FASB & Other Updates

FASB & Other Updates CACUBO Annual Meeting - 2012

Introductions Michelle Horaney Partner, National Leader for Education McGladrey LLP 201 N. Harrison Street Davenport, Iowa 52801 michelle.horaney@mcgladrey.com Phone: 563.888.4038

Agenda Introduction FASB Standard Setting Activity OMB Advance Notice Questions

Objectives • Develop an understanding of the changes in existing and new FASB standards and how they may impact your institutions • Build an awareness of current FASB projects, their status and how they might impact your institutions • Provide a “heads up” for potential changes to OMB Circular A-133

Definitions • Webster’s Dictionary …….. Clarity - the quality or state of being clear, transparency Relevant – pertinent, applicable, important, significant, weighty Significant – important in effect or meaning, substantial, fairly large

Someone Famous Once Said…. About Fair Value Disclosures “I really don’t think these add any real value at all. The information takes a lot of time to pull together and I don’t think it helps users understand them any better.” Anonymous 1 “To say that FASB has gone orbital in its disclosure requirements regarding fair values is a mild statement…. few people understand level 1, 2 or 3 and even fewer understand what a practical expedient is or care. For a single footnote to take 5 pages with 5 tables to describe the process is not appropriate.” Anonymous 2

FASB Update No. 2011-04, Fair Value Measurement • Topic 820 Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs • Update represents the continued development of guidance related to fair value measurements in US GAAP and is the result of FASB and IASB working to align their guidance with respect to fair value measurements. • Effective date • Public entities – interim and annual periods beginning after December 15, 2011 • Nonpublic entities – annual periods beginning after December 15, 2012

FASB Update No. 2011-04, Fair Value Measurement • Topic 820 Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (Cont’d) • For fair value measurements categorized within Level 3 of the fair value hierarchy: • The valuation processes used by the reporting entity • A narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs, if any. (not applicable to nonpublic entities)

FASB Update No. 2011-04, Fair Value Measurement • Topic 820 Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (Cont’d) • Observable input – inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. • Unobservable input – inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

FASB Update No. 2011-09, Compensation Retirement Benefits – Multiemployer Plans …. • Subtopic 715-80 Disclosures about an Employer’s Participation in a Multiemployer Plan • The disclosures will provide users of financial statements with additional information about the plans in which an employer participates, the level of an employer’s participation and the financial health of significant plans. • Effective date • Public entities – fiscal years ending after December 15, 2011 • Nonpublic entities – fiscal years ending after December 15, 2012

FASB Update No. 2011-09, Compensation Retirement Benefits – Multiemployer Plans …. • Essential Elements of the Disclosures • Individually significant plans • Plan legal name • Most recent certified funded status, expressed as a “zone status” as required by the Pension Protection Act of 2006. If zone status is not available, an employer should disclose whether the plan was: • Less than 65 percent funded • Between 65 and 80 percent funded • At least 80 percent funded • Expiration date(s) of collective bargaining agreements and any minimum funding requirements

FASB Update No. 2011-09, Compensation Retirement Benefits – Multiemployer Plans …. • Essential Elements of the Disclosures (cont’d) • Indication of whether the employer’s contributions represent more than 5% of total contributions to the plan • Indication of what plans, if any, are subject to a funding improvement plan • Contributions made to each individually significant plan and the total contributions made to all other plans in the aggregate. • A description of the nature and effect of any changes affecting comparability from period to period for each period in which a statement of income is presented.

Proposed ASU – Revenue Recognition • Joint project between FASB and IASB to clarify revenue recognition and provide for a common revenue standard • Remove inconsistencies and weaknesses • More robust framework to address revenue issues • Improve comparability across entities, industries • Provide more useful information • Simplify preparation of the financial statements • Focus is on contracts with customers • Excludes donations and collaborative agreements

Proposed ASU – Lease Project • Joint project between FASB and IASB which focuses on ensuring assets and liabilities related to leasing arrangements are recognized in the statement of financial position. • Two-approaches for recording leases based on consumption of asset being leased • If more than insignificant use, record as a nonfinancial asset at cost less accumulated depreciation • If not more than insignificant expense straight-line over lease term • Lessors – two approaches with same basic premise

Proposed ASU – Disclosures about Liquidity Risk and Interest Rate Risk • Addresses stakeholder’s concerns about how organizations disclose their exposure to liquidity and interest rate risks. • Liquidity risk disclosures intended to provide information about the risk that the reporting organization will encounter difficulty when meeting its financial obligations. • Interest rate risk disclosures – good news – would only apply to financial institutions!

Proposed ASU – Disclosures about Liquidity Risk and Interest Rate Risk • Liquidity Risk Disclosure Requirements: • Expected cash flow obligations in a table, segregated by their expected maturities, without being required to include financial assets in the table. • Available liquid funds in a table. • Quantitative or narrative disclosure of the organization’s exposure to liquidity risk, including a discussion about significant changes in the amounts and timing in the quantitative tables and how the reporting organization managed those changes during the current period.

Someone Famous Once Said……. “I hate to admit it, but the Endowment disclosure, which is a nightmare to prepare, really does give useful and important information.” Anonymous 3 About the Endowment footnote as compared to the fair value footnote …..“These are a little more helpful but I think users have trouble getting their minds around the net asset classifications.” Anonymous 4 Regarding implementation of more recent standards….. “We are all very thinly staffed and it’s hard to get administration to agree to add staff in the accounting area. I would say that with all the financial statement changes and changes to the 990 we need to add at least 1 new staff member but that’s probably not going to happen so we just pile more work on existing staff.” Anonymous 5

Discussion Paper – Disclosure Framework • Common complaint from virtually all stakeholders • Financial statements are just too long and have become much less effective as a tool for communicating with investors • The Rub – Investors continue to say they want more information • Project intended to improve the effectiveness of disclosures by clearly communicating the information that is most important to an entity’s financial statement users

Discussion Paper – Disclosure Framework • The invitation to comment addresses the following topics: • The FASB’s decision process • Making disclosure requirements flexible • A judgment framework that could help each reporting organization determine which disclosures are relevant in its specific circumstance • Formatting and organization • Interim disclosures

Discussion Paper – Disclosure Framework • The FASB believes that a framework for the disclosures must be established before considering any specific changes to the existing disclosure guidelines • When the framework has reached a sufficient level of development, will be applied to existing standards • The paper does not propose any specific changes but suggests a number of possibilities that could lead to more effective disclosures • Describes ways in which disclosures need to be improved • Describes at least one possible way to address each need • Solicits information about other areas that need improvement and other possible ways to achieve improvement

EITF – 12A Classification of Sales of Donated Assets in the Statement of Cash Flows • Interpretation of Topic 230 mixed between showing in operating activities section and showing as an investment activity • April 2012 Task Force ratified a consensus for exposure – 90 day comment period • Cash receipts resulting from sale of donated securities that are directed upon receipt for sale and for which the NFP has the ability to avoid investment risks and rewards through near immediate conversion to cash should classify the sale as an operating activity • Donor restricted the use of the asset for long-term purpose then the sale of the investment would result in a financing activity

EITF – 12B NFP – Services Received from An Affiliate for which the Affiliate Does not Seek Compensation • Groups of affiliated not-for-profit entities (NFPs) often operate under agreements that provide for acquisition and deployment of resources for common purposes and projects. An NFP may receive support and revenue that is used to pay employees who are then assigned to work for other affiliated NFPs. • Current practice: ASU 958-605-25-17 - contributions of services shall only be recognized if they create or enhance nonfinancial assets or if they require specialized skills, are provided by individuals possessing the skills, and would typically need to be purchased if not provided by donation.

EITF – 12B NFP – Services Received from An Affiliate for which the Affiliate Does not Seek Compensation • July 2012 the Task Force ratified a consensus-for-exposure that a recipient NFP should not apply the contributed services guidance in paragraph 958-605-25-17 for recognizing personnel services received from an affiliate for which the affiliate does not seek compensation. • The recipient NFP should recognize all personnel services received from an affiliate at the cost incurred by the affiliate. • The personnel services received from an affiliate must directly benefit the recipient NFP in the way that is similar to the way in which benefit is gotten from personnel directly engaged by the recipient NFP.

FASB Votes to Discontinue Loss Contingencies Project • Project was undertaken to address concerns that the current disclosures about certain loss contingencies do not provide sufficient and timely information about the likelihood, timing and amounts of cash flows associated with loss contingencies • The FASB issued Exposure Drafts in 2008 and 2010 • The changes proposed were strongly opposed by non-user constituents • Common belief that additional disclosures could be prejudicial to the reporting entity • After long period of inactivity, the FASB voted to remove the controversial project from its technical agenda at the July 2012 meeting

FASB Attempts to Redefine Nonpublic Entity • The FASB Project, “Definition of a Nonpublic Entity”, is re-examining the definition of a nonpublic entity • Focus is on defining what constitutes a private company in order to • Distinguish between different types of entities for standard setting purposes and • Determine which companies are to be included in the scope of the Private Company Decision Making Framework • FASB has currently decided that the following types of entities should not be included in the definition of a private company • SEC filers • For-profit entities that are conduit bond obligators that are traded in the public market • EB Plans

OMB Advance Notice of Proposed Guidance • Reform of Federal Policies Relating to Grants and Cooperative Agreements; cost principles and administrative requirements (including Single Audit Act) • Issued February 2012 • Comments due April 30, 2012 • Final Version?

OMB Advance Notice – Key Provisions • Increase minimum threshold for audit to $1 million • Add second tier for audit of awards between $1 million and $3 million • Only audit allowable costs and one additional requirement • Full scope single audit if over $3 million • Consider reevaluating applicable (universal) requirements

OMB Advance Notice – Key Provisions • Coordination of audit resolution activities among agencies • Consolidation and clarification of cost principles • Consolidation and clarification of administrative requirements

Questions??

For Additional Information Contact: Michelle Horaney, Partner McGladrey LLP 201 N Harrison St., Suite 300 Davenport, Iowa 52801 michelle.horaney@mcgladrey.com Direct 563.888.4038 For more information on McGladrey’s Education practice visit http://mcgladrey.com/Industries/Education

McGladrey LLP 201 North Harrison St, Suite 300 Davenport, Iowa 52801563.888.4000 800.274.3978 www.mcgladrey.com

FASB & Other Updates