probably zero votes in opposition.
Escrow companies in the state are required to have liquid assets greater than current liabilities by $25,000. Makes sense.
Escrow companies are required to submit audited financial statements that comply with GAAP. Good idea.
Wow. Things are happening fast.
AB 1181 is scheduled as item 201 of 250 for the California Senate’s floor session at 2 p.m. this upcoming Monday, 8/26/19.
World Vision is now neutral on AB 1181.
Three of the five analyses prepared for AB 1181 contain a list of the organizations supporting and opposing the legislation. A comparison of the lists shows key changes.
Two items that jump out at me: first, growth and change in composition of charities opposed; second, the number of accounting groups opposed.
Charities in opposition
Forty-eight charities opposed the bill according to the 6/28/19 analysis (posted 7/8/19) prepared for the Senate Judiciary Committee.
On the 8/19/19 analysis (posted 8/21/19) prepared for the Senate floor vote, the count of opposed charities was again 48.
New to the list is Habitat for Humanity.
Dropped from the list in opposition is World Vision.
Of particular note is that a representative of World Vision had previously testified in opposition to the bill.