Not-for-Profit Entities:
2012/2013 Audit &
Accounting Considerations
A Governmental Audit Quality Center and Not-for-Profit
Expert Panel Web Event
November 1, 2012
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Governmental Audit Quality Center
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Governmental Audit Quality Center
Frank Jakosz, CPA
Frost, Ruttenberg & Rothblatt, P.C.
Stuart J. Miller, CPA
Crowe Horwath LLP
Andrea Wright, CPA
Johnson Lambert LLP
Chris Cole, CPA
Governmental Audit Quality Center
AICPA Not-for-Profit Expert Panel
The AICPA Not-for-Profit (NFP) Expert Panel is comprised of
member volunteers who specialize in the practice of NFP
accounting or auditing. Expert Panel Members represent the
AICPA NFP community to:
Provide input to the Financial Accounting Standards Board
(FASB) Not-for-Profit Advisory Council on emerging industry
issues for NFPs.
Monitor and report on FASB standard setting projects and
participate in the development of comment letters on
standards that impact NFPs.
Propose and develop articles, white papers and publications
that address practice issues for NFPs.
Expert Panel information, publications and meeting minutes
can be found at
Governmental Audit Quality Center
What We Will Cover
NFP Trends
Challenges relating to new auditing
Challenges relating to the application
of accounting standards in the NFP
environment and recent FASB
standard-setting activity
GAQC Resources
Governmental Audit Quality Center
NFP Trends
Governmental Audit Quality Center
Payments in Lieu of Taxes (PILOT)
State and local governments’ attempt to
raise additional revenues
• Nature of entity
• Ownership or use of property
Primarily affects higher education
• Replacement of foregone property tax revenues to
local governments
o Offsetting costs of providing services to
• Hospitals, churches and other NFPs
Governmental Audit Quality Center
Payments in Lieu of Taxes (PILOT)
Historically, PILOT payments have been
• Some cities attempting to change to mandatory
payment for services
• Increasing percentage of organizations making some
form of payment
Variety of type of ‘payments’ and
• Economic Impact Studies by organizations
• Cost sharing /’good neighbor’ practices
• Taking responsibility for waterways, fire stations,
security equipment, etc.
Governmental Audit Quality Center
Payments in Lieu of Taxes (PILOT)
Some accounting, reporting and audit issues
• For services rendered?
o Current or past
• An amount to accrue and as of when?
• Commitment disclosure?
• Contribution?
Governmental Audit Quality Center
Cause Related Marketing
May be known as:
• Cause-related marketing programs
• Cause-related marketing campaigns
How they work
An agreement between a business and a nonprofit to raise money
for a particular cause. The business expects to profit by selling
more products and the nonprofit benefits both financially and by
having a higher public profile as a result of its business partner’s
marketing efforts.
An Example: American Express and the restore the
Statue of Liberty campaign
Governmental Audit Quality Center
Cause Related Marketing
The Accounting Considerations
Management and general
All of the Above
Types of cause-related marketing programs (not all
Fundraising/licensing component
Sponsorship/licensing component
Licensing with royalty payments
3rd party charitable sales/licensing component
Unsolicited online component (social media)
Hybrid arrangements
Governmental Audit Quality Center
New Market Tax Credit (NMTC) Program
Established by Congress in 2000
• Spur new or increased investments into operating
businesses and real estate projects located in lowincome communities.
Since inception, ~700 awards of ~ $33 billion in tax
More information:
Governmental Audit Quality Center
How it Works
Governmental Audit Quality Center
NMTC –The Details
Investors to receive a tax credit against their federal taxes in
exchange for making equity investments in specialized
financial institutions (community development entities, or
Must make investments in low-income communities; wide
variety of allowable activities (loans, equity investments
NFPs that serve low-income communities may receive NMTC
funding for capital projects
Funding from CDEs is often in the form of loans or equity
investments in NFPs’ real estate projects.
The transactions and underlying agreements are complex and
have specific audit risks that should be considered by the
auditor of the NFP.
Governmental Audit Quality Center
Audit Risks
Proper accounting for the loan or equity investment by the NFP
in the investment fund
Proper accounting for the loan (note payable) or equity
investment the NFP receives from the CDE
Risk that the NFP will not include appropriate disclosures
related to the NMTC Program funding
Future funding commitments related to the loan/equity
investment by the NFP to the investment fund
Standard disclosures related to loan or equity investment from
the CDE
Disclosure of the put/call option at end of tax credit period
Accounting for the exercise of the put/call
Governmental Audit Quality Center
LC3 organizations
What are they?
• Low-profit limited liability companies
Business structure requirements
• Must significantly further the accomplishment of one
or more charitable or educational purposes
• No significant purpose is the production of income or
appreciated property
• Must not be organized to accomplish any political or
legislative purposes.
Mirrors definition of Program Related Investments (PRIs)
Governmental Audit Quality Center
Challenges Relating to
New Auditing Standards
Governmental Audit Quality Center
SAS No.118
American Institute of Certified Public Accountants Auditing
Standards (SAS) No. 118: Other Information in Documents
Containing Audited Financial Statements
• This SAS addresses the auditor’s responsibility in relation to other
information in documents containing audited financial statements and
the auditor’s report thereon.
• In the absence of any separate requirement in the particular
circumstances of the engagement, the auditor’s opinion on the financial
statements does not cover other information, and the auditor has no
responsibility for determining whether such information is properly
• This SAS establishes the requirement for the auditor to read the other
information of which the auditor is aware because the credibility of the
audited financial statements may be undermined by material
inconsistencies between the audited financial statements and other
• Annual “Glossy” reports fall into this category
Governmental Audit Quality Center
SAS No. 119
American Institute of Certified Public Accountants Auditing
Standards (SAS) No. 119: Supplementary Information in
Relation to the Financial Statements As a Whole
• This SAS addresses the auditor’s responsibility when engaged to report
on whether supplementary information is fairly stated, in all material
respects, in relation to the financial statements as a whole.
• The information covered by this SAS is presented outside the basic
financial statements and is not considered necessary for the financial
statements to be fairly presented in accordance with the applicable
financial reporting framework.
• This SAS also may be applied, with the report wording adapted as
necessary, when an auditor has been engaged to report on whether
required supplementary information is fairly stated, in all material
respects, in relation to the financial statements as a whole.
• The Schedule of Expenditures of Federal Awards (SEFA) falls under
SAS No. 119 (Click here to access GAQC SEFA Practice Aids which
have been updated for SAS No. 119 and are open to the public)
Governmental Audit Quality Center
SAS No. 119
SAS No. 119 establishes presumptively mandatory requirements
that certain conditions are met in order to opine on whether
supplementary information is fairly stated in relation to the
financial statements as a whole. These conditions include that:
• The supplementary information was derived from, and relates directly
to, the underlying accounting and other records used to prepare the
financial statements.
• The supplementary information relates to the same period as the
financial statements.
• The financial statements were audited, and the auditor served as the
principal auditor in that engagement.
• Neither an adverse opinion nor a disclaimer of opinion was issued on
the financial statements.
• The supplementary information will accompany the entity’s audited
financial statements, or such audited financial statements will be made
readily available by the entity.
Governmental Audit Quality Center
SAS No. 119
SAS 119 establishes a presumptively mandatory requirement
that the auditor obtain the agreement of management that it
acknowledges and understands its responsibilities:
• For the fair presentation of the supplementary information in
accordance with the applicable criteria.
• To provide the auditor with certain written representations.
• To include the auditor’s report on the supplementary information in any
document that contains the supplementary information and that
indicates that the auditor has reported on such supplementary
• To present the supplementary information with the audited financial
statements or, if the supplementary information will not be presented
with the audited financial statements, to make the audited financial
statements readily available to the intended users of the supplementary
information no later than the date of the auditor’s report.
Governmental Audit Quality Center
SAS No. 120
SAS No.120, Required Supplementary Information, the auditor’s
responsibilities with respect to information that a designated
accounting standard setter requires to accompany the basic f/s.
• Defines “designated accounting standard setter: as a body designated
by the AICPA council to establish GAAP (i.e., the FASB, GASB, IASB
and the Federal Accounting Standards Advisory Board)
• Defines “required supplementary information” as information required
to accompany an entity’s basic f/s;
• Establishes the auditor’s objectives when a designated accounting
standards setter requires information to accompany the basic f/s;
• Requires auditors to apply certain specified procedures to the required
supplementary information; and
• Establishes the reporting requirements with respect to required
supplemental information.
• Applicable to GASB type schedules
Governmental Audit Quality Center
Clarity changes (other than group audits)
SAS 122- supersedes all prior standards
First redrafting of US GAAS since 1972
Effective for audits of years ending on or after
December 15, 2012 with early adoption not permitted
Re-codification and renumbering of AU sections
New format
Introduction-scope, effective date
o Unconditional (must)
o Presumptively mandatory (should)
• Application and other explanatory material
Governmental Audit Quality Center
Forming an opinion and reporting on financial
Requires auditor to describe management’s
responsibility for the preparation and fair
presentation of the financial statements in greater
Requires use of headings throughout auditor’s
Modification to the Opinion in the Auditor’s report
Prior to issuance, communicate with those charged
with governance the circumstances that lead to
expected modification to the auditor’s opinion and
the proposed wording of the modification.
Governmental Audit Quality Center
Explanatory paragraph replaced
Emphasis-of-matter paragraph
• Going concern
• Consistency of financial statements
• Subsequent events (could also be other-matters paragraph)
Other-matters paragraph
Required supplementary information
Reporting in compliance with contracts or regulations
Restricting the use of the auditor’s report
Other information in documents containing audited financial
GAQC currently working to update all report
illustrations in the AICPA Audit Guide, Government
Auditing Standards and Circular A-133 Audits
Governmental Audit Quality Center
Special purpose framework
Formerly Known as “other comprehensive
basis of accounting” or OCBOA
• Cash
• Tax
• Regulatory (statutory)
Management required to agree to include
equivalent disclosures by GAAP as part of
engagement terms
Governmental Audit Quality Center
Special Purpose Framework
Two new AICPA publications (both include the latest
clarity standards):
• Accounting and Financial Reporting Guidelines for Cash and
Tax Basis Financial Statements
• Applying OCBOA in State and Local Government Financial
GAQC holding separate Web event (open to the
public) titled, The New AICPA OCBOA Publications:
What They Are and How They Apply to Governments
and Not-for-Profits, to be held on Wednesday,
November 7, 2012, from 1:00PM - 3:00PM (Eastern
Time) – click here to learn more.
Governmental Audit Quality Center
Client acceptance and continuance
If scope limitation imposed by management
or those changed with governance of an
entity that is not required to have an audit by
law or regulation such that the auditor
anticipates issuing a disclaimer- auditor
should not accept the engagement
Governmental Audit Quality Center
Consideration of Laws and Regulations
Auditor is required to inspect
correspondence with regulatory authorities
Introduction of inherent limitations of an
audit vs. no assurance
Governmental Audit Quality Center
With those charged with governance
• Ineffective communication may be scope limitation or a
deficiency- see AU-C 260
Internal control-New requirements
• Communicate orally or in writing to management other
deficiencies in internal control identified during the audit that
have no been communicated to management by other parties,
that are in the auditor’s judgment warrant management’s
• Include in written communication an explanation of the potential
effects of material weaknesses and significant deficiencies
Governmental Audit Quality Center
Audit evidence
Legal letters
External confirmations
Opening balances
Unable to perform procedures on sample item
Substantive analytical procedures- required documentation
Related party transactions
Materiality and AU-C 320
Performance Materiality- adjustment of materiality set at the
financial statement level to the assertion level
Governmental Audit Quality Center
Use of Specialists
Management’s specialists (AU-C 500)
• Specialists whose work is used by the entity in preparing the
financial statements
Auditor’s specialists (AU-C 620)
• Specialists whose work is used by the auditor to assist the
auditor in obtaining sufficient appropriate audit evidence.
Governmental Audit Quality Center
Group Audits
AU-C Section 600: Special Considerations—Audits of Group
Financial Statements (Including the Work of Component
.11 For purposes of GAAS, the following terms have the
meanings attributed as follows:
• Component. An entity or business activity for which group or
component management prepares financial information that is required
by the applicable financial reporting framework to be included in the
group financial statements.
• Component auditor. An auditor who performs work on the financial
information of a component that will be used as audit evidence for the
group audit. A component auditor may be part of the group engagement
partner’s firm, a network firm of the group engagement partner’s firm, or
another firm.
Governmental Audit Quality Center
Group Audits
AU-C Section 600: Special Considerations—Audits
of Group Financial Statements (Including the Work
of Component Auditors)
.07 Audit risk is a function of the risk of material
misstatement of the financial statements and the
risk that the auditor will not detect such
misstatements. In a group audit, detection risk
includes the risk that a component auditor may not
detect a misstatement in the financial information of
a component that could cause a material
misstatement of the group financial statements and
the risk that the group engagement team may not
detect this misstatement.
Governmental Audit Quality Center
Group Audits
.31 The group engagement team should determine the following:
Materiality, including performance materiality, for the group financial statements as a whole when
establishing the overall group audit strategy.
Whether, in the specific circumstances of the group, particular classes of transactions, account
balances, or disclosures in the group financial statements exist for which misstatements of lesser
amounts than materiality for the group financial statements as a whole could reasonably be
expected to influence the economic decisions of users taken on the basis of the group financial
statements. In such circumstances, the group engagement team should determine materiality to
be applied to those particular classes of transactions, account balances, or disclosures.
Component materiality for those components on which the group engagement team will perform,
or request a component auditor to perform, an audit or review. Component materiality should be
determined taking into account all components, regardless of whether reference is made in the
auditor’s report on the group financial statements to the audit of a component auditor. To reduce
the risk that the aggregate of uncorrected and undetected misstatements in the group financial
statements exceeds the materiality for the group financial statements as a whole, component
materiality should be lower than the materiality for the group financial statements as a whole, and
component performance materiality should be lower than performance materiality for the group
financial statements as a whole.
The threshold above which misstatements cannot be regarded as clearly trivial to the group
financial statements.
Governmental Audit Quality Center
Case in Point
We have a client that has 30 locations/entities in 10 different
countries. All 30 entities are about the same size and we have
calculated overall materiality to be $1,000,000. Tolerable
Misstatement equals $750,000.
Accounts receivable equals $700,000 per location/entity, thus
AR = $21,000,000.
Conclusion A: AR is immaterial at each location based on OM
and TM, therefore the risk of material misstatement is minimal
and we will pass further testing.
Conclusion B: AR is immaterial at each individual location, but
material to the overall financial statements so we will test AR at
20 of the 30 locations and apply analytics to the other locations
based on our risk assessment process.
Governmental Audit Quality Center
Group Audits – Effective with new clarified
audit standards
What is a Group Audit?
Factors to consider:
Governance structure
Management structure
How centralized is financial reporting
Centralized operations
Physical locations
Control environment
Nature of activity
Uniqueness of entity
Other indicators:
Physical location of assets
Financial information provided by others
Existence of multiple G/L or other financial information
If risk assessments vary or legal or regulatory differences exist
Governmental Audit Quality Center
Group Audits
When will a group audit exist based on the previous
• When another audit firm is used to perform part of the audit (always)
• When auditors in the same firm but different offices audit different
sections of an audit based on any of the indicators (generally)
o Chicago office audits the primary government
o Springfield office audits the foundation which is a discretely
presented component unit
• When a client entity has two distinct operating locations that operate
independently (generally)
o Example – The University has 2 different campuses that are
operated and are accounted for separately as well as combined.
This would be a group audit
• When the client has blended component units which are legally
separate entities audited by the same Crowe office (generally)
Group audits will be prevalent within governmental
Governmental Audit Quality Center
SAS No. 126
Statement on Auditing Standards No. 126,
The Auditor’s Consideration of an Entity’s
Ability to Continue as a Going Concern
• Issue Date: July 2012
• Effective Date: This Statement on Auditing
Standards is effective for audits of financial
statements for periods ending on or after December
15, 2012.
• Supersede SAS No. 59, The Auditor's Consideration
of an Entity's Ability to Continue as a Going Concern
Governmental Audit Quality Center
SAS No. 126
SAS No. 126 addresses the auditor’s responsibilities in an
audit of financial statements with respect to evaluating whether
there is substantial doubt about the entity's ability to continue
as a going concern.
This SAS applies to all audits of financial statements
regardless of whether the financial statements are prepared in
accordance with a general purpose or a special purpose
This SAS does not apply to an audit of financial statements
based on the assumption of liquidation (for example, when [a]
an entity is in the process of liquidation, [b] the owners have
decided to commence dissolution or liquidation, or [c] legal
proceedings, including bankruptcy, have reached a point at
which dissolution or liquidation is probable).
Governmental Audit Quality Center
SAS No. 126
The following are the most significant
changes to the requirements in prior
• SAS-126 requires the auditor to obtain written representations
from management if conditions or events have been identified
that indicate there could be substantial doubt about the entity’s
ability to continue as a going concern for a reasonable period of
• SAS-126 requires the auditor to reassess the going-concern
status of the entity by performing certain procedures when
determining whether to eliminate the going-concern emphasisof-matter paragraph from a reissued report.
Governmental Audit Quality Center
FASB Project
The Liquidation Basis of Accounting and Going
Concern (Formerly Disclosures about Risks and
Phase I: The objective of this phase of the project is
to provide guidance about how and when an entity
should apply the liquidation basis of accounting.
Phase II: The objective of this phase of the project is
to provide guidance about (a) whether and how an
entity should assess its ability to continue as a
going concern and (b) if so, the nature and extent of
any related disclosure requirements.
Governmental Audit Quality Center
Getting to Know the AICPA Clarity Standards
Clarity section of AICPA.org
• Videos
• Mapping from extant to new standards
• More
Listen to archived GAQC member web events
• Implementing the Clarified SASs in a Governmental and Not-For
Profit Audit Environment: What, When, and How?
• Understanding the Potential Impacts of the New Group Audits SAS
on Your Governmental and NPO Audit Engagements
Governmental Audit Quality Center
OMB Circular A-133 Compliance Supplement
Final issuance Supplement issued in July 2012
• Includes 243 individual programs
Accessing the Final Supplement
• Upon issuance, go to OMB's Web site at "Grant Management
Circulars" link: www.whitehouse.gov/omb/grants/ (scroll down to
the "Audit Requirements" section)
• Both current and prior Supplements available (use the correct
OMB previously provided a draft Supplement for
Audit “Planning” Purposes
• Previously posted on GAQC Web page and open
• Do not use the draft now that the final is issued
Governmental Audit Quality Center
OMB Circular A-133 Compliance Supplement
Program changes by the numbers
• New, deleted, changed programs
• Updated Matrix in Part 2 for programmatic changes
Review Appendix V for details of all changes made
Don’t overlook Appendix VII
• Effect of Recovery Act Awards on major program determination
• List of Recovery Act programs not covered by Parts 4 or 5 but
that could be subject to a single audit and list of Recovery Act
programs not subject to single audit
• Late Filings and Low-Risk Auditee Status
• Treatment of Large Loan and Loan Guarantee Programs
Governmental Audit Quality Center
OMB Circular A-133 Compliance Supplement
GAQC members can listen to an archived
Web event titled, 2012 OMB Compliance
Supplement and Related Best Practice Tips
• The event is held annually and provides participants
with an overview of important information in the latest
Compliance Supplement and also provides tips for
ensuring that auditors are avoiding common pitfalls
associated with using the Supplement.
Governmental Audit Quality Center
Technical Update – Government Auditing
Final 2011 edition issued
• Main change relates to independence, especially when
performing nonaudit services
• Very few changes made from interim version previously posted
Effective date same as AICPA clarity
• For financial audits for periods ending on or after 12/15/12
• No early implementation
However, auditors need to be independent
for entire audit period
• New Yellow Book independence requirements for nonaudit
services may need to be considered as early as 1/1/12
Governmental Audit Quality Center
Technical Update – Government Auditing
Resources for 2011 Yellow Book (should be
referred to in other AICPA offerings – all
open to the public)
• Archived GAQC Web event, The New 2011 Yellow Book: What
You Need to Know Now, provides a more in-depth discussion on
2011 Yellow Book
• GAQC practice aid titled, 2011 Yellow Book Independence—
Nonaudit Services Documentation Practice Aid (free PDF
version for AICPA members)
• Archived GAQC Web event, Understanding the AICPA's Yellow
Book Independence Practice Aid for Performing Nonaudit
• Ethics comparison of AICPA standards versus GAO
Governmental Audit Quality Center
Accounting Standards in
the NFP Environment and
Recent FASB StandardSetting Activity
Governmental Audit Quality Center
Who are Related Parties
Included in the Not-for-Profit Entities Industry Developments
2012- Audit Risk Alert
ASC 850-10-20 includes the following as related parties
Affiliates of the entity
Entities for which investments in their equity securities would be required to be
accounted for by the equity method by the investing entity (excludes those
investments that have adopted the Fair Value Option
Trusts for the benefit of employees, such as pension and profit sharing trusts
Principal owners of the entity and members of their immediate families
Management of the entity and members of their immediate families
Other parties with which the entity may deal if one party controls or can
significantly influence the management or operating policies
NFP specific relationships
Brother sister organizations
Unconsolidated supporting organizations
National and local affiliates
Governmental Audit Quality Center
Reporting of Related Entities
Included in Not-for-Profit Entities Industry Developments-2012
Audit Risk Alert
Guidance applies to relationships with entities and interest in
entities that provide goods or services that accomplish the
purpose or mission for which the NFP exists or that serve the
NFP’s administrative purposes
• Relationships that are NOT “investments” of the NFP
o Similar type guidance related to reporting ownership of for-profit
entities in circumstances in which those entities are not required to
be consolidated and the objective is to invest in the entity for
investment return is proposed for the AAG
Information presented:
• Describes common relationships
• Identifies where relationships are discussed within FASB ASC
Governmental Audit Quality Center
Three scenarios addressed in table
Initial assessment of related entity: NFP, forprofit, or Special Entity
• Relationships with NFP Entities
• Relationships with For-Profit Entities
• Relationships with Special Entities
Governmental Audit Quality Center
Relationships with another NFP
Six situations, including:
• Controlling financial interest through direct or indirect
ownership of the majority voting interest in the other
• Control of another NFP through majority voting
interest of its board and economic interest exists
• NFP receives distributions from a related fund-raising
foundation, but does not control the foundation
Governmental Audit Quality Center
Relationships with a for-Profit Entity
Eleven situations, including:
• NFP is the GP of a for-profit limited partnership that
has governing provisions that are the functional
equivalent of a limited partnership
• NFP is a limited partner of a for-profit limited
partnership that is engaged in activities other than
real estate activities
• NFP has an interest in an LLC
• NFP has a contractual management relationship with
another entity in which it does not have a controlling
financial interest
Governmental Audit Quality Center
Relationships with Special Entities
Five situations, including:
• NFP is engaged in a leasing transactions with a
special purpose entity lessor
• NFP has entered into a joint operating agreement
with another entity
• NFP is a sponsor in a R&D arrangement
Governmental Audit Quality Center
NFP Consolidating a For-Profit SubsidiaryPresentation
Questions from members on consolidation
have been received by the AICPA Technical
• How would an NFP present a 100%
ownership interest in a for-profit subsidiary on
its consolidated financial statements?
Governmental Audit Quality Center
Expert panel suggests
In accordance with presentation requirements of ASC 810-1045
In an analogous manner that is appropriate for the method of reporting financial
performance and financial position in ASC 958, Not-for-Profit Entities
ASC 810-10-10-1—as if the consolidated group were a single economic entity
o Assets of the for-profit presented in asset section of NFP’s statement of
financial position , liabilities of the for-profit subsidiary are presented in the
liabilities section, and so forth.
Presentation of equity section of for-profit presented in net assets section of
o Dependent upon how ownership interest in the for profit was acquired
 If contributed to NFP with a donor imposed restriction, the equity of
the NFP would be reported within a restricted net asset class
dependent upon the donor’s restriction
 Absent donor restrictions, included in UR of the NFP
 If for-profit sub was acquired in an exchange transaction, the equity
interest would be included in UR
Governmental Audit Quality Center
Conservation Easements
Questions on proper accounting treatment of
conservation easements from members have been
received by the AICPA Technical Hotline specifically
related to:
 Donation of Land with a Conservation Easement
 Donations of Conservation Easements
Governmental Audit Quality Center
Donation of Land with a Conservation
How does an NFP record a donation of land that includes a
conservation easement?
Determine Unit of Account
Is land and easement one or two units of account? (consider guidance in ASC
Consider if easement is specific to land (i.e., is easement an
attribute of the land that would transfer to market participant?)
If yes, record land as asset at FV taking into account the restriction (easement)
If land and easement are accounted for as separate assets:
Conservation easement is an intangible asset (noncurrent if the NFP presents a
classified balance sheet) at its FV as of donation date
Consider ASC 985-605-45-3 through 45-7 to determine if contribution is UR, TR
or PR
o If easement is legally attached to land but donor does not stipulate the use
of the land, the easement is a legal restriction not a donor restriction
o Restrictions that are stipulated by the donor specific to the NFP, are not
reflected in the measurement of the land, but rather the classification of
the net asset
Governmental Audit Quality Center
Donations of Conservation Easements
How does an NFP record a donation of a
conservation easement (without receiving or
possessing an interest in the land)?
• As an intangible asset (noncurrent if the NFP presents a
classified balance sheet)
• At FV as of date of donation
• Consider guidance in ASC 985-605-45-3 through 45-7 to
determine if contribution revenue should be UR, TR, or PR
Governmental Audit Quality Center
GIK Headlines
“Donated Pills Make Some Charities Look
Too Good On Paper”, Forbes
“Controversy Over Drug Values at Aid
Groups: A Look at a Key Player”, Chronicle
of Philanthropy
“The Alice in Wonderland World of Charity
Valuation”, Charity Watchdog
“GIK’s Gone Wild”, TheNonProfitCFO
Governmental Audit Quality Center
ASC820 Guidance for GIK Valuations
Definition of fair value – “the price that
would be received to sell an asset…in an
orderly transaction between market
participants at the measurement date”
Necessary assumptions
• Transaction occurs in the principal (or, if absent, most
advantageous) market
• Transaction costs not included
• Highest and best use of asset
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Principal Market
US market – Is the US the typical “principal
market” based on volume of transactions?
Developed world market :
• What GIK would have an international or developed world
principal market?
o Goods produced for developing world market needs, such as
water sachets or mosquito nets.
• How to identify developed market values for a reasonable level of
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Market Participants
• Those who are able to transact for the goods
in reciprocal transactions
• Beneficiaries of programs are not included
• Donors are not included because by
definition, a donation is a non-reciprocal
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Highest and Best Use
• Challenges occur under this concept:
• Branded product’s highest and best use may be to sell to market
participants who value brand, but product’s utility may be similar
to lower valued, unbranded product – does branding impact
• Branding may be an indication of a different quality product –
would higher quality goods which are branded result in higher
fair values?
• Contrary to “highest and best use”, the perception often is that
GIK values should be conservative – should it be conservative,
aggressive, or “fair” value?
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Produce to Give Type Goods
Partnerships between NFPs and corporate
donors are on the rise
When goods are produced to give
specifically to a NFP, what impact does that
have to their value?
• Should quality and utility of goods be key indicators
of value, or should the intended market place, which
in this case is no market, be key in valuation?
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Proposed / Issued Accounting Standard
Updates (ASUs) For NFPs
Issues identified as the result of the Expert
Panel recognizing practice issues that
needed to be addressed to resolve a conflict
in practice
 Classification of the Sale of Donated Securities in the
Statement of Cash Flows –ASU 2012-05 October
 Donated Services Received From Employees of an
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Classification of the Sale of Donated
Securities in the Statement of Cash Flows
ASU 2012-05 update requires an NFP to classify
cash receipts from the sale of donated financial
assets consistently with cash donations received in
the statement of cash flows if those cash receipts
were from the sale of donated financial assets that
upon receipt were directed without any NFPimposed limitations for sale and were converted
nearly immediately into cash.
Operating unless restricted to a long-term purpose,
e.g., endowment or plant, then classified as
financing activities
Consistent with cash contributions
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Donated Services Received From Employees
of an Affiliate
EITF Issue No. 12-B, Donated Services
Received From Employees of an Affiliated
Considering change to ASC 958-605-25-17
(NFP AAG paragraph 5.93) - contributed
services should be recognized if employees
of separately governed affiliated entities
regularly perform services (in other than an
advisory capacity) for and under the
direction of the donee [and the recognition
criteria for contributed services are met]
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Proposed ASU – Affiliate Services
Scenario – services purchased (costs paid)
by one affiliate are provided without cost to
another, often by personnel being assigned
to another affiliate
Potential change – report all services
received (paid for by affiliate) at cost
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Proposed ASU – Affiliate Services
EITF reached a consensus that the expenses related
to all personnel services that are regularly
performed for the recipient NFP should be
recognized in the NFP’s stand-alone financial
statements and should be measured at the actual
costs incurred by the affiliate under common control
Contributed services criteria would no longer be
applied when reimbursement isn’t sought
ED issued for a 60-day comment period, ending
September 20th
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Split Interest Agreements
Initial measurement is FV of assets- FV
of liabilities= contribution
FV of assets
• Obtaining information from 3rd parties
• Engaging an expert
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GAQC Resources
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GAQC Resources
GAQC Web Site can be a resource!
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GAQC Resources
Archived news alerts and member web events
Tools and Practice Aids
Illustrative Report Examples and Peer Review
Member discussion forum
Links to other key organizations, news items and
Marketing toolkit
Governmental event and conferences summary
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Just Released!
Auditee Resource Center – Open to the Public
• Why quality audit important?
• Auditee resources – some existing resources for auditors and
some new (single audit, Yellow Book, other compliance audits,
and financial statements audits)
o Archived Web events
o Practice aids
o Articles
o Access to GAQC Alerts
• Links to Publications
• Link to Conferences and other training available
• Access the Auditee Resource Center
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GAQC Resources – A Sampling of Tools & Aids
New! Yellow Book Independence Practice
Single Audit Practice Aids
• SEFA Practice Aids (both for the auditor and auditee)
• Internal Control Practice Aids
• Illustrative Auditor’s Reports
Peer Review Checklists
Archived GAQC Alerts and GAQC Web
AICPA Audit Guide, Government Auditing
Standards and Circular A-133 Audits
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GAQC Resources – Archived GAQC Web Events from
Past Year
Understanding Indirect Costs
* Open to the Public
The HHS Head Start Program*
GASB and FASB Updates
Challenges with Fair Value Measurements for NPOs*
New 2011 Yellow Book*
New Group Audit Standards Impact on Governmental and NPO Audits
New HUD Rules for Banks*
Understanding the Effect of the Clarified Auditing Standards on
Governmental and NPO Audits
Updated SEFA Practice Aids (for SAS 119)
Subrecipient Monitoring: An Auditee and Auditor Perspective*
Understanding the New AICPA Yellow Book Independence Practice
Annual GAQC Webcast on Planning for 2012 Governmental and NPO
2012 Compliance Supplement and Related Best Practices
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Questions ?????
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