COVID-19 Relief for Accounting Standards

COVID-19 Relief for Accounting Standards

Pandemic Relief for-profit and nonprofit entities

On June 3, 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-05, bringing relief for both for-profit and nonprofit entities. The standard allows entities who have not yet issued their financial statements to DELAY the implementation of ASU 2014-09, Revenue Recognition from Contracts with Customers (ASC 606). 

Revenue Recognition

ASC 606 replaces virtually all accounting standards related to revenue recognition. It had been required for non-public entities to implement for years beginning after December 15, 2018, resulting in many entities already undergoing implementation. Note – early implementation of ASC 606 is allowed.

Revenue recognition case studies graphic

FASB had initially proposed ASC 606 be delayed for non-public franchisors only, due to technical issues related explicitly to franchisors. Citing the feedback FASB received, specifically the time and technical difficulties many entities faced to implement this standard, which was amplified by the current business environment due to the COVID-19 pandemic, FASB changed their stance.  

This new Accounting Standard DOES NOT affect revenue recognition changes related to nonprofits or any other entity receiving contributions. ASU 2018-08, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made (ASC 958) had an original implementation date for years beginning after December 15, 2018, and this date remains. Many nonprofits will ultimately need to implement both ASC 606 and ASC 958 related to their revenue recognition. 

Nonprofits will now need to decide to early implement ASC 606 or spread the change over the next two reporting periods.

Lease Accounting

Also delayed by the new Accounting Standard, for all non-public entities, including nonprofits, was ASU 2016-02, Leases (ASC 842). The lease accounting rules will have a significant impact on companies’ financial statements leasing real property, equipment, vehicles, and other fixed assets. It requires entities to report most leases as both an asset and liability and has been an enormous undertaking for many entities. So much so, FASB had, in late 2019, delayed the effective date from 2020 year-ends to 2021 year-ends.  

Now the effective date has been pushed again, and non-public entities DO NOT need to adopt this standard until years beginning after December 15, 2021, resulting in a December 31, 2022, initial reporting date for year-end calendar entities.

Although these are welcomed delays for many entities (and a little late for others), it is important to remember these standards are NOT going away, and early implementation is available for both Revenue Recognition and Leases. Companies with a change in their revenue recognition calculations related to ASC 606, if not opting to early implement, can use this opportunity to calculate their ASC 606 revenue for the current year-end accurately. This will make the transition in the future easier. 

Entities that will have limited changes and obstacles in implementation can opt to early implement and continue to move forward with ASC 606. Since many entities have completed their December 31, 2019, financial statements, financial institutions, bonding companies, investors, grantors, etc. have become familiar and knowledgeable of this standard. Each entity’s situation is different, and we are here to help guide you through these options and any potential changes.  

FASB Delays Revenue Recognition and Leasing Standards

FASB Delays Revenue Recognition and Leasing Standards

Financial Accounting Standards Board (FASB) voted to delay the effective dates of revenue recognition and leases standards

Following last month’s proposal to defer the effective date of two standards for private companies and nonprofit organizations, the Financial Accounting Standards Board (FASB) voted to delay the effective dates of revenue recognition and leases standards on May 20. The standards extension comes as a response to complications caused by the coronavirus pandemic.  

This is not the first time that the effective dates for revenue recognition have been extended. The revenue recognition standard was initially supposed to go into effect in 2017 for public companies and 2018 for private companies. In 2015, FASB extended the effective dates to 2018 for public companies and 2019 or 2020 for nonprofits (varies with the nonprofit’s reporting period).

Similarly, lease standards have also been delayed prior to this year. While the standards took effect for public companies at the beginning of last year, FASB had already delayed the effective date for private companies and nonprofits to the beginning of 2020. Now the leases standard for private companies and nonprofits will be effective for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. 

GASB Calls for Accounting Standards Postponement

GASB Calls for Accounting Standards Postponement

On April 14, the Governmental Accounting Standards Board (GASB) released a statement proposing the postponement of the effective dates of specific accounting and financial reporting requirements set to go into effect soon. Their goal in postponing the effective dates by one year is to provide temporary relief considering the current pandemic.

GASB is requesting written comments by April 30, 2020, regarding their proposal to postpone the effective dates of the provisions outlined in the following:

  • Statement No. 83, Certain Asset Retirement Obligations
  • Statement No. 84, Fiduciary Activities
  • Statement No. 87, Leases
  • Statement No. 88, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements
  • Statement No. 89, Accounting for Interest Cost Incurred before the End of a Construction Period
  • Statement No. 90, Majority Equity Interests
  • Statement No. 91, Conduit Debt Obligations
  • Statement No. 92, Omnibus 2020
  • Statement No. 93, Replacement of Interbank Offered Rates (paragraphs 13 and 14 only)
  • Implementation Guide No. 2017-3, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (and Certain Issues Related to OPEB Plan Reporting)
  • Implementation Guide No. 2018-1, Implementation Guidance Update—2018
  • Implementation Guide No. 2019-1, Implementation Guidance Update—2019
  • Implementation Guide No. 2019-2, Fiduciary Activities
  • Implementation Guide No. 2019-3, Leases

GASB intends to consider a final statement for the issuance on May 8, 2020. If the proposal is accepted, the postponements would be effective immediately. To read the GASB release in full, click here.

Nonprofits: Get the Money You Need

Nonprofits: Get the Money You Need

Grant Proposal Writing Tips

You know the drill

It is midnight and your grant or funding proposal is due tomorrow. Your assistant left hours ago, and the words on the computer screen start to blur. “It’s not worth it,” you think. And besides, only a few grants or funding proposals pan out anyway.

Grants are a big part of the not-for-profit world. And yet, according to some experts, fewer than ten per cent of grant proposals are ever funded. That is probably why grant writing is often viewed as a lottery with little hope of success. But it does not have to be that way. Here are a few pointers to make the writing process a little easier:

1. Know your organization. 

In your proposal, you need to prove your organization has a significant need and then come up with a solution to solve the problems. The more information you have at hand, the easier it is to answer questions on a grant proposal. Ask relevant staff members questions about your group’s programs, and use their answers to help write the proposals. If your employees have trouble providing answers you need, your organization may need to think through its ideas or document its experience more carefully.

2. Set up a system.

The requirements of grant applications are generally repetitive and predictable. Invest some time coordinating and preparing clerical material. You will find that with an efficient system, it’s just as easy to apply for 10 or 20 grants or funding proposals as it is to apply for one or two. And the more organized you are, the easier it becomes to tailor each proposal to the specific grant or funding proposal. Before getting started, contact the government or individual grant makers for their exact application specifications, requests for proposals and guidelines.

3. Build relationships. 

Experienced grant and funding proposal writers send a steady stream of information to funders to show that their organizations are responsible and effective partners. Relationships can be cultivated in a variety of other ways, from personal meetings to an invitation to a local event. These contacts give funders a way to develop a positive profile of your organization and to see that you will use their funds responsibly.

4. Work steadily. 

Do not wait until you are desperate. Steady, year-round grant seeking lets you gain control over the process. It also gives you the opportunity to carefully select who you will approach as a potential funder and how much to ask for. When you start from a position of power, you come across as a more secure investment.

Learn your craft. Like most skills, grant and funding proposal writing takes time to learn and can be frustrating at first. But keep doing research and writing proposals. Good writing skills are very important. The more you do, the better you become at crafting a good proposal.

The pay-off? An effective grant or funding proposal system that can speed and enhance your organization’s future work.

Smith Schafer has helped local nonprofits throughout Minnesota grow and thrive in their communities for the past 45 years. To learn more about how we can help, please contact a Smith Schafer professional. 

5 Questions to Ask Yourself Before Selecting an Auditor

5 Questions to Ask Yourself Before Selecting an Auditor

Searching for an audit firm can be a time consuming and stressful task. However, it can be maneuvered easier if you know what to look for, have realistic expectations and ask the right questions.

BELOW ARE 5 ITEMS TO ASK YOURSELF DURING THE SELECTION PROCESS: 

We have a CPA who prepares our taxes; can they do our audit?

Perhaps, and this is often a good place to start, but, not all CPAs are auditors and not all CPA firms audit all industries. Auditors and audit firms are held to different standards for continuing education, independence and oversight. This works both ways, the CPA you find to do your audit is probably not the same CPA you want completing your taxes. If part of your goal is to have a single CPA firm complete both your audit and tax work, be sure this is clear from the start of your search.

“An audit is an audit, find the best price!” Is there a benefit to paying more?

As with most purchases, “you get what you pay for,” is true for audits. Audit standards need to be followed, but a low cost auditor could drastically change how your organization works with an auditor. A better question to ask is, “do we want our audit to be a commodity or do we want it to provide a service?”  If expectations are for your auditor to assist throughout the year with questions, attend board meetings, or give internal monthly financial statements a quick review, you have to determine if these services are included in the quote or at what rate you will be charged. Countless CPA firms can do an audit, but if you are looking for more than a once a year visit, the low cost provider may not be in your best interest.

Does our industry really matter?

Different industries can make a huge difference for an audit. Within the nonprofit sector, for example, organizations who receive federal funding maybe subject to a yellow book or single audit and Generally Accepted Government Auditing Standards, while others receive their funds through donors or user fees and are subject to Generally Accepted Auditing Standards. Within for-profit organizations, manufactures with inventory, equipment and cost of goods sold have different risks, accounting needs and audit approach than a service based organization. Accordingly, requesting references within your industry is an important part of your search.  Inquiries of references should include questions related to the auditor’s industry knowledge and expertise. 

Will I be able to work alongside the auditor we select?

There needs to be a comfort level between you and the audit team so you can go to them with concerns and feel confident in the guidance they are providing. Reviewing their background and qualifications is an important first step. However, this trust can start being established during the interview process. The interview is an opportunity to discuss the audit process, what will happen if problems occur and who will actually be on site during the audit. If answers are too technical or vague, it may be a sign you will not be able to work successfully with this particular auditor.

We have checked references and interviewed our prospective auditor, what additional information should we look for?

Audit firms are required to have a peer review at least once every three years, conducted by an independent CPA firm reviews their policies and audit procedures. The peer review’s conclusions, which are provided in a letter, should be reviewed and discussed with a potential auditor.

Every situation is different, if you have questions or are interested in more information on our audit practice, please contact your Smith Schafer professional by clicking here. 

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