By the sheer look and sound of “2020,” we knew this would be a year to remember. But for most of us, the magnitude of 2020’s “memorability” has far exceeded our expectations—and the year is not over. As CPAs and finance professionals, we have an opportunity and responsibility to lead the organizations we serve through these trying times. Now, perhaps more than ever, your knowledge and expertise are needed as we all work together to successfully navigate our current challenges and emerge stronger. With that, here’s our annual list of top issues that not-for-profit leaders, accounting and finance managers, auditors, tax advisers, and board members should be aware of as we look ahead to the coming year.
The $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act (H.R. 748) signed into law on March 27, 2020 in response to the COVID-19 pandemic was the largest economic relief package in U.S. history. Its provisions and programs are providing much-needed relief to countless not-for-profits that are enduring significant financial impacts and wide-ranging operational challenges.
The CARES Act program regulations and subsequent federal stimulus legislation continue to evolve—please visit the AICPA Coronavirus (COVID-19) Resource Center and read the NFP Section eAlerts for the latest information. We encourage you to browse and bookmark the AICPA’s CARES Act resources, which include tools and webcasts related to the Paycheck Protection Program and other areas.
The IRS also granted broad coronavirus tax relief by automatically extending the filing and payment deadlines for tax returns due on or after April 1, 2020 and before July 15, 2020. Visit the AICPA COVID-19 Tax Resource Center for the latest coronavirus- and tax-specific information, tools, and resources.
Many organizations have questions regarding how to obtain, account for, and report grants and loans under the CARES Act programs. In addition to the AICPA, SBA, and Department of the Treasury, FASB and IRS staff continue to answer FAQs and provide guidance. Visit the following resource centers if you have questions:
Further affecting accounting and auditing, standard setters have delayed effective dates for implementation of certain new standards.
Additional accounting considerations related to COVID-19 include the following:
- Subsequent events
- Asset impairment
- Fair value measurements
- Revenue recognition
- Modifications or extinguishment of liabilities
- Insurance recoveries
- Contingent losses
- Going concern evaluations
Additional auditing considerations related to COVID-19 impacts include the following:
- Remote auditing may be necessary, and access to client books and records could be limited.
- Internal controls and segregation of duties may be affected by staff absences and reductions.
- Going concern issues may be present for organizations experiencing significant financial impacts.
- Fraud risk may be heightened due to increased health and financial threats.
- Inventory observations may need to be postponed or conducted remotely.
The following are just a few examples of the many NFP governance and management considerations related to the COVID-19 crisis:
- Cash management is critical. Build your operating reserves, prepare cash forecasts and review them frequently, tighten your billing and collection processes, and employ cost containment strategies.
- Use scenario analysis and more robust budgeting and financial planning techniques.
- Keep your board and finance committee informed with more frequent meetings and reports.
- Assess the challenges your organization faces with respect to remote working. Develop or create policies and invest in technology as needed.
- Take the opportunity to find silver linings. Have you, out of necessity during the pandemic, cross-trained employees, streamlined processes, or employed technology in new ways that can become permanent?
Please visit aicpa.org/content/aicpa/eaq/covid19.html for more coronavirus tools and information for auditors.
Grants and contracts implementation
While FASB has offered a 1-year delay of the revenue recognition standards (Topic 606) to nonpublic entities that have not yet issued or made available for issuance financial statements reflecting their adoption, the Board decided to retain the effective dates for ASU No. 2018-08, Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made. This decision reflects the FASB’s acknowledgement that the guidance in ASU No. 2018-08 will be helpful to organizations that are accounting for coronavirus-related assistance.
Issues addressed in the new standard include:
- Differentiating reciprocal from nonreciprocal transactions (in a nonreciprocal (contribution) transaction, a party other than the resource provider, such as the public, is the primary beneficiary of the resources provided), and
- Differentiating conditional from unconditional contributions (conditional contributions include both a right of return or release and a barrier to entitlement).
The ASU was effective for most NFPs in calendar year 2019. The NFP Section offers numerous tools and resources for grants and contracts implementation.
Revenue recognition implementation and disclosures
Although some will choose to take advantage of the COVID-19-related effective date delay, many NFPs are already well underway with their implementation of Topic 606. Whether your NFP or NFP client is currently implementing, or soon will, you will want to make sure you understand the extensive disclosures required under the new standards. These include both annual and transition-year disclosures. Transition disclosures depend on the choice made between the available implementation approaches. Annual disclosures include the following:
- Qualitative information about how economic factors affect the nature, amount, timing, and uncertainty of revenue and cash flow
- Opening and closing balances of contract assets, contract liabilities, and receivables from contracts with customers
- Descriptions of performance obligations
Be sure to read the full standard. You may also find the NFP Section’s revenue recognition resources such as the revenue recognition disclosure examples, as well as AICPA publications such as the NFP Audit Risk Alert, NFP Audit and Accounting Guide, and NFP Checklist helpful.
Finally, NFPs may wish to disclose whether they are electing the optional deferral of the Topic 606 effective date, or early adopting.
Changes to the auditor’s report
SAS No. 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements, now effective for periods ending on or after December 15, 2021 with optional early implementation available for periods ending on or after December 15, 2020, brings several changes to the auditor’s report. Read the AICPA Audit & Attest Standard Team’s summary of the changes and the full standard for additional information.
Clarification of auditor responsibilities for other information in annual reports
SAS No. 137, The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports, also now effective for periods ending on or after December 15, 2021 with optional early implementation available for periods ending on or after December 15, 2020, enhances transparency related to the auditor’s responsibilities for other information in annual reports. Clarifications made under SAS No. 137 include documents that auditors are required to subject to the procedures in AU-C Section 720, the auditor’s responsibility to read other information in annual reports, and reporting requirements when the auditor has obtained all of the other information at the date of the auditor’s report. Read the AICPA Audit & Attest Standard Team’s summary of the changes and the full standard for additional information.
Parking tax repeal
The Taxpayer Certainty and Disaster Relief Act of 2019 repealed IRC Section 512(a)(7), also known as the “parking tax” (that is, the unrelated business income tax on qualified transportation fringe benefits and parking expenses used in connection with qualified parking), which was enacted under the 2017 Tax Cuts and Jobs Act. Exempt organizations that reported and paid the parking tax can claim a refund.
New overtime rule
In September 2019, the Department of Labor announced a final rule updating the Fair Labor Standards Act, which included raising the standard salary level of exempt employees from $455 to $684 per week (equivalent to $35,568 per year for a full-year worker). This rule is the first update to exempt-employee earnings thresholds since 2004 and makes 1.3 million American workers newly eligible for overtime pay. The final rule was effective January 1, 2020.
Coming soon: Changes to NFP reporting of gifts-in-kind
FASB will be changing the way in which gifts-in-kind are reported. Anticipated in the third quarter of 2020, the new ASU will improve transparency by requiring not-for-profit recipients to present contributed nonfinancial assets as a separate line item in the statement of activities.
It also will require a not-for-profit to disclose the amount of contributed nonfinancial assets received, disaggregated by category, that depicts the type of contributed nonfinancial assets, as well as additional information for each category of contributed nonfinancial assets received. The upcoming ASU will be effective for annual reporting periods beginning after June 15, 2021.
Thank you to the 2020 AICPA Not-for-Profit Audit Risk Alert Task Force for their contributions to this article and this year’s alert.