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EisnerAmper Blog

Not-for-Profit Trends and Tips Blog

Accounting for Website Development Costs

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April 22, 2016

By Brian Collins, CPA  

Most not-for-profit organizations have a website to share their mission and accomplishments, solicit contributions, and promote their latest fundraising event. Websites are an important tool in getting a not-for-profit organization’s name out in a crowded not-for-profit world. Some not-for-profit organizations invest a large amount time and money into developing their website in order to captivate viewers and make it easy for them to take up their cause or make a monetary donation. The cost to develop a website varies based on size and complexity and can range anywhere from a few thousand dollars to over $100,000. For a small not-for-profit organization, the significant cost to develop their website can have a significant impact on their budget and can keep funds from directly supporting the mission.   

So how should a not-for-profit organization account for the cost to develop their website?  U.S. Generally Accepted Accounting Principles (“GAAP”) requires that website development costs be capitalized when there is a future benefit from those costs. Since a website provides a future benefit, an organization will capitalize certain costs associated with development of the website. It is then amortized over a period of time. FASB has provided guidance for the proper accounting of website development costs under GAAP Accounting Standard Codification (ASC) 350-50: Website Development Costs. The following is a summary of ASC 350-50.

Planning All costs in the planning of a website: developing the plan, determining functionality, identifying hardware and web applications, vendor selection and other planning activities

Expense
Website application and infrastructure development Acquire and develop software and acquire any necessary hardware to operate the website. Acquire or develop software tools, obtain and register domain name, develop or acquire and customize code, develop or acquire and customize database software, develop HTML web pages or related templates, install developed application on web server, create initial hypertext links, test website applications. Capitalize
Graphics development The layout of the website with background, fonts, frames, and buttons. The “look and feel” of the website. Development of the initial graphics which are considered components of software. Capitalize
Content development Information about the organization included on the website, for example, mission, description of services provided, articles, photos and list of board of directors, etc. This also includes data conversion costs and time incurred to input the content into a website. Expense
Operating Day-to-day operating costs: training employees on use, registering with internet search engines, administrator activities, updating graphics, backups, creating new links, adding additional functionalities or features, routine security reviews, usage analysis. Website hosting fees should be expensed in the period the service is provided. Expense

Deferred or Temporarily Restricted Revenue: How to Differentiate Between the Two

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April 12, 2015

By Brian Collins, CPA

The key to identifying the difference between deferred revenue and temporarily restricted revenue is to understand the distinction between restricted contributions and exchange transactions.

A contribution received by a not-for-profit organization is defined as a voluntary unconditional promise to give and should be recognized at time of receipt and classified as unrestricted, temporarily restricted, or permanently restricted depending upon the donor-imposed restrictions on the contribution. If a donor imposes time and purpose restrictions on a contribution, those contributions would be classified as temporarily restricted until the time and/or purpose restrictions are satisfied by the recipient not-for-profit organization. The unconditional promise to give aspect of a contribution distinguishes it from an exchange transaction, and therefore the contribution cannot be recognized as deferred revenue.

If a not-for-profit organization receives funds in advance for an exchange transaction, they should record the funds as deferred revenue until the exchange transaction takes place. The FASB glossary defines exchange transactions as reciprocal transfers between entities that result in an entity obtaining assets/services in exchange for either other assets/services or liabilities of approximately equal value.  An exchange transaction occurs when the recipient receives a substantial benefit from the goods or services provided; examples of such transactions include membership benefits, educational services, and medical services.  The timing of an exchange transaction is important when determining if the transaction should recognized as revenue or deferred revenue.

A not-for-profit organization should give careful, consistent consideration to determine whether funds received are a contribution or exchange transaction as it is an important step in differentiating between recording deferred revenue or temporarily restricted revenue.

 

FASB Issues New Guidance on Lease Accounting

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April 6, 2016

By Brian Collins, CPA  

FASB issued its new lease accounting guidance in Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842).  The new ASU will require lessees to recognize the following for all leases with terms of more than 12 months at the commencement date: 

  • A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and
  • A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. 

Lessor accounting is largely unchanged. The new lease guidance also simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. 

ASU 2016-02 will be effective for public entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019, for a calendar-year entity). Nonpublic business entities and not-for-profit organizations should apply the amendments for fiscal years beginning after December 15, 2019 (i.e., January 1, 2020, for a calendar-year entity), and interim periods within fiscal years beginning after December 15, 2020. Early application will be permitted for all entities. Details on transition and disclosure are included in the guidance.

The New World of the Computer Hacker

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April 6, 2015

By Morgan Piscitelli

Cybercrime has become a household term over the last year, due to the excess of high-profile, well-publicized cases of compromised computer systems at organizations like Sony, Target, Home Depot, and J.P. Morgan Chase. Cases like these make most people think that the risk of cybercrime only comes from far away, and typically involves a breach of massive amounts of sensitive corporate data, personal information, and credit card details. While these outside hackers are a significant component of high-tech crime, “insiders” – threats from within the organization (even a not-for-profit) – are often a bigger danger and are sometimes overlooked. 

Our own Steven Konecny wrote an article for the March 2016 issue of EisnerAmper’s Trends & Developments – click here to read about specific steps an organization can take to minimize exposure and mitigate risks.

 

IRS Tax Exempt Priorities for 2016

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March 14, 2016

By Kevin Burdi, CPA

The IRS Exempt Organization Division (the “EO”) recently announced their priorities and strategy for the upcoming fiscal year, and will focus on examining existing exempt organizations as well as the determination of prospective exempt organizations. In light of criticism and allegations surrounding the treatment of certain 501(c)(4) applications, the EO has clearly made compliance and enforcement of exempt organization guidelines a major priority.  

Below are the major IRS priorities for 2016 concerning the oversight of existing exempt organizations.

Exemption: 

Examiners and agents will look for “non-exempt purpose activity and private inurement.” The EO aims to focus on any non-exempt activity that exists in order to reevaluate the organization’s status as an exempt organization. The EO is aware that business operations for existing exempt organizations have the possibility of shifting over time into the realm of non-exempt activities.

Protection of Assets:

The EO is concerned and will focus on the possibility of any individual or group of individuals using an exempt organization for personal or business advantages, particularly someone with influence over the exempt organization. The EO plans to continue its focus on the existence of any “self-dealing, excess benefit transactions, and loans to disqualified persons,” in relation to this issue.

Tax Gap:      

The EO plans to focus on activities that may trigger Unrelated Business Income Tax (“UBIT”). The EO acknowledges that guidelines surrounding UBIT may be a bit complex and that not-for-profits may fail to realize certain routine activities may be subject to UBIT.

International:

The EO will place more focus on activities conducted by exempt organizations outside the U.S. in fiscal year 2016. The EO is concerned that funds spent overseas may be a front to certain illegal or terrorist activities. As international business and electronic funds transfers overseas become more the norm, the EO recognizes the potential major risks associated with this trend. The EO will focus on increased compliance reviews, compliance checks, correspondence audits and field examinations to ensure activities overseas fall within the guidelines applicable to exempt organizations and U.S. law.

Emerging Issues:

The emerging areas of risk identified by the EO for fiscal year 2016 include “non-exempt charitable trusts and IRC 501(r)” organizations. The 501(r) classification is a product of the Affordable Care Act and applies to exempt organizations that operate one or more hospitals. The EO will focus on compliance in regards to these emerging issues.


Should Our Not-for-Profit Organization Have a Gift Acceptance Policy?

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March 3, 2016

Floch_JulieBy Julie Floch, CPA  

With any new policy implemented at an organization, there are costs and benefits that must be considered. Perhaps driven by a question on Schedule M of the federal Form 990, as to whether an organization has this policy, boards have been considering whether a gift acceptance policy is desirable for organizations they serve. 

There is no blanket “correct” answer, but for organizations that either receive, or have the possibility to receive, diverse gifts, this policy is useful in setting parameters as to what is acceptable and practical for the organization. For example, gifts of stock seem desirable, but what if the stock is a company that is inconsistent with the mission of the organization? Should it be accepted anyway? Again, there is no “correct” answer here, but it’s certainly something boards need to consider.
 Benefits  

  • It sets clear guidance for the board, staff and donors.
  • It helps to avoid accepting some gifts that may run counter to the mission of the organization.
  • It helps to avoid gifts that are simply not practical for the particular organization (real estate, boats, or other assets that may be costly to manage and/or dispose of).
  • It helps to alleviate or at least manage conflicts of interest.
  • It creates direct accountability for acceptance of (in)appropriate gifts.  

Considerations  

  • There are costs associated with implementing any new policy.
  • Consulting with legal counsel after drafting such a policy is important to ensure that any legal considerations or pitfalls have been addressed.
  • The policy must be monitored and individuals held accountable, all of which are time costs.
  • Opportunities for gifts may be declined and careful management of these potential donors must be performed, so as not to discourage other types of gifts.  

In summary, an important agenda item for every board should be the consideration of adopting/updating such a policy.

 

 

Common Financial Reporting Deficiencies (Part 3)

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February 25, 2016

By Brian Collins, CPA

This is Part 3 of a 3-part series. You can see Part 1 here and Part 2 here.

 

Continuing on from Parts 1 and 2, for this post we’ll discuss common errors in the Statements of Cash Flow and Notes to the Financial Statements as covered by our own Phil Bergamo and Jessica Dima a recent EisnerAmper LLP webinar titled “Common Financial Reporting Deficiencies for Not-for-Profit Organizations.”

Common Error Proper Reporting
Certain noncash transactions are shown in the body of the cash flow statement or not separately disclosed either at the bottom of the cash flow statement or in a footnote. Transactions that only affect the statement of financial position should not be included in the body of the statement of cash flows (examples include purchase of fixed assets with a note or capital lease, refinancing of debt, reclassification of related party debt to net assets). These amounts should be disclosed at the bottom of the statement of cash flows or in the footnotes.
Noncash transactions that affect the statement of activities should be disclosed on the statement of cash flows as an adjustment to reconcile change in net assets to cash provided by operating activities (examples include donated fixed assets or equities, unrealized gain on investments, bad debt expense, forgiveness of debt).
Interest paid is not disclosed on the statement of cash flow. Interest paid during the fiscal year should be disclosed on the statement of cash flow.  Interest paid can be calculated by taking interest expense and adding prior-year accrued interest and subtracting current-year accrued interest.
Donated services not recorded when meeting the applicable criteria for recognition. Services that are contributed by non-affiliates of an organization generally should be recognized if they create or enhance a nonfinancial asset or meet ALL of the following criteria:
a. The service requires specialized skills (such as accountants, lawyers, architects, doctors, nurses or other professionals and craftsmen).
b. The service is provided by individuals who possess those skills.
c. The service would typically need to be purchased is not contributed.
Donated services of volunteers not disclosed in the notes to the financial statements. A description of volunteer services received (if material) should be disclosed in the footnotes. If the value of those services are not recognized, the fact that they do not meet the required criteria or reason they are not recognized should be disclosed.
The nature of restrictions on net assets not disclosed. Information on the nature and extent of the donor-imposed restrictions must be presented on the face of the statements or in the notes to the financial statements.

 

EisnerAmper is an independent member of Allinial Global.
EisnerAmper is an independent member of EisnerAmper Global.