Non-Profit
The Accounting Standard Updates Nonprofits Need to Know
In 2020, the Financial Accounting Standards Board issued a number of accounting standard updates (ASUs) that will impact nonprofit organizations. Below is our roundup of what nonprofit organizations need to know about these ASUs, as well as those issued before 2020 that are effective for 2020-2021 financial statements.
ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the FASB Emerging Issues Task Force).
The amendments clarify the interaction of the accounting for equity securities under Topic 321, equity method investments under Topic 323, and certain forward contracts and purchased options under Topic 815. For all entities other than public business entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The amendments should be applied prospectively, and early adoption is permitted.
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.
Initiatives to reform global reference rates will result in alternative reference rates that will replace LIBOR and other commonly used benchmark interest rates. The FASB issued this optional guidance to provide relief in accounting for contract modifications related to transitioning from LIBOR and other reference rates for a limited period of time. If certain criteria are met, qualifying entities have the option to apply expedients and exceptions in accounting for contract modifications (receivables, debt, and leases) and hedging relationships that reference discontinued rates. If the expedient is elected, it must be applied to all eligible contract modifications. This ASU may be applied any time after March 12, 2020, but no later than December 31, 2022, which is the rate reform transition period.
ASU 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities.
As a result of the COVID-19 pandemic, the FASB deferred the effective dates of these Topics by one year to provide relief for all entities that have not issued their financial statements (or made them available for issuance) as of June 3, 2020. Topic 606 is now effective for private nonprofit entities for annual reporting periods beginning after December 15, 2019, and for interim reporting periods within annual reporting periods beginning after December 15, 2020. These entities may elect to adopt Topic 606 based on previous guidance. Topic 842 is now effective for private nonprofit entities for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. For public nonprofit entities that have not yet issued their financial statements (or made them available for issuance) reflecting the adoption of Topic 842, it is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption continues to be permitted. Nonprofit entities that already issued their financial statements or are conduit bond obligors for publicly traded securities are not affected by these amendments. The ASU is effective upon issuance.
ASU 2020-07, Not-for-Profit Entities (Topic 958): Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets.
The ASU includes new requirements for presentation and disclosure of contributed nonfinancial assets (gifts-in-kind). The ASU’s intent is to provide more transparency about the measurement and use of nonfinancial assets. It requires gifts-in-kind to be presented as a separate line in the statement of activities. It also requires additional disclosures in the notes to the financial statements, including disaggregation into categories based on the type of gift received, and qualitative disclosures for each category of asset. The amendments are effective for annual periods beginning after June 15, 2021, and interim periods within annual periods beginning after June 15, 2022. Early adoption is permitted. The amendments should be applied on a retrospective basis to all periods presented. For additional information, see the December 2020 issue of The PPC Nonprofit Update.
New ASUs-Codification Improvements
The FASB has a standing project on its agenda to make improvements to GAAP, address suggestions and feedback from stakeholders, and update standards for technical corrections and clarifications. The following Codification Improvements ASUs were issued in 2020.
ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs.
The amendments in this ASU clarify guidance in ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), about amortization periods for premiums on callable debt securities and indicate that entities should reevaluate whether a callable debt security with multiple call dates is within the scope of FASB ASC 310-20-35-33 for each reporting period. For entities other than public business entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, with early application permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The amendments should be applied prospectively as of the beginning of the period of adoption for existing or newly purchased callable debt securities.
ASU 2020-03, Codification Improvements to Financial Instruments.
The amendments in this ASU are intended to clarify and improve certain accounting and disclosure guidance in a number of financial instrument Topics in the Codification. They apply to all reporting entities within the scope of the affected accounting guidance. See the ASU for further information about and effective dates of the improvements made.
ASU 2020-10, Codification Improvements.
The amendments in this ASU affect a number of Topics in the Codification. They do not change GAAP, but they apply to all reporting entities within the scope of the affected accounting guidance. The amendments in Sections B and C of the ASU are effective for entities other than public business entities for annual periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022, and early application is permitted for any annual or interim period for which financial statements are available to be issued. The amendments should be applied retrospectively at the beginning of the period that includes the adoption date.
Highlights of Certain Previously Issued ASUs Becoming Effective for 2020-2021 Financial Statements
As a reminder, the following paragraphs highlight certain ASUs that were issued before 2020 but become effective for 2020-2021 financial statements.
ASU 2019-03, Not-for-Profit Entities (Topic 958): Updating the Definition of Collections.
ASU 2019-03 aligns the definition of a “collection” with the one used by the American Alliance of Museums. It intends to reduce diversity in accounting practice. The ASU also requires disclosure of the organization’s policy for use of proceeds from collection items that are removed from a collection (deaccessioned). If a collection-holding organization has a policy allowing the proceeds to be used for direct care, it should disclose its definition of direct care. The ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020, with early adoption permitted. The amendments apply to all entities that maintain collections and should be applied on a prospective basis.
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.
ASU-2018-03 requires significant changes for all entities to disclosures for Level 3 investments, and changes to disclosures for transfers between Level 1 and Level 2 investments and investments in certain entities that calculate net asset value. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. Certain disclosures must be applied prospectively, with others to be applied retrospectively to all periods presented.
ASU 2018-08, Not-For-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made.
ASU 2018-08 was issued to reduce diversity in practice in accounting for recognition of grants and contracts. The ASU provides clarifications on evaluating whether a transaction should be accounted for as a contribution or exchange transaction and an improved framework for determining whether contributions are conditional or unconditional. The ASU also provides guidance to distinguish donor-imposed conditions from restrictions. For entities other than public business entities, amendments for resource recipients (contributions received) should be applied to transactions in annual periods beginning after December 15, 2018, and interim periods beginning after December 15, 2019. For resource providers (contributions made), the amendments should be applied to annual periods beginning after December 15, 2019, and interim periods within annual periods beginning after December 15, 2020. Early adoption is permitted.
For specific guidance, learn more about Dugan & Lopatka’s nonprofit accounting solutions or contact us at info@duganlopatka.com.