Not-for-Profit Accounting Alert
Jan. 17, 2012
The Not-for-Profit Accounting Alert offers accounting news you can use from Crowe Horwath LLP's audit and assurance experts. In each issue of this electronic newsletter, you will find abstracts of recent accounting issues and regulatory developments.
From the Financial Accounting Standards Board (FASB)
Guidance on Balance Sheet Offsetting
On Dec. 19, 2011, the FASB issued Accounting Standards Update (ASU) 2011-11, "Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities." This new guidance affects all entities with financial instruments or derivatives that are either presented on a net basis in the balance sheet or subject to an enforceable master netting arrangement or a similar arrangement. The ASU does not change existing offsetting criteria in U.S. generally accepted accounting principles (U.S. GAAP) or the permitted balance sheet presentation for items meeting the criteria. To help financial statement users better assess the effect or potential effect of offsetting arrangements on an entity's financial position, the new guidance requires disclosures in the financial statement notes that provide both net and gross information about assets and liabilities that have been offset and the related arrangements.
The new disclosure requirements in the ASU are intended to enhance comparability between financial statements prepared using U.S. GAAP and those prepared in accordance with International Financial Reporting Standards (IFRS). The eligibility criteria for offsetting are different in U.S. GAAP and IFRS. In January 2011, the FASB and the International Accounting Standards Board issued an exposure draft (acceptance of terms required) proposing new common criteria for offsetting, but the boards could not agree. The FASB voted to retain existing U.S. GAAP guidance on offsetting and to require expanded disclosures for financial instruments and derivative instruments that are either offset in the balance sheet or eligible for offset subject to a master netting arrangement or similar arrangement.
The ASU is effective for annual reporting periods beginning on or after Jan. 1, 2013, and interim periods within those annual periods. Disclosures required by the amendments should be provided retrospectively for all comparative periods. The FASB has published a short recap highlighting the significant issues the ASU addresses.
Proposed Codification Amendments Resulting From Revenue Recognition Proposal
On Jan. 4, 2012, the FASB published an exposure draft titled "Revenue Recognition (Topic 605): Revenue from Contracts with Customers – (including proposed amendments to the FASB Accounting Standards Codification®)." This exposure draft is a companion document to the proposed ASU on revenue recognition the FASB issued in November 2011. The proposed amendments in this draft codify the guidance in the proposed ASU on revenue recognition and proposed amendments to ASC subtopics that will be consequentially affected by that proposed ASU. Comments on the exposure draft are due March 13, 2012.
From the U.S. Government Accountability Office (GAO)
Yellow Book Revision
The GAO announced on Dec. 21, 2011, the issuance of the 2011 revision of Government Auditing Standards. This revision supersedes the 2007 revision and the 2011 Internet version posted in August 2011. The standards, commonly referred to as the "Yellow Book," were first published in 1972. The requirements and guidance of the Yellow Book applies to audits of government entities, programs, activities, and functions, and of government assistance administered by contractors, not-for-profit entities, as well as other nongovernmental entities when the use of government auditing standards is required or voluntarily followed.
Significant changes to generally accepted government auditing standards made in the 2011 revisions include:
- The addition of a conceptual framework for independence to allow auditors to assess the impact on the independence of activities not expressly prohibited. Guidance was substantially revised for nonaudit services that always impair an auditor's independence and for certain nonaudit services that may be permitted under appropriate circumstances. While the underlying concepts have been retained, specific references to personal, external, and organizational impairments and the overarching independence principles have been removed.
- The establishment of requirements for auditors performing nonaudit services at entities they audit, including a requirement that the auditor perform and document an assessment of whether management possesses the suitable skill, knowledge, or experience to oversee the nonaudit service.
- The addition of a summary of requirements for the documentation necessary to support adequate consideration of auditor independence.
- Three categories of attestation engagements – examinations, reviews, and agreed-upon procedures engagements – are now discussed separately. Auditors are not permitted to deviate from the reporting elements prescribed by the American Institute of Certified Public Accountants.
- For performance audits, the reporting requirements for fraud now include only those occurrences that are significant within the context of the audit objectives.
For financial audits and attestation engagements, the effective date of the 2011 Government Auditing Standards is for periods ending on or after Dec. 15, 2012. For performance audits, the effective date is for audits beginning on or after Dec. 15, 2011. Early application is not permitted.
From the Committee of Sponsoring Organizations (COSO)
Updated Exposure Draft for Public Comment
On Dec. 19, 2011, the Committee of Sponsoring Organizations of the Treadway Commission released an exposure draft of an updated document, "Internal Control – Integrated Framework" (completion of questionnaire required). The original framework was issued in 1992 and is often used for designing, implementing, and evaluating the effectiveness of internal control. The update reflects changes in the business and operating environment that have occurred since the framework's original publication.
The update retains the original framework's core definition of internal control and the broad criteria used to assess internal control's effectiveness. Also retained are the five components of a system of internal control:
- Control environment
- Risk assessment
- Control activities
- Information and communications
- Monitoring activities
Significantly enhancing the framework is the addition of a codification into 17 principles of the five internal control concepts, which were introduced in the original framework, with each principle being supported by associated attributes. These principles and attributes are intended to provide clarity for organizations designing and developing internal control systems in an increasingly complex and rapidly changing environment.
Comments on the exposure draft are due March 31, 2012. Release of the final framework is expected this fall.
Contact Information
For more information, please contact Cynthia Pierce at 312.899.7019 or cynthia.pierce@crowehorwath.com.
FASB Accounting Standards Codification is a trademark of the Financial Accounting Foundation.
Under U.S. Treasury rules issued in 2005, we must inform you that any advice in this communication to you was not intended or written to be used, and cannot be used, to avoid any government penalties that may be imposed on a taxpayer.