As 2015 gets underway, this is a good opportunity to quickly review a few changes in tax/financial accounting that affect nonprofit organizations. The good news is that not a lot is changing for 2015. For example, the Form 990 which was completely redesigned in 2008 and has seen some tweaks since then, will change very little this next year.
Federal Awards
For those nonprofits who receive Federal funding, a Single Audit, as required by the Federal Office of Management and Budget (OMB), is now required when organizations expend $750,000 or more in any one fiscal year. This new threshold is in effect for organizations with a fiscal year that begins on or after December 26, 2014. So, essentially, this new threshold will first be in effect for organizations with a December 31, 2015 year-end. As the old threshold was $500,000, this change will remove the Single Audit requirement for approximately 5,000 organizations, saving those organizations from the Single Audit fees.
There are a few other changes related to this new regulation over Federal awards. These include the revised (higher) thresholds in determining Type A programs and questioned costs as well as the reduction in testing coverage that is required of auditors. The overall result of this new OMB regulation is good if you are a nonprofit that desires less regulation over the funds you have been awarded.
Compilation vs. Preparation of a Financial Statement by a CPA
For those organizations who have had their CPA compile their monthly, quarterly, and annual financial statements, they may be familiar with the concept of “report” compilations and “non-report” compilations. Basically, report compilations are financials that can be given to a third-party while non-report compilations are for internal-use only and should not be shared with third-parties. This standard has become very outdated, especially with the increase in cloud-based technologies where multiple people can be accessing the accounting software at any one time, making entries, etc. So, the questions would arise: “Are we saying that the CPA has created these financial statements? Who is taking responsibility for these statements? Why can’t we take these financials to the bank?”
The American Institute of Certified Public Accountants (our governing body) recognized this confusion and frustration over limiting the use of financial statements and has released new guidance in this area. Effective December 15, 2015, the concept of a non-report compilation is gone (early implementation of this standard is allowed). Now, all compilations will be report compilations, still signed by the CPA firm. Instead of non-report compilations, we now have preparation of financial statements. While a footer message such as “For Management-Use Only” was required on each page of the non-report compilation, the new footer message for prepared financial statements will include a disclaimer to the effect that no assurance is provided by the CPA with respect to the prepared financial statements. The intention here is to make it clear that while a third-party might read the prepared statements, the CPA is not providing any assurance on them.
Other Accounting Updates for 2015
Standard mileage rates for 2015 as published by the IRS:
Business mileage rate: 57.5 cents
Charity mileage rate (in service to charities): 14.0 cents
Clarified accounting rules to record the value of services received from employees of an affiliate organization
Clarified presentation in the statement of cash flows when nonprofits sell donated financial assets, such as securities