Audit-accounting | RKL LLP
Posted on: February 22nd, 2018

Tax Reform’s Impact on Your Company’s 2017 Year End Reporting

Tax Reform's Impact on Your Company's 2017 Year End Reporting The Tax Cuts and Jobs Act (TCJA) was enacted into law on December 22, 2017, and took effect on January 1, 2018. Yet companies will still feel tax reform’s impact on their December 31, 2017 financial statements, particularly with regard to accounting for and reporting of income taxes, thanks to the Financial Accounting Standards Board (FASB) requirement that companies recognize changes in the period of enactment.

The reduction of the corporate tax rate to 21 percent and a new provision for 100 percent deduction of dividends received may affect valuation allowances and analysis. These are just some of the many factors at play as businesses seek to manage deferred taxes and accounting for income tax in the wake of tax reform. Below, we round up other key tax reform considerations for financial statements and disclosures.

What does the corporate tax rate reduction mean for deferred tax balances at December 2017 year end?

Companies must remeasure their deferred tax assets and liabilities for the new rate effective January 1, 2018. The effect of the remeasurement is reflected entirely in the interim period that includes the enactment date and allocated directly to income tax expenses (benefit) from continuing operations. The effect on prior year income taxes payable (receivable), if any, is also recognized as of the December 22, 2017 TCJA enactment date.

When should a fiscal year end company adjust its estimated annual effective income tax rate?

Companies will adjust the rate based on the rate in place at the beginning of their fiscal year. For fiscal periods which cross the enactment date, a blended rate will be used. For instance, a September 30, 2018 year end would use a blended rate calculated with nine months at the new 21 percent rate and three months at the previous applicable rate.

How should my company account for and recognize significant residual tax effects in other comprehensive income?

Recognizing the full effect of the change in tax law in income tax expense (benefit) from continuing operations will result in residual tax effects for a company that recognized deferred tax balances through other comprehensive income.

Residual tax effects are released when the item giving rise to the tax effect is disposed, liquidated or terminated or when the entire portfolio of similar items (i.e. liquidation of defined benefit pension plan, available for sale securities liquidation) is liquidated. A company should apply its existing accounting policy for releasing residual tax effects.

On February 14, 2018, FASB unveiled a new requirement for companies to reclassify the residual tax effects arising from the change in the corporate tax rate from accumulated other comprehensive income to retained earnings. This requirement is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption allowed.

There is a specific formula for this reclassification that your RKL advisor can explain in greater detail, but generally speaking, the new approach requirement eliminates the stranded tax effects associated with the corporate tax rate reduction and improves the usefulness of financial statement information.

How will this affect my earnings from foreign subsidiaries?

Earnings that were formerly excluded from repatriation will no longer be indefinitely deferred. This “transition tax” may be paid over eight years, with no interest charged, and will be due over a graded scale for those eight years.

RKL’s Audit Services Group is filled with accounting professionals that can help your company assess the impact of tax reform on financial reporting and ensure financial statements are calculated and compiled accurately. Contact your RKL advisor or one of our local offices today to get started.

Visit RKL’s Tax Reform Resource Center for more information and insights.

Travis A. Bieber, CPA, Manager in RKL's Audit Services GroupContributed by Travis A. Bieber, CPA, Manager in RKL’s Audit Services Group. Travis serves clients in a wide variety of industries, including manufacturing, distribution and food processing, and works with privately held, family owned and private equity backed companies.




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Posted on: January 11th, 2018

Nonprofit Update: PA Raises Audit Requirement Threshold

Nonprofit Update: PA Raises Audit Requirement Threshold Starting in February 2018, Pennsylvania nonprofits must reach higher levels of annual contributions in order to trigger audit requirements.

Act 71 of 2017, which Governor Wolf signed into law in December, increased the annual contribution levels at which a nonprofit must undergo an audit, review or compilation. The new thresholds are:

  • Annual contributions of $750,000 and above: Audit required
  • Annual contributions between $250,000 and $750,000: Review or audit required
  • Annual contributions between $100,000 and $250,000: Compilation, review or audit required
  • Annual contributions below $100,000: Audit, review or compilation optional

Pennsylvania defines annual gross contributions as federated campaign contributions, membership dues (contribution portion only), all income from fundraising and gaming events, contributions from related organizations and general contributions. On Form 990, these categories of annual gross contributions are captured in Part VIII on lines 1a, 1b, 1c, 1d, 1f, 8a and 9a. On Form 990-EZ, annual gross contributions are tallied in lines 1, 6a and 6b, less any government grants.

While these new state thresholds can be a strong indicator of the type of financial statement a nonprofit must prepare, leaders of the organization should consider other circumstances that may also necessitate financial statements before making any changes to routine compliance procedures. Beyond state regulators, there are other entities that use and require financial statements, like grant issuers and financial institutions.

A companion bill simultaneously signed into law by the Governor, Act 72 of 2017, addresses the timeliness of state charitable registration forms. Currently, nonprofits must ensure their forms are received by state regulators before the renewal date to be considered timely. Under Act 72, however, nonprofit forms will be considered timely so long as they are postmarked on or before the date of renewal. Act 72 will also hold the Department of State’s Bureau of Corporations and Charitable Organizations to a standard, 15-day review timeframe for renewal forms.

Acts 71 and 72 take effect February 20, 2018. For financial statement purposes, these means any organization with a fiscal year ending March 31, 2017 or later will follow the new thresholds. For filing purposes, any return due after February 20, 2018 will be considered filed when postmarked.

For more information on these legislative changes or to assess what type of financial statement your nonprofit may require, contact Douglas L. Berman, CPA, RKL’s Not-for-Profit Industry Group Leader.


Stephanie E. Kane, CPAContributed by Stephanie E. Kane, CPA, Manager in RKL’s Tax Services Group. Her client responsibilities include serving clients in a wide variety of industries with a focus on not-for-profit entities.






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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: October 17th, 2017

FASB Changes to Bring More Context Around Nonprofit Liquidity and Cash Flow

FASB Changes to Bring More Context Around Nonprofit Liquidity and Cash Flow The financial statements of not-for-profit organizations will soon undergo a significant transformation, courtesy of the Financial Accounting Standards Board (FASB). As part of its response to stakeholder feedback to improve usefulness and clarity for the not-for-profit reporting model, FASB published Accounting Standards Update (ASU) No. 2016-14, Presentation of Financial Statements of Not-for-Profit Entities, in August 2016. The ASU adjusts financial reporting requirements across a variety of categories to improve consistency and comprehension of the entities that rely on this data, such as grantors, donors and creditors.

This update, which is effective for fiscal years starting after December 15, 2017, contains a broad spectrum of changes. To give nonprofit leaders a better sense of what’s ahead and how they should prepare, we have been breaking out the changes by category in separate blog posts for detailed examination. Previously, we looked at the impact on investment returns and expense reporting, followed by a deep dive into the efforts to simplify net asset classification and reporting. Today, we conclude this blog series by examining how this ASU affects disclosure of liquidity and cash flows.

New disclosures on liquidity and availability of resources

ASU 2016-14 expands the quantity and quality of required information related to a nonprofit’s liquid financial resources. This additional information can help readers of the financial statements understand the limits on how, and during what time frame, the organization’s resources can be used.

In the footnotes of the financial statements, nonprofits must provide qualitative information that communicates how the organization manages its liquid resources available to meet cash needs for general expenditures within one year of the statement of financial position date. Nonprofits can choose to include the quantitative information required by this ASU either on the face of the financials or in the footnotes. Either way, this quantitative data must communicate the availability of financial assets at the statement of financial position date to meet cash needs for general expenditure within one year of the statement of financial position date.

This disclosure must also explain how net asset restrictions affect the availability of financial assets at the date of the statement of financial position to meet short-term financial obligations. Availability may be affected by the nature of the assets, internal limits imposed by the governing board or external limits imposed by donors, grantors, laws and contracts with others.

For example, an organization could comply with this new requirement by explaining in the footnotes that it maintains liquidity by managing its working capital and having available a line of credit with a bank. To support this statement, the organization could include a table (also in the footnotes or as a reference to the face of the financials) that reflects its financial assets as of the statement of financial position dates, reduced by amounts not available for general use due to contractual or donor-imposed restrictions within one year of the statement of financial position date.

Options for statement of cash flows

Nonprofits may continue to choose either the direct or indirect method to report the net amount for operating cash flows on the face of the financial statements. For nonprofits using the direct method, this ASU frees them from the requirement to disclose indirect method reconciliation for operating cash flows. This change in reporting requirement is a small but valuable simplification of data presentation.

Even though this ASU improves and streamlines nonprofit reporting, it still represents a considerable shift from current practice. Ahead of the effective date, nonprofits should invest the time to review and familiarize themselves with this update and how it will impact their current procedures.

RKL’s dedicated team of professionals serving the nonprofit sector are here to help organizations prepare for adoption. Contact Douglas L. Berman, CPA, Not-for-Profit Industry Group Leader, with any questions or for more information.

Sally E. Stewart, CPAContributed by Sally E. Stewart, CPA, Principal in RKL’s Audit Services Group. Sally provides audit services for not-for-profit organizations and government entities.





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Posted on: September 12th, 2017

Upcoming Changes to Improve ERISA Audit Report Quality

employee benefit plan auditAdministrators of employee benefit plans (EBP) rely on routine and rigorous third-party audits to help them maintain compliance with applicable federal regulations, so it is critical to ensure that the audit reports themselves meet high quality standards and offer relevant, actionable information. Recent reviews by the U.S. Department of Labor (DOL) and the Accounting Standards Board (ASB) produced several changes and recommended action items to strengthen the EBP auditor’s report.

Given the integral role played by the auditor’s report, the DOL set out to assess its quality by reviewing financial statement audits of employee benefit plans for the 2011 plan year. In its May 2015 report, Assessing the Quality of Employee Benefit Plan Audits, DOL found that 17 percent of the auditor’s reports from 2011 failed to comply with one or more of the reporting and disclosure requirements of the Employee Retirement Income Security Act (ERISA). These deficiencies led the DOL to suggest ways to rethink the auditor’s report and improve the final product relied upon by plan administrators.

Clarified auditor responsibilities and greater transparency

In response to the DOL’s detected shortcomings and suggested improvements, the ASB issued the April 2017 proposed Statement on Auditing Standards (SAS), Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA. This proposed SAS addresses the reporting for audits of financial statements in ERISA plans, including when management imposes a limitation on the scope of the audit as permitted by 29 CFR 2520.103-5 (ERISA-permitted audit scope limitation). In this situation, the proposed SAS would require a new form of report to include, among other things:

  • Expanded management and auditor responsibilities sections;
  • A special form of opinion stating that, based on use of the certification of investment information, the financial statements are fairly stated in all material respects in accordance with the applicable financial reporting framework;
  • Expanded communications on the ERISA supplemental schedules; and
  • A by-product report, entitled Report on Specific Plan Provisions Relating to the Financial Statements, that includes findings from procedures performed on specific plan provisions relating to the financial statements. This new by-product report should be provided either in a separate section in the auditor’s report or in a separate report entirely. If provided in a separate report, it must be included with the auditor’s report that is attached to the Form 5500 filing.

It is possible that, because procedures to be performed on specific plan provisions would be required irrespective of the risk of material misstatement, additional audit work will be necessary. The proposed SAS is effective for audits of financial statements for periods ending on or after December 15, 2018.

EBP administrators with questions regarding how these changes to the auditor’s report will improve the quality of their annual audits and ongoing compliance efforts can contact me at or 610.376.1595.

Francis J. Donnelly, CPA, Partner in RKL’s Audit Services GroupContributed by Francis J. Donnelly, CPA, Partner in RKL’s Audit Services Group. Frank specializes in accounting and consulting services for employee benefit plans and the credit union industry.




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Posted on: August 15th, 2017

Key Considerations for Investors and Businesses Using Crowdfunding

Key Considerations for Investors and Businesses Using CrowdfundingKickstarter. GoFundMe. FunderHut. These are just a few of the many crowdfunding websites that have sprung up in recent years as businesses, organizations and individuals seek new ways to raise funds and find investors for personal or professional endeavors.

As online fundraising has evolved, so too have federal rules and processes aimed at regulating crowdfunding investments and protecting the investors and businesses that use them. Here are some important tax and financial considerations to keep in mind when using crowdfunding sites.

Personal online fundraising tax deductions

GoFundMe and similar small-scale fundraising pages are a variation of crowdfunding often used to solicit financial support for individuals experiencing tough times, like a medical emergency or recovering from a natural disaster.

While most personal GoFundMe pages are well-intentioned and used for a good cause, donors should be aware that these contributions are categorized as personal gifts and are not tax deductible. Donations made to GoFundMe pages linked to a nonprofit with a 501(c)(3) designation, however, are considered allowable tax deductions.

Sales of securities now permitted via crowdfunding

The federal Jumpstart Our Business Startups (JOBS) Act contained several provisions related to crowdfunding, many of which took effect in early 2016. In particular, Title III of the JOBS Act expanded access to crowdfunding to individuals and small businesses beyond the previous circle of accredited investors that met certain income or net worth thresholds.

Title III also permits small or early-stage businesses to issue or sell securities as part of its crowdfunding efforts to raise capital, as long as the business enlists the services of newly recognized type of intermediary known as a crowdfunding portal. The Financial Industry Regulatory Authority, or FINRA, maintains a list of crowdfunding portals registered with the SEC.

By creating these portals, Title III eases the filing burden on companies raising capital through crowdfunding. Now, companies are permitted to use a “Q and A” format for the required disclosures on their Form C fillings. Title III also shifts the responsibilities for fraud detection and investor education to the portals.

In addition to traditional compensation direct from the company, Title III now allows companies to offer portal funding intermediaries payment in the form of a small ownership percentage (provided the ownership rights are equivalent to those being offered).

Annual limits on company crowdfunding and individual investment

Title III permits companies to raise an aggregate $1 million over a 12-month period through the use of a registered broker-dealer or crowdfunding portal. Depending on the amount to be raised, companies seeking crowdfunding, also known as issuers, may be required to have GAAP basis financials statements either reviewed or audited by an independent CPA firm.

  • Amounts under $100,000 require presentation of internal financial statements.
  • Amounts between $100,000 and $500,000 require financial statements to be reviewed by an independent CPA firm.
  • Amounts between $500,001 and $1,000,000 require financial statements to be audited by an independent CPA firm.
    • Issuers offering more than $500,000 for the first time are given a one-time exemption from the audit requirement. Instead, these companies are permitted to have an independent CPA firm simply review their financial statements, as opposed to auditing them.

Since crowdfunding involves a unique risk, Title III also limits the amount individuals can invest in this type of offering over a 12-month period based on their annual income and net worth. According to the SEC, if an investor’s annual income or net worth is under $107,000, his investment is limited to $2,200 or five percent of the lesser of annual income or net worth, whichever is greater. Alternately, if both annual income or net worth is equal to or greater than $107,000, the investor’s limit is 10 percent of the lesser of annual income or net worth.

Companies interested in crowdfunding should reference the Title III section of the SEC’s JOBS Act resource center for full details on compliance and disclosure. RKL’s team of business advisors are available to help businesses assess the benefits of crowdfunding and adhere to all regulations. Contact one of our local offices today to get started.

D. Hunter Mink, CPA, CCIFP, manager in RKL's Audit Services GroupContributed by D. Hunter Mink, a manager in RKL’s Audit Services Group. Hunter is responsible for the planning and supervision of audit engagements for clients in various industries, including engineering, construction, manufacturing and distribution and higher education.




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Posted on: June 27th, 2017

Locating Missing Retirement Plan Participants: An Employer’s Responsibility

Locating Missing Retirement Plan Participants: An Employer’s ResponsibilityWhether an employer wants to terminate its pension plan or streamline 401(k) management costs, tracking down older, missing or unresponsive participants is a complex challenge required under the federal Employee Retirement Income Security Act (ERISA). Let’s take a closer look at this employer responsibility, along with location strategies and best practices to maintain contact with current and former employees.

Financial and regulatory impact of forgotten accounts

Under ERISA, all retirement plan administrators have a fiduciary responsibility to find or “make a reasonable effort” to find missing or unresponsive participants. Failing to do so could expose a plan to liability.

Typically, abandoned retirement accounts contain small dollar amounts that are left behind as employees change jobs or move. While an employee may not worry about a small amount of money saved years ago, the employer may face real consequences for losing contact since it could be construed as a violation of their fiduciary responsibilities.

For both defined benefit (pension) and defined contribution (401(k)) retirement plans, administrators must distribute the funds to participants before shutting down the plan itself or closing individual accounts. These payouts are not possible if employee addresses are outdated, which forces employers to absorb the expense of ongoing maintenance.

In addition to the cost of keeping an entire plan open or maintaining dormant accounts, an abundance of unresponsive participants that leave account balances in a 401(k) plan could push an employer to a higher headcount that could trigger a financial statement audit.

Search tips for employers

All employers offering any type of retirement plan must deal with the complexities associated with finding lost participants, but the challenge is greater for those in industries with high turnover or short-term employment like construction and hospitality. The challenge is further complicated as entities and their retirement plans merge or change hands.

To assist employers in fulfilling ERISA’s search obligations, the U.S. Department of Labor (DOL) in August 2014 issued Field Assistance Bulletin No. 2014-01. Since the IRS and Social Security Administration’s letter forwarding options were discontinued several years ago, the DOL recommends using the following tactics:

  • Send notifications via email and U.S. Postal Service to all addresses on file for participant.
  • Use certified mail and request a delivery receipt.
  • Search for the employee on other plan or company records.
  • Compare to the U.S. Postal Service’s National Change of Address (NCOA) database.
  • Check with credit reporting bureaus (Experian, Equifax, Transunion).
  • Conduct manual internet searches or use free electronic search tools.
  • Contact the beneficiary listed on the account.

Using a fee-based commercial locator service may be a worthwhile option for accounts with a larger balance, because ERISA permits using plan assets to pay for searches under certain circumstances.

What to do if search comes up empty

DOL’s August 2014 bulletin also addresses what to do if location attempts are unsuccessful. After conducting the above steps, employers have the fiduciary responsibility to evaluate if additional steps are warranted relative to the account balance.

If participants remain missing after reasonable search efforts, employers have several options permitted by the DOL:

  • Distribute the participant’s benefits into an individual account retirement plan (IRA).
  • Distribute to PBGC’s missing participant program (currently limited to terminated defined benefit plans, but inclusion of defined contribution plans expected in 2018).
  • Open a federally insured interest bearing bank account in name of missing participant to deposit funds.
  • Escheat to unclaimed property program in the state of participant’s last known address.

Best practices to keep in touch with participants

Employers can minimize the occurrence of lost participants by implementing processes and procedures to shore up data and maintain contact, including the below best practices:

  • Scrub employee data at least annually, if not quarterly. Employers with defined contribution plans should also scrub data when a new employee headcount threshold is about to be reached that would trigger new audit requirements.
  • Compare records electronically to the NCOA database and the Social Security Administration Death Index (only updated through March 2014).
  • Maintain multiple points of contact (mailing addresses, phone numbers, emails, etc.).
  • Regularly update contact information for current participants and remind them to advise of any changes.
  • Many plans allow for automatic lump sum distributions if balances are less than $1,000. Take advantage of this option as soon as participants terminate to help limit challenges that results from the passage of time.

Maintaining regular contact with current staff and enlisting them in the effort to keep contact information updated will pay off in the future as employees move on. In the meantime, adhering to ERISA search requirements and permitted distribution methods prevents plan administrators from being exposed to potential liability or running afoul of federal regulations.

RKL’s team of employee benefit plan specialists can provide guidance on this and other ERISA requirements and help plan administrators develop and implement the necessary policies and procedures. Contact one of our local offices today to get started.

Wendy Lakatosh, CPAContributed by Wendy M. Lakatosh, CPA, Partner in RKL’s Audit Services Group. Throughout her more than 19 years of experience in public accounting and auditing, Wendy has gained significant experience serving employee benefit plan clients. She has served a variety of clients from small, private, middle-market entities to large, multi-location companies across many industries.



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Posted on: June 13th, 2017

Simplified Net Asset Classification and Reporting Ahead for Nonprofits

Simplified Net Asset Classification and Reporting Ahead for Nonprofits Major changes are ahead for the presentation of nonprofit financial statements, thanks to Accounting Standards Update (ASU) No. 2016-14, Presentation of Financial Statements of Not-for-Profit Entities. Unveiled in August 2016 by the Financial Accounting Standards Board (FASB), ASU 2016-14 streamlines and simplifies requirements related to several aspects of financial reporting to improve consistency among not-for-profit organizations. This update takes effect for fiscal years beginning after December 15, 2017.

In order to help nonprofit leaders digest this significant update and prepare for the changes, we have been breaking out components for closer examination. Earlier this year, we outlined changes related to investment returns and expense reporting. Now, we turn our focus to another area of this ASU: net asset classification.

Simplified net asset classifications

One of the most significant changes from this ASU is reducing the number of net asset classifications. Currently, nonprofits must present net assets in one of these three classes: Unrestricted Net Assets, Temporarily Restricted Net Assets or Permanently Restricted Net Assets.

The current classification structure presents a number of challenges for nonprofits and related third parties (like donors, partner organizations, federal regulators, etc.), including misunderstanding of terminology, confusion around the classes, deficiencies in transparency and more. There is also a lack of information regarding how restrictions imposed by donors, laws and governing boards affect an NFP’s liquidity and classes of net assets.

For these reasons and more, ASU 2016-14 set out to simplify the presentation of net assets, reducing the classes from three to two and changing the basis of classification to address restrictions imposed by donors. This change will reduce complexity and improve understanding of financial statements. The two classes of net assets under the new standard are Without Donor Restrictions and With Donor Restrictions.

Reporting requirements for net assets

Under the new classification structure, the donor-imposed restriction category includes what was previously reported as Permanently Restricted and Temporarily Restricted. Net assets without donor-imposed restrictions, including those that are designated by the board, are those previously reported as Unrestricted. See additional information below related to board-designated net assets.

The change in classification to net assets With Donor Restrictions does not eliminate current requirements to disclose the nature and amounts of different types of donor-imposed restrictions. Additionally, separate line items may be reported within net assets with donor restrictions or in notes to financial statements to distinguish between various types of donor-imposed restrictions, such as those expected to be maintained in perpetuity and those expected to be spent over time or for a particular purpose. This information must be disclosed on the year-end balance of net assets with donor restrictions.

Revised definition and disclosure for board-designated net assets

As mentioned above, net assets that are without donor-imposed restrictions may still be designated by the board. Under current standards, board-designated net assets may be earmarked for future programs, investment or other uses. This remains true with the implementation of ASU 2016-14. Additionally, this ASU allows governing boards to delegate designation decisions to internal management, with those designations also included in board-designated net assets.

Although board-designated net assets exist under current standards, the new ASU adds a requirement to disclose information about the amounts, purpose and type of any board designations included in net assets without donor restrictions.

Underwater Endowment Funds

More minor in scope than the net asset changes, ASU 2016-14 also adds a new entry to the FASB master glossary for “underwater endowment funds,” which it defines as “donor-restricted endowment funds for which the fair value of the fund at the reporting date is less than either the original gift amount required to be maintained by the donor or by law that extends donor restrictions.”

The new underwater endowment fund definition brings with it new disclosure requirements. Nonprofits must now report the entire balance of endowment fund within the With Donor Restrictions class of net assets and, for each period a statement of financial position is presented, outline the information below in the aggregate for all underwater endowment funds:

  • Fair values of the underwater endowment funds
  • Original endowment gift amount or level required to be maintained by donor stipulations or by law that extends donor restrictions
  • Amount of the deficiencies of the underwater endowment funds.

In addition to reporting the financial characteristics of the fund as described above, nonprofits must also disclose the following:

  • An interpretation of the nonprofit’s ability to spend from underwater endowment funds.
  • A description of policy, and any actions taken during the period, concerning appropriation from underwater endowment funds.

It is important to note, however, that this ASU does not contemplate the effects of Pennsylvania’s Act 141 for endowments. It is up to organizations to consider the effect on their financial statements and disclosures, if any.

While the above changes and others contained in ASU 2016-14 will streamline and improve financial reporting for nonprofits, it will be a significant departure from current practice that will require preparation and adjustment. Nonprofit leaders and their finance teams should familiarize themselves with these impending changes prior to the fiscal year the ASU takes effect and work internally or with external practitioners to plan for adoption.

RKL’s team of professionals focused on the nonprofit sector are available to help organizations better understand and prepare for these changes. Contact Douglas L. Berman, CPA, Not-for-Profit Industry Group Leader, with any questions or for more information.

Michelle J. Frye, CPA, Manager in RKL’s Audit Services GroupContributed by Michelle J. Frye, CPA, Manager in RKL’s Audit Services Group. Michelle has over 14 years of experience in public accounting and serves the assurance needs of a wide range of not-for-profit organizations.




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Posted on: April 11th, 2017

Ongoing ERISA Requirements for Employers Offering Retirement Plans

Ongoing ERISA Requirements for Employers Offering Retirement PlansWhether it is a defined benefit plan or a 401(k) account, retirement plans are an important part of the benefits package a company uses to attract and retain top talent. Managing a plan that helps employees save for their future is a significant responsibility, so it is important that employers are compliant with the rules that govern the administration of retirement plans.

The Employee Retirement Income Security Act (ERISA) is a key federal provision outlining the minimum standards a retirement plan must meet. To that end, ERISA assigns certain responsibilities to plan managers and administrators (also known as fiduciaries). Failure to comply with these responsibilities could result in penalties and fines against an employer.

Fiduciary Responsibilities Under ERISA

In the interest of protecting employees and their nest eggs, ERISA outlines a number of requirements for fiduciaries, including:

  • Administering the plan solely in the interest of plan participants and their beneficiaries with the exclusive purpose of providing benefits to them;
  • Acting in a prudent manner;
  • Diversifying plan investments to minimize risk;
  • Following plan documents, which must also be ERISA-compliant;
  • Avoiding conflicts of interest; and
  • Paying only reasonable plan expenses.

Drilling down into these responsibilities, fiduciaries may find that compliance requires expertise in certain areas like investing and financial management. Fiduciaries that do not have such expertise in-house are permitted under ERISA to hire an external party to build and manage a diversified investment portfolio. It is important that all actions taken by the fiduciary related to investment management, record-keeping and use of third-party vendors are well-documented and justified to avoid conflicts of interest and demonstrate ERISA compliance.

The document in which these terms and conditions are contained serves as a foundation for retirement plan operations. In order to adhere to ERISA’s requirement to follow the plan document, employers should regularly review and update as needed to keep it current and compliant.

Ways to Reduce Fiduciary Liability

A thorough and updated plan document is not only a responsibility of fiduciaries, it can also be a strong defense against potential liabilities related to investment losses or imprudent actions. There are other ways employers can reduce personal liability to restore any plan losses, like increasing participant control over investment choices or outsourcing complete or selected fiduciary responsibility.

Most common for 401(k)s or profit-sharing plans, setting up a plan to give the participant more control over their personal investment portfolio will limit the fiduciary’s liability for losses resulting from those decisions. Keep in mind, however, that under this model the fiduciary remains responsible for selecting and monitoring the investment options from which plan participants may choose.

When a fiduciary outsources all or certain functions, it is accountable for the hiring decision and selection of the third-party manager. For example, if a fiduciary selects an investment manager, they are only responsible for that choice, not the investment decisions the manager goes on to make. In this case, the ongoing responsibility of the fiduciary after initial selection would be routine monitoring to ensure that the manager is acting in a prudent manner with regard to the plan’s investments. In addition, fiduciaries must ensure that every person who handles funds or other property of an employee benefit plan is bonded as required under ERISA, unless covered under one of the exemptions.  A fidelity bond is a type of insurance to protect the retirement plan and its participants from losses incurred by dishonest or fraudulent activity of those who handle funds on behalf of the plan.

It is critical that employers understand their fiduciary responsibilities and potential liabilities under ERISA, both to protect themselves from fines and penalties and to preserve the integrity and stability of their company retirement plans. RKL has a team of professionals dedicated to conducting employee benefit plan audits and helping employers maintain compliance and improve plan administration. Contact one of our local offices today for help determining or improving your plan’s ERISA compliance.

Jill E. Gilbert, CPA, CGMA, Partner in RKL's Audit Services GroupContributed by Jill E. Gilbert, CPA, CGMA, Partner in RKL’s Audit Services Group. Jill serves a broad range of industries including governmental agencies and not-for-profit organizations. She also specializes in employee benefit plan audits.




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Posted on: March 15th, 2017

Expenses Reporting Changes in Store for Nonprofits under FASB ASU 2016-14

RKL’s Not-for-Profit experts take a closer look at one of the ways recent accounting standard changes will impact investment returns and expense reporting. Last summer, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2016-14, Presentation of Financial Statements of Not-for-Profit Entities, which significantly alters the financial statements of nonprofits. As part of FASB’s comprehensive review of not-for-profit statement presentation, ASU 2016-14 is intended to increase reporting consistency by adjusting current requirements across a number of categories.

With an effective date of fiscal years beginning after December 15, 2017, now is the time for not-for-profits to familiarize themselves with each category of changes and what they mean for their organizations. In this post, we take a look at one of the components of this ASU: improved consistency related to investment returns and expense reporting.

Comparable measurement of investment returns

ASU 2016-14 requires that returns from investments (other than programmatic investments) be reported net of external and direct internal investment expenses. Not-for-profits are permitted, but no longer required, to disclose these netted expenses in the financial statement notes.

Programmatic investments are those directed at carrying out the not-for-profit’s mission, as opposed to investments in the general production of income or appreciation of an asset. An example of a programmatic investment is a loan made to lower-income individuals to promote home ownership.

Direct internal investment expenses are defined as costs of the direct conduct or supervision of strategic and tactical activities involved in generating investment returns. Examples include, but are not limited to, costs associated with the staff responsible for developing and executing investment strategy (salary, travel, etc.) and allocable costs associated with internal investment management or the supervision, selection and monitoring of an external investment management firm. These expenses do not include costs that are not associated with generating investment return, such as unitization and other such aspects of endowment management.

By requiring returns from investments to be reported net of external and direct internal investment expenses, ASU 2016-14 aims to provide a more comparable measure of investment returns across all not-for-profit entities, regardless of how investment activities are managed.

Additional expense allocation disclosure

Previously, only voluntary health and welfare entities were required to present a statement of expenses by both functional and natural classifications. ASU 2016-14 has removed that requirement for those organizations and now requires disclosure of an expense analysis by function and nature for all not-for-profit entities to be presented in one location, either on the face of the statement of activities, as a separate statement or in the notes to the financial statements. In addition to this analysis, all not-for-profits will be required to disclose the methods used to allocate expenses to the functional categories.

Expenses should be allocated to one of two functional categories: program services and supporting activities. Program services are those activities that result in goods or services being distributed to beneficiaries, customers or members that fulfill the organization’s purpose or mission. Supporting activities represent all activities outside these program services, such as management and general activities, fundraising activities and membership development activities.

Requiring additional disclosures related to the allocation of expenses improves the usefulness of information for users of the financial statements, helping them better understand the methods used for allocating costs among functional categories and the types of resources used in carrying out an organization’s activities.

Effective dates and next steps

ASU 2016-14 is effective for annual financial statements issued for fiscal years beginning after December 15, 2017, and for interim periods within fiscal years beginning after December 15, 2018. The amendments in this ASU should be applied on a retrospective basis; however, if presenting comparative financial statements, a not-for-profit has the option to omit the analysis of expenses by both natural and functional classifications (the separate presentation of expenses by functional classification and expenses by natural classification is still required). Organizations that have previously been required to present a statement of functional expenses do not have the option to omit this analysis and may present the comparative period information in any of the formats permitted in the ASU.

These are significant changes with considerable impact to the financial reporting practices of not-for-profits. Prior to the fiscal year in which ASU 2016-14 takes effect, organizations should review and digest these changes fully with their internal finance teams and external practitioners and develop a basis, or multiple bases, for the expense allocation and investment return changes.

For more information and questions on how to prepare for these reporting changes, please contact Douglas L. Berman, CPA, RKL’s Not-for-Profit Industry Group Leader.


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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