FASB Issued Accounting Standards Update No. 2013-06 (Topic 958)
In April 2013, the FASB issued Accounting Standards Update (ASU) 2013-06, Not-for-Profit Entities: (Topic 958): Services Received from Personnel of an Affiliate. The standard was developed as a result of the current diversity in practice of recording the services of people who work for an organization but are employees of a separate affiliated entity. The ASU clarified the guidance that not-for-profit entities should apply when recognizing and measuring these services received from personnel of an affiliate.
Many not-for-profit entities are the beneficiaries of services performed on their behalf by other affiliated not-for-profit entities. In some cases, the affiliated not-for-profit entity will charge the recipient not-for-profit entity for the services performed. In these instances, the not-for-profit entity will recognize an expense for these services based upon the amount they were charged.
However, in other cases, the affiliated not-for-profit entity will not charge the recipient not-for profit entity for the services performed. In these instances, diversity in practice has existed as to whether the recipient not-for-profit should recognize revenue or expense associated with the services performed. Some recipient not-for-profit entities have recognized contribution revenue and expense for all such services performed by affiliates. Others have only recognized contribution revenue and expense to the extent the services provided by the affiliate meet the criteria for recognition under contributed services guidance. Such guidance states that contributed services should be recognized for those items that create or enhance nonfinancial assets or require specialized skills, are provided by individuals possessing those skills, and typically would need to be purchased if not provided by donation. Still other recipient not-for-profit entities have not recognized any contribution revenue or expense for such services provided by an affiliate.
The guidance contained within ASU 2013-06 is intended to resolve this diversity in practice. The ASU requires a recipient not-for-profit entity to recognize all services received from personnel of an affiliate that directly benefit the recipient not-for-profit entity. Those services should be measured at the cost recognized by the affiliate for the personnel providing those services (compensation and payroll-related fringe benefits). However, if measuring a service received from personnel of an affiliate at cost will significantly overstate or understate the value of the service received, the recipient not-for-profit entity may elect to recognize that service received at either (1) the cost recognized by the affiliate for the personnel providing that services or (2) the fair value of that service.
The ASU does not prescribe presentation guidance for the increase in net assets associated with services received from personnel of an affiliate other than prohibiting reporting as a contra expense or a contra-asset. Most recipient not-for-profit entities will likely record the increase in net assets associated with the services received as contribution revenue. Additionally, recipient not-for-profit entities should report the corresponding decrease in net assets or the creation or enhancement of an asset resulting from the use of services received from personnel of an affiliate similar to how other such expenses or assets are reported.
In some instances, the recipient not-for-profit entity may not know the cost recognized by the affiliated entity when providing the services or the cost may be difficult to obtain for a number of reasons. The ASU states that any reasonable and verifiable manner of capturing or estimating the information necessary to apply the provisions of the ASU may be used.
Previously, a not-for-profit association providing administrative services for various other affiliated not-for-profit entities may also not have recognized these services as the entities were affiliated. This guidance may change how these entities report the value of these services on their financial statements.
The ASU is effective prospectively for fiscal years beginning after June 15, 2014, and interim and annual periods thereafter. A recipient not-for-profit entity may apply the amendments using a modified retrospective approach under which all prior periods presented upon the date of adoption should be adjusted, but no adjustment should be made to the beginning balance of net assets of the earliest period presented. Early adoption is permitted.
IRS to Undertake Compliance Study on Non-Governmental 457(b) Plans
Internal Revenue Code Section 457(b) provides tax-advantaged treatment for certain non-qualified deferred compensation plans. The IRS recently announced plans for the Employee Plans Compliance Unit (EPCU) to undertake a study of organizations participating in non-governmental 457(b) plans, often referred to as "Top Hat" plans. The EPCU plans to send compliance check letters and questionnaires over the next few years. The objective of the correspondence is to learn more about the operation of the plans, verify that the plans comply with Internal Revenue Code requirements, identify issues of noncompliance, and recommend ways to remove any barriers to compliance.
EPCU plans to send compliance check letters and questionnaires to approximately 200 organizations in IRS fiscal year 2013 (ending 9/30/2013) and another 200 in fiscal year 2014 (ending 9/30/2014) as part of this review. Organizations that filed Forms W-2 for 2011 and showed contributions to a non-governmental 457(b) plan and also filed Form 990 may be selected for this study.
Noncompliance issues will be identified and plan sponsors will be notified of corrective actions needed, including the possibility of a plan audit or correction under the Voluntary Correction Program.
See the entire announcement here.
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