Non-Profits Talk co-author Tim McCutcheon spent four years serving on the revision team as part of AICPA’s National NPO Expert Panel and Audit Guide Task Force. The Guide is available today in hard copy format. Following is a brief Q&A with Tim on the new edition.
Why did the Guide need a major overhaul? The Not-for-Profit Entities Audit and Accounting Guide was first published following sweeping changes to the accounting standards for not-for-profit entities made by the Financial Accounting Standards Board (FASB) in 1995. Although it has been regularly updated, the industry has continued to evolve; diversity in practice, confusion over the application of standards to new kinds of transactions and structures, and certain gaps in the subject material made it a good idea to take a fresh look.
What are the most important changes to the Guide? The Guide has been expanded and enhanced significantly.
Expanded sections include:
- Guidance and examples for reporting relationships with other not-for-profits, for-profits, partnerships, and financially interrelated entities.
- Municipal bond debt, third-party credit enhancements, capitalization of interest, extinguishments and debt modifications, and the effects of terms (such as subjective acceleration clauses) on the classification of debt.
- The legal and regulatory environment.
Entirely new content includes:
- Reporting and measuring noncash gifts, including gifts in kind such as contributions of fundraising or informational materials, advertising, below-market interest rate loans, and bargain purchases.
- A chapter on program-related investments and microfinance loans.
- Guidance on fiduciary responsibilities to meet donor restrictions and for reporting the expiration of donor-imposed restrictions.
Other important changes are:
- Updates to auditing content to conform to the results of the ASB clarity project, including coverage of audit planning, risk assessment and design of testing, evaluation of misstatements, auditor communications, going-concern considerations, and an overview of group audits.
- Suggestions for audit procedures an auditor might consider as a supplement to the risk assessment procedures.
Is the Guide intended for auditors only? Non-profit managers, board members, auditors, and others interested in accounting and financial reporting considerations will find the guide useful. Chapters 2 and 15, in particular, will be of interest to a broad audience and are “must-reads.”
Are there any big surprises in the Guide, or anything likely to be controversial? That’s difficult to gauge. The sheer size of the Guide will surprise some. Others will be surprised at the technical complexities inherent in the proper accounting and financial reporting of not-for-profit entities, and the intersection of the legal aspects of transactions with the underlying financial reporting.
How can new users, or users not very familiar with the old Guide “get into” the Guide? First, don’t try to read it cover-to-cover! Do read Chapters 2 and 15 for general background. Then, as curiosity, issues or questions arise, scan the Table of Contents, and if you can’t find your issue there, try the Subject Index, which is much more detailed. If you are looking for a particular source of guidance, scan the Index of Pronouncements and Other Technical Guidance. For definitions of terms, check the Glossary.
In the coming weeks and months, this blog will feature chapter-by-chapter overviews of the Guide.