Twenty-five years ago, I attended the first annual AICPA National Not-for-Profit Industry Conference at the Washington, D.C. Grand Hyatt. There were 14 sessions highlighted by FASB member Robert J. Swieringa’s presentation on recent pronouncements that included Statement 116, Accounting for Contributions Received and Contributions Made, and Statement 117, Financial Statements of Not-for-Profit Organizations. A couple hundred participants attended the conference as I recall, and conference materials were bound in a ¾-inch book that I could readily carry back to my office. We’ve come a long way from that humble beginning!
The 2018 AICPA National Not-for-Profit Industry Conference offered 98 sessions over three days, including:
6 Education labs on industry topics;
9 Preconference workshops on fundamental topics;
17 Accounting topics;
24 Auditing and governmental auditing topics;
21 Tax topics; and
21 Business management, finance, personal development, HR, and IT topics.
Ironically, the major accounting topics for 2018 closely paralleled those of 1993: FASB Accounting Standards Update (ASU) No. 2016-14, Presentation of Financial Statements of Not-for-Profit Entities and ASU No. 2018-08, Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made.
Audit and Accounting Take-Aways
The most talked about accounting topics related to “The Big Three” (plus one) ASUs becoming effective for not-for-profits:
- FASB ASU No. 2014-09, Revenue from Contracts with Customers
- FASB ASU No. 2018-08, Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made
- FASB ASU No. 2016-14, Presentation of Financial Statements of Not-for-Profit Entities
- FASB ASU No. 2016-02, Leases
Numerous observations related to the revenue recognition standard (FASB ASU No. 2014-09). First, your auditors cannot implement the revenue recognition standard for you and remain independent as that would involve their making management decisions on your behalf. Also, if all revenue can be recognized by the end of the reporting period, you may recognize it all at once in that period. Finally, if collectability of revenue is doubtful, recognition should be postponed until collectability can be determined.
While revenue recognition may not change much for most NFPs, many will end up reclassifying what were previously considered exchange contracts as conditional contributions under FASB ASU No. 2018-08. If that is the case for your organization or client, note that there are disclosure requirements for conditional contributions that will need to be accumulated for 2018 and prospectively thereafter.
Regarding financial statement presentation (FASB ASU No. 2016-14), organizations have much to look at beyond the new net asset classifications. There are new disclosures to develop and new or different processes that may be required. For example, nonprofits that have not previously presented a statement of functional expenses, but will now do so to comply with the new expense reporting requirements, need to develop processes to accurately allocate costs by functional area.
It was also pointed out that the new lease accounting standard (FASB ASU No. 2016-02) does not apply to office space that is donated. The right-to-use and lease-obligation components for donated space need not be estimated or disclosed as a component of your lease disclosures.
Tax and Legal Take-Aways
Many of the tax presentations focused on uncertainties from the Tax Cuts and Jobs Act of 2017. But perhaps the most attention-grabbing topic for the 2,000-plus conference attendees was the potential treatment of parking privileges provided to nonprofit employees as unrelated business income. The provision applies to organizations that lease office space as well as organizations that own their buildings and have parking lots. There is still a lot of uncertainty as to how this new tax provision will be applied and whether it applies to parking that is otherwise free to the public or constituents of the nonprofit. Stay tuned, the AICPA Not-for-Profit Section will share information as it becomes available.
More significantly, organizations will no longer be able to offset income from one unrelated business activity against losses from another unrelated business activity. As of the conference date in June of 2018, the IRS had not yet clarified what differentiates one unrelated business activity from another. In August 2018, the IRS did release Notice 2018-67 (Notice) providing guidance for tax-exempt organizations on the treatment of unrelated business taxable income (UBTI) under the UBTI segmentation requirements of the new Section 512(a)(6). The IRS is seeking comments on this guidance through December 3, 2018 prior to issuing proposed regulations. Exempt organizations may rely on the guidance in this Notice until the new proposed regulations are issued.
Proposed House bill H.R. 5443 would require electronic filing of all annual Form 990 and Form 8872 (political organization reporting of contributions and expenditures) tax returns. This would allow the IRS to provide tax return data on a more timely basis. The IRS would be required to make these forms and their data available for public inspection in a format that permits data extraction and analysis.
A session titled “CFO’s Cookbook: Recipes for Success” touched on several interesting points. One related to the need to communicate with knowledge and authority but not arrogance. Another was that funding is shifting to organizations that are able to prove desired programmatic outcomes, which is not always easy to do. Nonprofits also need to emphasize financial sustainability and avoid unfunded mandates.
A session on legal issues facing nonprofits indicated that employers are being blamed when they fail to disclose information related to employees that have been terminated for criminal activity such as theft and sexual harassment. What happens when those employees go on to a new employer and commit similar acts? There is reason for concern about liability if the former employer knew or should have known of the risk and failed to act. Even if there is no legal liability, the cost of an investigation and reputational risk (e.g., bad publicity, loss of grants and donations, recruiting quality staff, etc.) can be significant.
Year after year, I find this conference to be a great resource for those immersed in the nonprofit sector. It is a terrific opportunity to learn about major industry developments, network among peers, further develop your practice, and get critical questions answered by experts. The highlights in this article merely scratch the surface of all I took away from the many sessions that were presented. I hope you find them helpful in sparking important conversations with your staff and board members, peers, and nonprofit clients, and I look forward to seeing you at next year’s event.