Brief overview of new accounting rules on the horizon – 11/21.

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To help auditors in the CPA community, the AIPCA peer review staff publishes PR Prompts, a newsletter with information for firms providing audits, review, compilations, and other attestation services.

The newsletter is unbranded and AICPA gives explicit permission to peer reviewers to put their logo and branding information on the newsletter. Those of us who are peer reviewers have specific permission to send it to our clients.

The following comments are provided to you courtesy of the AICPA.  I gratefully acknowledge their work in preparing this info and gladly share it with you. 

For ease of reading, I will not put all the following material in quotations.

One section provides background on new accounting rules that will be effective over the next few years.

PR Prompts – Fall 2021:

Standards with later effective dates to be thinking about

The following ASUs are not effective for NFPs in 2021; however, entities should still be aware of them so they can evaluate and adequately plan for implementation when the time comes.

ASU No. 2020-07, Not-for-Profit Entities (Topic 958): Presentation and Disclosure by Not-for-Profit Entities for Contributed Nonfinancial Assets

While ASU No. 2020-07 is not effective until 2022, NFPs may be considering early adoption. The ASU requires that an NFP (1) present contributed nonfinancial assets as a separate line item in the statement of activities, apart from contributions of cash and other financial assets and (2) disclose the following:

  1. A disaggregation of the amount of contributed nonfinancial assets recognized within the statement of activities by category that depicts the type of contributed nonfinancial assets.
  2. For each category of contributed nonfinancial assets recognized (as identified in (a)), qualitative information about wither nonfinancial assets were monetized or utilized; the NFP’s policy (if any) about monetizing rather than utilizing contributed nonfinancial assets; donor-imposed restrictions associated with contributed nonfinancial assets; and valuation techniques, inputs, and the principal market used for determining fair value.

Amendments in this standard are effective for annual periods beginning after June 15, 2021 (calendar year 2022; fiscal year 2021-22), and interim periods within annual periods beginning after June 15, 2022. Retrospective basis is used for implementation. Early adoption is permitted. Sample disclosures are available in the ASU and this resource.

ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

This ASU serves to simplify the test for goodwill impairment by eliminating step 2 of the test, focusing on the lower of fair value of the reporting unit compared to the carrying value, and removing the requirement to record negative goodwill. The standard is effective for nonpublic entities for annual reporting periods beginning after December 15, 2021. Early adopting is permitted.

ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

The amendments in ASU No. 2016-13 require more timely reporting and disclosure of credit loss allowances on receivables and other financial instruments not reported at fair value. Furthermore, expected losses must be based on historical experience, current conditions and reasonable (and supportable) forecasts. The ASU is effective for nonpublic entities for annual reporting periods beginning after December 15, 2022.

Summary

Preparing for implementation of new ASUs can be a daunting task; however, it does not have to be. By taking the time and effort to evaluate and plan for adoption of new standards, entities will be better prepared for implementation making the whole process less stressful. All NFPs are different, so these ASUs will have different effects and implications depending on the nature of the entity’s operations. Attending trainings, talking with colleagues and meeting with auditors are just some of the things NFPs can do to alleviate some of the stress and burden of adopting new ASUs.

Additional Resources

The following resource libraries and publications provide additional guidance and tools to assist entities with implementation of new accounting standards:

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