As non-profits with June fiscal year ends start the process of closing their books for the year and begin the financial reporting process, there are new accounting standards that should be considered. There is one new accounting standard in 2014 financial statements, and some that will affect 2015 financial statements, but should be applied to operations beginning in July of 2014. A summary of these accounting standards follows.
Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows
In October 2012, the FASB issued an accounting standard that requires a non-profit to consistently classify, within a statement of cash flows, cash receipts from the sale of donated financial assets with cash donations received for similar purposes. The cash receipts from the sale of donated financial assets must, upon receipt, have been directed without any non-profit imposed limitations for sale and converted nearly immediately into cash. Accordingly, the cash receipts from the sale of those financial assets should be classified as cash inflows from operating activities, unless the donor restricted the use of the contributed resources to long-term purposes, in which case, those cash receipts should be classified as cash flows from financing activities. Otherwise, cash receipts from the sale of donated financial assets should be classified as cash flows from investing activities by the non-profit.
The accounting standard provided a decision tree to illustrate the process that can be used to help determine the appropriate presentation of the cash receipts in the cash flow statement. This accounting guidance is effective prospectively for June 30, 2014 fiscal year ends. Retrospective application to prior periods is permitted but not required in the case where comparative financial statements are presented.
Obligations Resulting from Joint and Several Liability Arrangements
In February 2013, the FASB issued an accounting standard to provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of the guidance is fixed at the reporting date. Examples of obligations within the scope of this accounting guidance include debt arrangements, other contractual obligations, and settled litigation and judicial rulings.
This accounting guidance requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date, as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors, and any additional amount the reporting entity expects to pay on behalf of its co-obligors.
Entities are also required to disclose the nature and amount of the obligation as well as other information about those obligations.
This accounting guidance is effective for December 31, 2014 fiscal year ends. The changes required by this accounting guidance should be applied retrospectively to all prior periods presented if comparative financial statements are presented, so non-profits that present comparative financial statements should determine the applicability of this accounting guidance to determine what effects it may have on the current year financial statements when it is required to be adopted in the upcoming fiscal year.
Recognizing Services Received from Personnel of an Affiliate
In April 2013, the FASB issued accounting guidance which addresses the situation in which employees of a separately governed affiliated entity regularly perform services (in other than an advisory capacity) for, and under the direction of, the recipient entity. This new accounting guidance requires a recipient non-profit to recognize all services received from personnel of an affiliate that directly benefit the recipient non-profit. Generally, those services should be measured at the cost recognized by the affiliate for the personnel providing those services. However, if measuring a service received from personnel of an affiliate at cost will significantly overstate or understate the value of the service received, the recipient non-profit may elect to recognize that service received at either the cost recognized by the affiliate for the personnel providing that service, or the fair value of that service.
This accounting guidance is effective for fiscal years ending June 30, 2015, so non-profits that receive services from personnel of an affiliate will need to consider how the services are being recorded beginning this July.
Service Concession Arrangements
In January 2014, the FASB issued an accounting standard which provides specific accounting guidance related to service concession agreements. This accounting guidance clarifies that an arrangement should not be accounted for as a lease when it contains both of the following conditions:
- The grantor controls, or has the ability to modify or approve, the services that the operating entity must provide with the infrastructure, to whom it must provide them, and at what price.
- The grantor controls, through ownership, beneficial entitlement, or otherwise, any residual interest in the infrastructure at the end of the term of the arrangement.
This accounting guidance is effective beginning with December 2015 fiscal year-end entities, so December year-end non-profits will need to begin following this accounting guidance January 1, 2015.
If you have questions about any of these new accounting standards, please contact an Eide Bailly professional. They will be happy to answer your questions.