In case you missed it: The July edition of our Tapp Social Series, Change Happens in the Nonprofit Accounting World, focused on shifts in the accounting standards for nonprofit organizations.
This month’s presenter was Kerri Padgett from Your Part-Time Controller. YPTC have been working as nonprofit accounting specialists with nonprofit organizations for over 25 years.
Kerri’s discussion focused on the most recent accounting standards update (ASU), the impact of the latest tax reform on nonprofits, protection against accounting fraud, and “Best in Class” tips for nonprofit finance departments.
There are three major accounting changes taking effect that will have a big impact on non-profit reporting. Theses accounting standards updates will impact three very distinct aspects of nonprofit reporting.
ASU 2016-14 deals with the presentation of financial statements and presents two big changes for nonprofits. No longer will nonprofits present the classic three classifications of net assets: Unrestricted, Temporarily Restricted, and Permanently Restricted. Instead, Unrestricted assets will now be classified as assets Without Donor Restrictions, while Temporarily Restricted and Permanently Restricted assets will now be combined and classified as assets With Donor Restrictions.
The other major change nonprofits can expect to experience from ASU 2016-14 is the introduction of new footnote disclosures such as qualitative and quantitative liquidity disclosures. ASU 2016-14 has already taken effect this fiscal year, so nonprofits need to be aware of these changes immediately.
ASU 2016-09 effects accounting for revenue from contracts with customer. This change will take effect in this upcoming fiscal year and will require a common standard of revenue recognition from contracts with customers as well as new revenue disclosures.
Some of the steps Kerri recommended nonprofits take to combat these included: identifying performance obligations, determining and allocating a transaction price, and recognizing revenue when the performance obligation is satisfied.
The final accounting update discussed, ASU 2016-02, Kerri believes will be the most difficult for nonprofits to deal with as it changes reporting standards for leases.
Luckily, nonprofits have time to prepare for this change as it does not go into effect until the fiscal year beginning after 12/15/2019. The reason this revision may potentially present the most difficulty is that nonprofits will now have to identify and prove who has the right to control the property being leased.
The nonprofits who act as the lessee will now have to categorize these leases as either finance leases or operating leases. Steps Kerri proposed as ways to prepare for this change included:
The latest tax reforms are set to have a major impact and nonprofits need to be on the lookout as they wind up on the short end of the stick in many of these new reforms.
An increase in the standard deduction on charitable contributions is set to give potential donors less of an incentive to donate to nonprofits. This standard deduction of $12,000 dollars per person is almost double what it previously was under past tax laws.
Executive directors who have poured their hearts into nonprofits for decades are now set to see a 21% tax on severance payments greater than three times their average earnings. Perhaps most concerning for nonprofits is that certain fringe benefits are now taxed at a 21% rate. This means that benefits such as parking lots and commuter passes are no longer tax exempt.
As technology has allowed the world to rapidly become a global community, the threat of fraud is now more prevalent and dangerous than perhaps ever before.
As fraudsters engage in scams such as phishing schemes, malware hacks, and automated clearing house fraud, organizations need to be more alert and aware of the dangers of accounting fraud. Kerri suggested three steps nonprofits can take to reduce these threats.
Kerri concluded the discussion with ten tips to ensure that your organization has a “best in class” finance department.
“YPTC's Best In Class” Tips
Join us for our next #TappSocial discussion on August 14th, when our friend Peggy Geisler, Principal of PMG Consultants, will share her over 25 years of experience in the not-for-profit field focusing on topics including infrastructure, strategic planning, and collective impact.
Highlights of Peggy’s presentation will include: