News & Resources

« Back to News Archive

April 03, 2012

The Airing of Grievances

By Pete Kennedy, CPA, CVA – Director at Cover & Rossiter, P.A.
GetInvolved Nonprofit Guide Article published in the March 2012 News Journal

The good folks at the Delaware Community Foundation have been patiently listening to me whine about the Statement of Financial Accounting Standards (SFAS) number 136 adjustment for at least 7 years now.  In short, it is an accounting adjustment that takes many hours to put together with the end result being that the financial statements are (in my opinion) less meaningful and more confusing than before.  So why is it done?  Because it is required in order to have a “clean” audit opinion.  SFAS-136, however obtuse and illogical, is GAAP (Generally Accepted Accounting Principles), which makes it the accounting “Law of the Land.”

As accounting changes are formulated by the Financial Accounting Standards Board (FASB) from their offices in Norwalk, Connecticut, they are issued in draft form for comment.  We have made it a point to formally comment on changes which will impact the nonprofit community.  In reading through the comment letters, it often struck me how easy it was to tell whether the author of a given letter would actually have to comply with the change or was merely interested in the change from an academic / theoretical perspective.  It seems that some of the recent accounting changes are not motivated by a desire for clear and meaningful financial reporting, but rather by a chase for accounting purity with little regard for the costs vs. benefits of the change.

A case in point:
The FASB is doing a major re-write of the lease accounting rules.  Currently, for 99.9% of nonprofit leasing transactions, the accounting couldn’t be simpler.  You make a lease payment, you record it as a lease expense, you disclose the lease terms in the footnotes – done.  But wait, says the FASB, isn’t it true that the lease vs. buy decision is actually a quasi-capital one and that therefore all leases constitute capital “right of use” assets (with a corresponding lease payment liability)?  This is the FASB’s impetus behind the upcoming change – ALL leases (unless immaterial) will be required to be shown as an asset and a liability to reflect the fact that the payments and use of the asset exist.  I can say with virtual certainty that none of my clients would implement this independently – not because they are daunted by the substantial effort involved, but because the payback in terms of useful and meaningful financial information is non-existent.  But implement they will because – all together now – it’s GAAP and is required for a clean audit opinion.

I recently went to a seminar where the instructor suggested that we consider abandoning GAAP and going to cash-basis financial statements to avoid the compliance costs of the lease accounting changes.  That’s certainly an option, but it begs the question: if GAAP is too illogical, too cumbersome, and too costly to comply with, what good is it?

So should we all just resign ourselves to bite the bullet and comply with this and future changes?  You can’t fight City Hall right?  What else can be done?

Well, there are a few ways to be heard.  I recently applied and was selected for a position on the FASB’s Not-For-Profit Financial Statement Working Group.  This is a national group of 20 individuals who will assist the FASB in making improvements to nonprofit financial statements.  I didn’t pull any punches in the application essay. Similar to Frank Costanza at the beginning of Festivus, there was an airing of grievances.  I likened GAAP to the good china, taken out once a year for show but completely impractical for daily use.  I plan to bring with me to Norwalk the perspective of someone who will be responsible for implementing and working with whatever changes are discussed.

The group will correspond throughout the year and will meet in Norwalk several times a year.  One of the stated objectives is to get the word out and solicit feedback from the larger nonprofit community.  With that in mind, I’d like to ask for YOUR input to keep the Board informed.   If you have gripes or suggestions for improvement, please let me know.

Secondly, as discussed above, the FASB will issue exposure drafts for comment prior to making a change official.  They are expected to re-issue the lease accounting change discussed above sometime between April and June of this year.  If you disagree with this change, you are encouraged to submit a letter to the FASB.  The letters are read and I will tell you from experience that they can influence the decision-making process.  If you’d like to stand up and be counted, we can help point the way.

For help with all matters pertaining to accounting, tax, and audit requirements for nonprofit organizations, please contact Pete Kennedy, or any other member of our Nonprofit Practice team, at Cover & Rossiter at (302) 656-6632.

Cover & Rossiter, P.A. (www.CoverRossiter.com) is one of the most respected and experienced CPA firms serving the accounting, tax and audit needs of the nonprofit community in Delaware.

\'Like\' Cover & Rossiter on FacebookFollow Cover & Rossiter on TwitterFollow Cover & Rossiter on LinkedInSubscribe to the Cover & Rossiter blogAdd Cover & Rossiter to your Google+ Circle
Social
Phone: 302-656-6632
Toll Free: 800-656-6632

62 Rockford Road, Ste. 200
Wilmington, DE 19806

102 Sleepy Hollow Road
Suite 201
Middletown, DE 19709

Website Design & Marketing Services by Zest Social Media Solutions LLC