Going Concern Considerations in the Current Environment
The coronavirus (COVID-19) pandemic has wreaked havoc on the global economy and there are very few businesses or nonprofit organizations that have not been affected in some way. As a result, auditors, accountants, and financial statement preparers need to brush up on the existing going concern requirements to be ready to address those situations. Because of the widespread effects of the pandemic, there will likely be few exceptions where organizations do not have some amount of doubt about events and conditions being present that could indicate a going concern problem. For all audit engagements in process, the impact on the report needs to be considered, as well as the adequacy of going concern disclosures.
Section 4960 Excise Tax Guidance
IRC Sec. 4960(a), added to the Code by the 2017 Tax Cuts and Jobs Act, generally provides that an applicable tax-exempt organization paying a covered employee remuneration in excess of (1) $1 million during a tax year, or (2) any excess parachute payment is subject to an excise tax.
Update on Standard Setters’ Implementation Delays
In the June 2020 edition of The Nonprofit Update, we discussed deferrals of the implementation dates of certain standards. Here’s an update on what’s going on.
Net Operating Loss Rules
Because of the 2017 Tax Cuts and Jobs Act (TCJA) and the recent Coronavirus Aid, Relief, and Economic Security (CARES) Act, the rules for an exempt organization’s (EO) use of a net operating loss (NOL) incurred in an unrelated business activity have become complex.
COVID-19 Is Increasing Audit Risks
The coronavirus (COVID-19) pandemic has rightly become the focus of massive public attention in recent weeks, and financial markets around the world have reacted accordingly. As a result, auditors should be mindful of heightened audit risks this year. This article summarizes a few of the audit risks that may be encountered and lists several resources for additional COVID-19 news, updates, and guidance.
Updated Exempt Organization Procedural Guidance
The IRS has updated guidance regarding the application process for taxexempt status. Revenue Procedure 2020- 8 (2020-8 IRB 447) modifies certain previous guidance as highlighted in this article.
OMB Releases Proposed Revisions to the Uniform Guidance
On January 22, 2020, the Office of Management and Budget (OMB) published proposed revisions to sections of Title 2 of the Code of Federal Regulations (CFR) Subtitle A—OMB Guidance for Grants and Agreements. OMB states that the purpose of the proposed revisions is to reduce the burden on grant recipients; provide guidance on implementing new statutory requirements; and improve federal financial assistance management, transparency, and oversight. This article focuses on key proposed revisions to the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) located in 2 CFR part 200.
Mandatory E-filing Effective Dates
The September 2019 edition of this newsletter provided guidance on the new mandatory e-filing requirements for exempt organizations (EOs) and the related transitional relief for smaller organizations.
Recently the IRS issued News Release 2019-206, reminding EOs of these filing requirements that apply for tax years beginning after July 1, 2019.
Spotlight on the AICPA’s New Auditor Reporting SAS
On May 8, 2019, the AICPA issued SAS 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements, a suite of auditor reporting standards. This suite of auditor reporting standards is the result of the AICPA’s ongoing Auditor’s Report project. SAS 134 supersedes and replaces AU-C 700, Forming an Opinion and Reporting on Financial Statements; AU-C 705, Modifications to the Opinion in the Independent Auditor’s Report; and AU-C 706, Emphasis- of-Matter Paragraphs and Other-Matter Paragraphs in the Independent Auditor’s Report. SAS 134 also adds AU-C 701, Communicating Key Audit Matters in the Independent Auditor’s Report, and amends the following existing standards: AU-C 200, 210, 220, 230, 240, 260, 300, 315, 320, 330, 450, 510, 540, 570, 600, and 910.
Document Retention and Destruction Policy
Every tax-exempt organization (EO) must adopt a document retention and destruction (DRD) policy. The DRD policy should create an ongoing, coordinated administrative effort to systematically manage documents and records. The purpose of the DRD policy is to ensure that documents are secure, accessible, maintained, and destroyed according to business practices that are practical, while still meeting the legal requirements applicable to the EO.
AICPA Issues Omnibus SAS 135—Part 1
In May 2019, the AICPA issued SAS 135, Omnibus Statement on Auditing Standards— 2019, which amends 13 sections of the Statements on Auditing Standards. The amendments result from the evaluation of three auditing standards that have been issued by the Public Company Accounting Oversight Board (PCAOB) since the AICPA’s Auditing Standards Board (ASB) completed its auditing standards clarity project: AS 1301, Communication With Audit Committees; AS 2701, Supplementary Information; and AS 2410, Related Parties. The ASB determined that these PCAOB standards included guidance not found in current SASs that enhance audits of the financial statements of nonissuers. Based on its review and evaluation of the PCAOB standards, the ASB made certain amendments to existing GAAS.
The Operated Exclusively Test for Section 501(c)(3) Organizations
Basic Rules An organization qualifies for exempt status under IRC Sec. 501(c)(3) only if it is operated exclusively for religious, charitable, scientific, testing for public safety, literacy, or educational purposes (charitable activities). The regulations interpret this test to mean that an organization must engage primarily in activities that accomplish one or more of these purposes [Reg. 1.501(c)(3)-1(c)(1)]. Conversely, an organization will not satisfy the operated exclusively test if more than an insubstantial part of its activities does not further an exempt purpose.
FASB Staff Q&A on Grant Agreements—Part 2
In June 2018, the FASB issued ASU 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. As discussed in Part 1 of this article published in the August 2019 issue of The PPC Nonprofit Update, in June 2019, the FASB issued Staff Q&A, Subtopic 958- 605, Application of the Limited Discretion Indicator and Accounting for Cost-Sharing Provisions in a Grant Agreement, to address a few issues relating to implementation of ASU 2018-08.
GAAP versus Form 990 Reporting
Form 990 preparers and users must understand the differences in GAAP and tax reporting requirements. Since the implementation of FASB ASU 2016-14 guidance, effective for organizations with calendar year 2018 and fiscal year 2019 year ends, it’s important to consider some of these differences.
AICPA Releases 2019 Nonprofit Risk Alert
This year’s AICPA Audit Risk Alert (Alert), Not-for-Profit Entities Industry Developments—2019, has been released, and much of the information is helpful to auditors and nonprofit organization managers alike. This article summarizes key features of the 2019 edition.