November, 2017 | RKL LLP
Posted on: November 29th, 2017

How New Revenue Recognition Clarification Will Impact Nonprofit Accounting for Grants and Contracts

nonprofit grants and contract revenue recognitionNonprofits will soon have clearer guidelines by which to recognize and classify revenue from grants, contracts and contributions, thanks to a new standard proposed this summer by the Financial Accounting Standards Board (FASB).

Proposed by FASB in August 2017, the Accounting Standards Update (ASU), Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made, is intended to improve and clarify existing guidance of revenue recognition of grants and contracts by not-for-profit entities.

Impact on nonprofit finance function

Nonprofit leaders and finance teams should consider this proposed ASU in conjunction with Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers. Together, these documents can help organizations determine whether a revenue transaction is a contribution (nonreciprocal transaction) or an exchange (reciprocal) transaction. For transactions considered contributions, the guidance clarifies the definition of conditional and unconditional contributions.

It is possible under the proposed guidance that more grants and contracts could be accounted for as contributions, or nonreciprocal transactions. With a proposed effective date of fiscal years beginning after December 15, 2018 for most entities, not-for-profits should begin evaluating their revenue transactions now under this guidance.

Define transaction as a contribution or an exchange

For those transactions supported by grant agreements or contracts, each individual agreement or contract should be evaluated. A grant transaction would be considered an exchange transaction if the resource provider receives commensurate value in return for the resources provided.

In defining commensurate value, it is important to note that if the general public is receiving the primary benefit, then the transaction is considered to be a contribution. In addition, the execution of a resource provider’s mission or the positive sentiment from acting as a donor does not constitute commensurate value. For the transactions that are considered exchange transactions, the organization should then follow other revenue recognition guidance, such as ASC Topic 606.

Define contribution as conditional or unconditional

Once a revenue transaction is determined to be a contribution transaction, the next step is determining whether it is considered conditional or unconditional. FASB’s proposed guidance clarifies the definition of conditional to require these two factors:

  • A donor-imposed stipulation that represents a barrier that must be overcome; and
  • A provision that provides the grantor the right of return of assets transferred or the right of release of the grantor from its obligation to transfer assets. The right of return of the assets transferred or the right of release of the grantor from its obligation to transfer assets must be determinable from the agreement (or another document referenced in the agreement).

The proposed ASU includes a table with a list of indicators that could be helpful in determining possible barriers. Beyond the two factors listed above, there are a variety of indicators that play into defining a contribution as conditional, with a varying degree of impact and significance, including:

  • The agreement includes measurable, performance-related goals such as achievement of a certain level of service, an identified number of units of output or a specific outcome.
  • The agreement includes a non-administrative or non-trivial stipulation that is related to the purpose of the agreement.
  • The agreement includes a stipulation that limits the discretion by the recipient on how the funds should be spent. This would not include when the only requirement is that the transferred assets be used for a general operating purpose or restricted for ongoing programs or activities.
  • The agreement requires additional actions that would be required by the recipient outside of the recipient’s normal activities.

The presence of both a barrier and a right of return or a right of release indicates that the organization would not be entitled to the transferred assets and the nonreciprocal transaction would be considered conditional. If the agreement does not have both, the transaction would be unconditional. If a contribution contains stipulations that are ambiguous and not clearly defined, the proposed ASU presumes that the contribution should be considered conditional. A conditional contribution would not be recognized as revenue until the barrier is overcome and the recipient organization is entitled to the transferred assets.

Once a contribution has been deemed unconditional, the organization would determine whether the contribution is restricted as a result of either a donor-imposed restriction or the passage of time, consistent with current generally accepted accounting principles.

Effective dates and action items for transition

The effective date for the proposed ASU for public business entities or not-for-profit entities that have issued, or are conduit bond obligors for securities that are traded, listed or quoted on an exchange or over-the-counter market, is annual periods beginning after December 15, 2017. For all other entities, the effective date is annual periods beginning after December 15, 2018.

The amendments in this ASU should be applied on a modified prospective basis in the first set of financial statements issued following the effective date to agreements that are either not yet completed as of the effective date or entered into after the effective date. A completed agreement for which revenue and/or expense has been recognized in accordance with current guidance would not be impacted by these amendments.

Additionally, for those agreements not yet completed, the amendments would be applied only to the portion of revenue or expense that has not yet been recognized before the effective date. No prior period results or activities would be restated and there would be no cumulative-effect adjustment to the opening balance of net assets or retained earnings at the beginning of the adoption year.

FASB accepted comments on this proposed ASU through November 1, 2017. Many of the comments included a request for FASB to consider adding a framework and specific examples to address the evaluation of a single transaction that is in part an exchange and in part a contribution for both the resource provider and the recipient organization.

Considering that many not-for-profit organizations are already focused on implementing other standards, such as ASU 2014-09, Revenue from Contracts With Customers, and ASU 2016-14, Not-for-Profit Entities: Presentation of Financial Statements of Not-for-Profit Entities, the effective date and required implementation of this proposed ASU could prove difficult. Nonprofits are encouraged to review these changes with their internal finance teams and external practitioners now in order to avoid potential implementation issues.

RKL’s team of advisors focused on serving nonprofits are available to answer any questions or help nonprofits prepare. Contact Douglas L. Berman, CPA, RKL’s Not-for-Profit Industry Group Leader, to get started.


Andrew D. Kehl, CPA, Manager in RKL's Audit Services GroupContributed by Andrew D. Kehl, CPA, Manager in RKL’s Audit Services Group. Andrew has accounting and auditing experience serving clients in a wide variety of industries including nonprofit, healthcare and government.





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Posted on: November 15th, 2017

2017 Year-End Tax Planning Guide

With a new year on the horizon, now is a perfect time to examine your unique circumstances to uncover new opportunities to minimize income taxes. As part of our ongoing effort to help clients achieve a more secure financial position, we’re proud to provide a 2017 year-end tax planning guide.

Inside, you’ll find:

  • An overview of critical tax rates and information
  • Key tax considerations for business owners and individuals
  • Individual tax-minimizing strategies
  • Business tax planning opportunities
  • Tax-savings actions to take before the end of the year

After reviewing this guide, contact your RKL advisor before taking any actions. Our diverse expertise means we’re able to help you navigate the complex tax code, identify opportunities and execute accordingly in the context of your personal financial circumstances.

Posted on: November 14th, 2017

Small Business Owners: Here’s How to Handle a PA Schedule C Desk Review Notice

Small Business Owners: Here’s How to Handle a PA Schedule C Desk Review NoticeMany small business owners use Schedule C to report profit or loss from business or profession on their personal income tax returns. Thanks to closer scrutiny and technological advancements from the Pennsylvania Department of Revenue (PA DOR), 46,000 Schedule C returns for tax year 2016 have been flagged for a desk review. The first wave of notices went out earlier this year following the April tax deadline, and another wave is expected after the October filing extension deadline. Read on to find out why this is happening and how recipients of these notices should handle them.

Why is Pennsylvania stepping up Schedule C scrutiny?

Since piloting the program in 2015, PA DOR continues to conduct desk reviews across a variety of tax return and schedule types to ensure compliance and the proper collection of tax revenues for the Commonwealth. New data analysis software allows PA DOR to compare Schedule C filings to average industry standards. Desk reviews are trigged by detection of reported expenses that are unusual or above average compared to similar business types.

PA DOR has approximately 100 full-time tax examiners to carry out the desk review process, in addition to their other job responsibilities, which accounts for the delayed responses to submissions. Once a return is flagged, a tax examiner determines whether a desk review is necessary. If so, a notice is sent to the taxpayer requesting additional information. Responses to the notices are processed in first in, first out order. Once a desk review is completed, PA DOR will issue a final resolution notice.

The number of returns flagged for Schedule C desk reviews earlier this year has caused a significant backlog for PA DOR reviewers. Initial responses returned to PA DOR for notices received took close to six months to obtain a reply from the Department and recent notices are looking at an approximate lag time of close to three months.

How should a small business respond to a desk review notice?

Desk reviews differ from a full audit in that supporting information is only requested for a handful of specific line items. Despite the smaller scope, the desk review notices nonetheless represent a significant undertaking for small business owners, who must comb through past records and assemble the proof needed to verify items claimed on Schedule C. If PA DOR does not accept the additional support provided, the taxpayer may follow the conventional tax appeals process to challenge the determination.

Small business owners are encouraged to submit responses to PA DOR via the department’s fax number (717.772.4193) or resource email account ( as these methods will expedite the processing of the information provided. Mailing in the requested information will cause longer delays due to processing along with all other correspondence coming into the Department via U.S. mail. Keep in mind that PA DOR does not want actual receipts, unless that is the only form of support available. Acceptable forms of supporting documentation for line items in question include:

  • General ledgers
  • Schedules
  • Summaries
  • Canceled checks
  • Bank statements
  • Credit card statements 

What can small business owners expect moving forward?

Schedule C desk reviews will now be ongoing, with another wave of notices related to 2016 tax year returns expected to be issued by PA DOR now that the October tax extension filing deadline has passed. Business taxpayers of all shapes and sizes should also be prepared for PA DOR to apply desk reviews to other schedules in the future.

Taxpayers subject to a Schedule C desk review that results in no changes or findings are protected from being flagged for the same schedule/line item review for a minimum of two years, as long as the expense items at issue are not significantly larger than the period reviewed. If the notice is ignored, the expense will be denied and the same request for information will be needed for subsequent periods. Keep in mind, however, that this is not a blanket exemption from all desk reviews.

Small business owners should contact their RKL advisor or one of our local offices with any questions about the desk review process generally or for assistance in compiling and transmitting the requested information. RKL’s State and Local Tax Practice Leader Jason Skrinak recently moderated a webinar with PA DOR on this topic, which can be viewed on demand here.


Laura S. Rineer, CPA

Contributed by Laura S. Rineer, CPA, a manager in RKL’s Small Business Services Group. Laura specializes in helping small businesses from a wide variety of industries with financial statements, tax returns and related accounting and business needs. 




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Posted on: November 7th, 2017

Six Questions to Ask for a More Engaged, Effective Board

Six Questions to Ask for a More Engaged, Effective BoardAn effective board of directors is key to an accountable, successful organization. What does an effective, engaged board look like? Beyond the traditional financial, policy, compliance and mission-driven roles, a fully engaged board is also actively and productively invested in the work of the organization. Boosting board engagement is not an exact science and may involve some trial and error, but organizations can take actions to affect how board members feel about the organization and how they interact with each other and with the management team. Below, we outline key questions to consider when evaluating board effectiveness and engagement.

How Empowered is the Governance Committee?

Is your governance committee really just a nominating committee or is it empowered with the ongoing development and engagement of board members? This involves focusing on fundamental issues like execution of the strategic plan, adherence to the organization’s mission, assembly of an experienced, diverse board and securing the necessary education or information to seize opportunities and minimize constraints for the board.

Are You Actively Recruiting Board Members?

With 70 percent of nonprofits reporting difficulty with qualified board member recruitment, the governance committee can make it easier for the right candidates to emerge by creating specific profiles for new board positions and current members. Understanding and identifying the right mixture of skill sets, experiences and mindsets of current and potential members is critical to creating the right board team.

How Strong is Your Board Orientation?

Recruiting a board member is only the first step in what can be a very beneficial relationship. A comprehensive orientation program that introduces new board members to their roles and responsibilities and to the organization’s mission sets the tone of engagement for new board members.

A board mentoring program that assigns new board members to a veteran or past member is an effective way to address questions and pass along important information. A board member who recently rotated off may be an ideal person for this role. This helps a new member gain comfort in the role, while retaining the past member’s engagement.

Are Board Members Engaged in Successful Partnerships?

It is critical for all board members to personally connect and forge a relationship with the organization they serve. To that end, encourage board members to build relationships with one another and with the management team. This starts with the rapport between the organization’s Executive Director and the board chair. Regular and candid communication between these two leaders establishes mutual trust, and sets the stage for a shared governance model.

Are You Committed to Diversity?

In its survey of more than 1,700 nonprofit chief executives and board chairs, BoardSource found that 90 percent of CEOs and board chairs were white, as were 84 percent of all board members. These numbers are largely unchanged from BoardSource’s initial survey in 1994. Studies indicate that board diversity fosters greater engagement by allowing members to share perspectives that come from varied backgrounds and experiences. People tend to interact differently in a diverse group. They tend to probe topics more extensively, engage in fuller conversations and make better decisions.

Do You Assess Board Performance Annually?

An annual board assessment is critical to ensuring and maintaining a high level of engagement. The governance committee should take on the responsibility of leading the annual board self-assessment process. The results will help identify the board’s development opportunities for the following year.

Investing time to cultivate board engagement will pay dividends for any organization. When truly engaged, board members are the organization’s top ambassadors, advocates, strategists and supporters.

Board engagement is an ongoing, fluid process with discrete components and steps. RKL’s team of business consultants and operational improvement experts are available to assist your organization with implementing a board engagement program. Contact Douglas L. Berman, CPA, Not-for-Profit Industry Group Leader, to start the conversation.


Gretchen G. Naso, CVA, MBA, Principal in RKL’s Business Consulting Services GroupContributed by Gretchen G. Naso, CVA, MBA, Principal in RKL’s Business Consulting Services Group. As a Certified Valuation Analyst, Gretchen has extensive experience providing business valuations for privately held companies, general partnerships and family limited partnerships. She also conducts operational reviews for closely held businesses, governments and not-for-profit organizations, which allows her to identify and prioritize opportunities for financial and operational improvements.


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Posted on: November 1st, 2017

RKL eSolutions Rises Among Nation’s Value-Added Resellers

RKL eSolutions, the IT consulting subsidiary of RKLLancaster-based IT consulting firm ranked 33rd on Top 100 VAR List


LANCASTER, PA (November 1, 2017) – Coast-to-coast growth and an expanded portfolio of innovative technology solutions continue to propel RKL eSolutions among the nation’s top value-added resellers (VARs). The IT consulting firm, which is a subsidiary of RKL LLP, claimed the 33rd spot on Accounting Today’s “2017 VAR 100,” up six spots from its 2016 position.

“RKL eSolutions’ continued rise among the nation’s top VARs is a testament to the innovation and the instinct for emerging demand that are hallmarks of the entire RKL family of companies,” RKL CEO Edward W. Monborne said.

“At RKL eSolutions, success occurs at the intersection of technology and commerce, fueled by our talented and skilled team of IT consultants,” RKL eSolutions President Joe Noll said. “This ranking is a strong affirmation of the tangible business benefits we’re delivering for our clients across the nation and throughout the world.”

An award-winning Sage software partner, RKL eSolutions provides customized IT services including business software, technical support and networking solutions. Most recently, the Lancaster, Pennsylvania-based firm announced a new partnership with Sage Intaact, a leading provider of cloud financial applications, which will allow RKL eSolutions to serve the ERP needs of companies in the financial, professional services and nonprofit sectors.

The annual VAR list from Accounting Today is the premier ranking of accounting and accounting-related software resellers by revenue. The 2017 edition also focused on the strategies technology consultants are using to respond to increased client demand for seamless integration, automated reporting and enhanced analytics.