United States

Getting ready: Revenue recognition and not-for-profit entities

FINANCIAL REPORTING INSIGHTS  | 

It is not too early to begin anticipating and mapping out the impact on your organization of FASB Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606). The first step is determining when it will be effective for your organization; that will impact your timeline of activities. For information about the effective dates of the new guidance, refer to our article, Are you sure you know when the revenue guidance in ASC 606 is effective?

The next implementation step is to determine which revenue streams will be impacted by Topic 606. As a reminder, contributions are not considered contracts with customers and therefore would not fall under Topic 606. Topic 606 requires expanded disclosures related to revenue recognition; modeling disclosures under the new standard should be a key activity in your Topic 606 adoption timeline. Often the time it takes to create clear, effective and complete disclosures is underestimated.

A great place to begin getting an understanding of the key concepts underlying Topic 606 is to listen to RSM’s recorded webcast, Revenue recognition under ASC 606. It includes technical content and multiple examples that illustrate key concepts in an understandable format. The March Journal of Accountancy article, Get revenue recognition right at not-for-profits, includes not-for-profit (NFP) industry-specific ideas and concepts. Other RSM resources include:

In addition to changes for revenue recognition, NFP entities also have to anticipate the impact of the financial reporting project (FRP). For more information on ASU 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements for Not-for-Profit Entities, see our article, Not-for-profits: Important changes ahead.

You also may be wondering how the FRP will impact your reporting to the IRS. The American Institute of Certified Public Accountants (AICPA), through an ASU 2016-14 Tax Working Group that is collaborating with the AICPA NFP Expert Panel, is developing a communication to the IRS recommending changes to the 2018 Form 990, Schedule D and related instructions. Absent changes to the actual forms, the letter could recommend changes to the instructions to facilitate reporting on existing forms. Suggestions also may include a recommendation for a general “clean-up” of the forms and instructions to remove outdated SFAS 116/117 and FIN 48 terminology and replace it with current FASB ASC 958 language.

Please contact your RSM client service team for more information on resources to keep you moving forward in preparation for the impact of Topic 606 and the FRP.