FASB Up-date For the Government

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FASB Up-dateFor the Government Nonprofit
Sections 2008 Mid Year Meeting in San Antonio

• Presented by
• Teresa P. GordonUniversity of
  Idahotgordon_at_uidaho.edu208-885-8960

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Uncle Sam is Watching NFPs

• Charitable reform still on the
  Congressional agenda
• Reforms to Red Cross governance structure
• GAO report on uncompensated care and community
  benefits provided by hospitals
• Senate Finance Committee - Endowment info
  requested from CUs with endowments gt 500
  million

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Key Issues Ill Cover

• Revisions in Form 990
• New standards impacting NFP entities
• UPMIFA
• Other standards in progress at FASB

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and
improved
Radically redesigned with many more
schedules For 2009 filings(fiscal years
beginning in 2008)
Form 990
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Compensation reporting now based on W-2 and Form
1099

• Part I, number of employees volunteers
• Part V, number of W-2 and 1099 forms issued
• Part VII, Reports on compensation of officers,
  directors, key employees, and five highest paid
  employees (gt 100K)
• Schedule J Discloses compensation for all
  (other) individuals with reportable compensation
  greater than 150K or total compensation of 250K
• Part IX - Statement of functional expenses will
  still be based on fiscal year

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Partial list of schedules

• Schedule A - Public Charity Status and Public
  Support.
• Schedule D - Supplemental Financial Statements.
• Schedule E - Schools
• Schedule F - Statement of Activities Outside the
  United States.
• Schedule G Supplemental Info Regarding
  Fundraising
• Schedule H - Hospitals
• Schedule J - Compensation Information.
• Schedule K - Supplemental Information on Tax
  Exempt Bonds.
• Schedule L - Transactions with Interested
  Persons.
• Schedule M Non-cash Contributions
• Schedule R - Related Organizations and Unrelated
  Partnerships.

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Overall Analysis of Changes?

• An exciting bonanza of new information for future
  researchers!
• Corporate governance compensation
• Fund raising noncash contributions
• Schedule D almost like notes to FS!
• A burden on charities to prepare many more
  schedules and disclose more information
• Donors should benefit from clearer information on
  the cover page

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Recent FASB publications relevant to
not-for-profit organizations

• FAS155, Accounting for Certain Hybrid Financial
  Instruments
• FAS157, Fair Value Measurements
• FAS158, Employers Accounting for Defined Benefit
  Pension and Other Postretirement Plans
• FAS159, The Fair Value Option for Financial
  Assets and Financial Liabilities
• FIN48, Accounting for Uncertainty in Income Taxes
• FSP FAS 126-1, Applicability of Certain
  Disclosure and Interim Financial Reporting
  Requirements for Obligors of Conduit Debt
  Securities
• EITF 06-2, Accounting for Sabbatical Leave and
  Other Similar Benefits Pursuant to FASB Statement
  No. 43
• EITF 06-3, How Taxes Collected from Customers
  and Remitted to Governmental Authorities Should
  Be Presented in the Income Statement (That Is,
  Gross versus Net Presentation)

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How a NFP can be a public entity

• FSP FAS 126-1 - An entity that is an obligor for
  conduit debt securities that are traded in a
  public market meets the definition of a public
  entity
• Result
• Required disclosures under FAS60 (oil gas) and
  FAS126 (financial instruments)
• APB28 Interim reporting
• FAS109 FIN48 Income taxes
• Pension disclosures (FAS132R, FAS158)
• Both NFP industry audit guides

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Statement 157Approach to Measuring Fair Value
Highest and Best Use
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From Journal of Accountancy, November 2007
article by Miller and Bahnson
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Statement 157, Resource Slide 7Fair Value
Hierarchy
Level 1 Quoted prices in active markets for identical assets/ liabilities (unadjusted) no blockage factors (Price x Quantity)
Level 2 Other observable inputsinclude quoted prices for similar assets/ liabilities (adjusted) and market-corroborated inputs
Level 3 Unobservable inputsentitys own assumptions about market participant assumptions, including assumptions about risk, developed based on the best information available in the circumstances (subject to cost-benefit constraint) might include the entitys own data
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FAS157 particular issues for NFPs

• FAS116 All contributions are recorded initially
  at fair value, with the exception of certain
  collections and contributed services
• FAS124 Most investments are carried at fair
  value.
• FAS136 Requires assets held in a trust to be
  carried at fair value
• Valuation issues restrictions on assets

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Partial delay on FV implementation

• FSP-FAS157-2 (issued Feb 14, 2008)
• Provides for delayed application for certain
  nonfinancial assets and nonfinancial liabilities
  until fiscal years beginning after November 15,
  2008
• Examples
• Impairment of assets, asset retirement
  obligations implementation deferred
• Land carried in investments at fair value
  deferral does not apply

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FAS158 Recognition Provisions

• Funded status on balance sheet
• Net periodic benefit cost unchanged
• Reconciling amounts between funded status and
  cumulative amounts recognized in net periodic
  benefit cost
• Gains and losses
• Prior service costs and credits
• Transition assets and liabilities
• Separate line item(s) apart from expenses
• Either within or outside an intermediate measure
  of operations

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Derivatives Fair Value Option

• Rules on derivatives, hedging and the fair value
  option (FAS159) could affect NFPs
• Many CUs have interest rate swaps where FV
  option might be used
• Another DIG item (B35) is related to the kind of
  split-interest agreements (life-income and gift
  annuities) that many NFPs have
• In this case, permitted use of current interest
  rates would be simpler than bifurcation

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FIN 48 Uncertainty in Income Taxes

• Applies to all entities, including NFPs
• Unrelated taxable income
• For-profit subsidiaries
• Jeopardized tax-exempt status?
• Assumes all tax positions will ultimately be
  examined by knowledgeable authorities

IRS
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FIN 48 Uncertain Tax Positions

• The key points in the Interpretation are
• A tax benefit may be reflected in the financial
  statements only if it is more likely than not
  that the company will be able to sustain the tax
  return position, based on its technical merits
• A tax benefit should be measured as the largest
  amount of benefit that is cumulatively greater
  than 50-percent likely to be realized

IRS
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FIN 48 Inventory of tax positions

• Ability to sustain tax-exempt status for entity
  as a whole (are activities consistent with
  mission?)
• Justification for classifying certain types of
  revenues as not subject to taxes on unrelated
  income
• Potential intermediate sanctions for salaries
  and other issues
• Interest on unrecognized tax benefits that are
  not deemed more likely than not

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FSP FIN48-2 (issued 2/1/08)Effective Date of
FASB Interpretation No. 48 for Certain Nonpublic
Enterprises

• FIN48 deferred for many but not all nonprofits.
  Now to be implemented for fiscal years beginning
  AFTER 12/15/07
• Not-for-profit that has publicly traded conduit
  debt is defined to be a PUBLIC entity and must
  apply FIN 48 for fiscal year 2007-2008
• See definition in amended FAS109 glossary (289)

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Coming Soon!

• Proposed FSP SOP 94-3-a and AAG HCO-a Omnibus
  Changes
• Consolidation and equity method issues for NFPs
• NFP Mergers Acquisitions
• Revised limited ED in 2nd Qtr 2008
• Final versions to be issued later in 2008
• Proposed FSP on UPMIFA

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NFP Mergers Acquisitions ProjectAnother ED
this spring

• Tentative Merger ? Acquisition
• Merger means original entities cede control to a
  new entity
• Carryover method for mergers
• Otherwise, acquisition method must be used
• Other issues for re-deliberation
• Donor-related intangible assets
• Goodwill
• Definition of a business or non-profit activity

Pooling
Purchase
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Codification identifies gaps and discrepancies

• FSP SOP 94-3a and AAG HCO-a
• Eliminate temporary control exception to
  consolidation
• Require equity method for investments in
  for-profit partnerships LLCs unless carried at
  fair value
• Confirm applicability of several decisions
  regarding leases
• EITF 07-1 (pending)
• Equity method not permitted for virtual joint
  ventures

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Uniform Prudent Management of Institutional
Funds Act (UPMIFA)

• Approved July 2006 to replace 1972 UMIFA
• Modernizes the law around investment management
  and endowment spending
• Thus far, enacted by 13 states and being
  considered for enactment by several others (see
  table in handout)
• Eliminates the concept of historic dollar value,
  in favor of more robust guidance on what
  constitutes prudent endowment spending
• More short-term flexibility to handle declining
  investment markets
• Optional 7 rebuttable presumption of imprudence

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Lone Star Differences

• UPMIFA is unique in Texas
• Spending gt 7 is the rebuttable presumption of
  imprudence EXCEPT FOR
• Endowments less than 1 million, spending
  threshold gt 5
• Endowments over 450 million,spending threshold
  gt 9

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UPMIFA Issues

• How will SFAS 117 and 124 be applied in states
  that adopt UPMIFA?
• What amount of an endowment will be considered
  permanently restricted?
• Will the concept of underwater endowments as
  described in SFAS 124 be relevant in states
  following UPMIFA?

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Proposed FSP No. FAS 117-a

• Tentative Title Not-for-Profit Endowments Net
  Asset Classification under the Uniform Prudent
  Management of Institutional Funds Act and
  Enhanced Disclosure Requirements
• Objectives
• Provide guidance on net asset classification of
  donor-restricted endowment funds for
  not-for-profit organizations subject to UPMIFA
• Improve disclosures about an organizations
  endowment funds (both donor-restricted and
  board-designated), whether or not the
  organization is subject to UPMIFA

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Proposed FSP FAS 117-as Disclosure Requirements

• Description of governing boards interpretation
  of relevant law underlying net asset
  classification
• Endowment spending policy
• Endowment investment policy
• Composition of endowment by net asset class with
  roll-forward by net asset class
• Planned endowment distribution for next year

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Sample Endowment Composition Disclosure(presented
for each balance sheet date)
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Sample Endowment Roll-Forward Disclosure(presente
d for each statement of activities period)
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Proposed FSP FAS 117-a Comment Period and
Effective Date

• Proposed FSP to be released in mid-February for
  60-day public comment period
• Will be available on the FASBs website
  www.fasb.org
• Final FSP expected to be issued in mid-June
• Would be effective for fiscal years ending after
  June 15, 2008, with early adoption (e.g., for May
  31st year ends) permitted.

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Ongoing Projects of Interest to Not-for-Profit
Sector

• Conceptual Framework
• Financial Statement Presentation
• Revenue Recognition
• Leases
• Postretirement Benefit Obligations, including
  Pensions (Phase 2)

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Who sets standards?
search

• Convergence and related issues

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Changing Structure at FAF, FASB and GASB?

• More sources of nominees for FAF with final
  decision made by trustees. Size would be 14 to 16
  each serving a single 5-year term.
• Reduce the size of the FASB from seven members to
  five, simple majority to pass standards (3 to 2)
• FASB ( GASB) chairs given authority to set
  technical agenda.

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Long-term Even bigger issues!

• As FASB and IASB converge, what will be the role
  of FASB?
• IASB does not set standards for not-for-profit
  entities
• IPSASB (International Public Sector Accounting
  Standards Board) does not set standards for
  not-for-profits
• Does that leave FASB as the not-for-profit
  standard setter?

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For a copy of these slides

• From my web sitehttp//www.cbe.uidaho.edu/tgordo
  n
• From the first page, click on presentations
• Or send email to tgordon_at_uidaho.edu