All aboard! The last train is about to leave the station, departing from platform Accounting Standards Update (ASU) 2016-14—all not-for-profits must now be on board!
The time has come for the last of the adopters to implement FASB ASU 2016-14, Presentation of Financial Statements of Not-for-Profit Entities. While it seems like this ASU has been on everyone’s radar for a long time already, time is up, and NFPs with a December 31, 2018 year-end or a fiscal year ending in 2019 must adopt and implement the standard.
Notwithstanding the attention garnered by ASU 2016-14, other important standards also have been issued, with varying effective dates and associated inherent complexities. While all accounting standards apply to all entities unless they are specifically scoped out, NFPs should be aware of a handful of new standards most likely to affect them, some significantly, others less so.
Below are perhaps the most important “new” standards for NFPs to consider, that is, those standards generally having the broadest applicability to NFPs. (Note: Be sure to refer to each standard for more detail regarding effective dates shown in the table below.)
|ASU Number||Subject||Effective for Issuers/Obligors||Effective for All Other NFPs|
|2016-14||Presentation of Financial Statemetns of Not-for-Profit Entities||2018|
|2014-09||Revenue from Contracts with Customers (and amendments)||2018||2019 or 2020*|
|2017-10||Service Concession Arragements - Determining the Customer of the Operation Services||2018||2019|
|2018-08||Clarifying the Scope and Accounting Guidance for Contributions Received and Made||FYs beginning after June 15, 2018||2019|
|2016-01||Financial Instruments - Recognition and Measurement of Financial Assets and Liabilities||2019|
|2016-18||Statement of Cash Flows - Restricted Cash||2019|
|2016-02||Leases (and amendments)||2019 or 2020*||2022**|
|2016-13||Changes to the Disclosure Requirements for Fair Value Measurements||2020|
|2016-13||Financial Instruments - Credit Losses||2023|
* Note: In June 2020, FASB issued ASU No. 2020-05 Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842), Effective Dates for Certain Entities, which delays the effective date of the new revenue recognition guidance for nonpublic NFPs that have not yet issued their financial statements reflecting its adoption. Those entities may elect to adopt the guidance for annual reporting periods beginning after December 15, 2019, and for interim reporting periods within annual reporting periods beginning after December 15, 2020; or they may elect to follow the original effective date.
** In June 2020, FASB issued ASU No. 2020-05 Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842), Effective Dates for Certain Entities, which delays the effective date of the new leases standard for nonpublic NFPs that have not yet issued their financial statements reflecting its adoption. Those entities may elect to adopt the new guidance for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Public NFPs that have not yet issued financial statements (or made available for issuance) reflecting the adoption of Leases may elect to adopt the new guidance for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early application continues to be permitted.
Anyone familiar with the issuance of new ASUs knows that new standards can fall anywhere on the continuum of pervasiveness, complexity, and difficulty of implementation. In some cases, a seemingly difficult-to-apply standard can be dismissed in whole or in part following a careful examination of an NFPs circumstances because the effect of applying the standard differs immaterially from that achieved by not applying the standard. In other cases, implementation can be simplified by using techniques such as aggregation, estimation, or other practical expedients. The key is to think things through calmly and rationally, and not in the heat of an eleventh-hour implementation.
However “preachy” this may sound, NFP financial managers and auditors are well served by surveying the landscape of new accounting standards, and by planning implementation and adoption strategies to ensure timely, accurate, and dare we say, “sane” transitions to those new standards. The graphic below offers the author’s take on the overall numbers of NFPs likely to be affected by each of the new standards listed in the above table, as well as the relative difficulties in understanding, applying, and implementing them. Clearly, there will be great variability among individual NFPs, and the XY Plots of the entire universe of NFPs will include locations outside the boundaries suggested. The intent is to stimulate your thinking, and hopefully, to encourage you to kick your planning efforts into a higher gear. After all, timely planning and effort now will be rewarded by calmer, less stressful days down the road. Simply having a strategy and plan in place can reduce a wall of worry to little more than a relatively easily surmounted obstacle.
If you are unfamiliar with some of these new standards, here is a suggestion: set aside a little time to read just the Summary that appears at the beginning of each ASU. Reading the summaries will allow you to get your bearings and help you identify and prioritize the next steps in your evaluation and implementation planning process. Attend trainings, talk to colleagues, meet with your auditors. Some of these new standards look like giant, ominous icebergs squarely in your path. Fortunately, after closer inspection and consideration, they may turn out to be more like ice cubes than icebergs. But you won’t know that until you do your homework. Get your action plan ready and then work it. You will be glad you did.
Here is an example of an iceberg turning into an ice cube. ASU 2016-14 now requires NFPs to report investment return net of all external and direct internal investment expenses. Most NFPs have not included direct internal investment expenses in this presentation, and to do so potentially would require time studies, allocation methodologies, tracking mechanisms, and other steps to ensure accurate calculations. On the other hand, many NFPs have at most, one individual who spends time managing investments and investment return, and the expenses associated with the likely-small allocation for his or her time may be clearly immaterial. In such case, that determination could be documented, and the associated tracking and allocating could be avoided. Iceberg = ice cube.
The point is, because not all NFPs are the same, application and implementation of the standards also will not be the same. Thinking the issues through on the front end is a wise course of action. The continuing cascade of new ASUs can be daunting, but I suggest only at first blush. Thoughtful consideration and assessment of the standards most often brings proper perspective, along with practical solutions.