Retired CPA Allen L. Fetterman provided an extensive update of the nonprofit accounting and auditing landscape in his presentation at the Foundation for Accounting Education’s 46th Annual Nonprofit Conference on Jan. 25.

Fetterman began by delineating the difference between a public not-for-profit entity and a public business entity (PBE), citing the Financial Accounting Standards Board (FASB)’s Accounting Standards Update (ASU) No. 2023-06. That ASU clarifies that a public business entity is a business entity meeting any one of several criteria—including being required by the Securities and Exchange Commission to file or furnish financial statements—and that a not-for-profit entity is not a public business entity.

“A ... nonprofit—if it issues publicly traded debt, or secondly, if it's a conduit debt obligor on publicly traded debt— then it's considered a public nonprofit, not a PBE,” he said. “All other nonprofits are nonpublic nonprofits, and why do we need to know the difference? Because sometimes the effective dates of ASUs are different for public entities versus nonpublic entities or PBEs versus non-PBEs.”

After an examination of leases and credit losses under the relevant FASB Updates, Fetterman considered some commonly asked questions about contributed nonfinancial assets under ASU No. 2020-07, Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets. One such question concerned whether donated crypto assets are within the scope of the guidance. They are, he said, as they are considered nonfinancial assets; as such, they do not provide the contractual right to receive cash.

He returned to the subject later as he discussed ASU No. 2023-08, Accounting for and Disclosure of Crypto Assets.“

“Organizations in the past, up until now, have been accounting for crypto assets as indefinite-lived intangible assets, and that accounting doesn't reflect economic reality because we're not recognizing gains until they're realized, and we all know that's not the way we account today,” he said. “Some nonprofits hold crypto assets, whether received as a contribution or payment for goods or services, or as an investment of resources. So, there are three ways they can hold crypto assets, and I'm going to think that as time progresses, more and more organizations will be holding [them].”

Moving on to the topic of auditing standards, Fetterman reviewed AICPA Statement on Auditing Standards No. 142 SAS, Audit Evidence, which “provides expanded guidance on whether sufficient appropriate audit evidence has been obtained,” he said. “It discusses the increased use of automated tools and techniques. It provides guidance on gathering audit evidence when the auditor is working remotely, something that [auditors and clients] became accustomed to” during the pandemic.

Fetterman also reviewed SAS No. 145, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, which provides auditors with improved guidance for identifying and assessing risks of material misstatement, expounding on the assessment of the risks of material misstatement.

Fetterman then moved on to a discussion of the single audit, defined by the U.S. Department of Health & Human Services as "an organization-wide financial statement and federal awards’ audit of a non-federal entity that expends $750,000 or more in federal funds in one year. It is intended to provide assurance to the Federal Government that a non-federal entity has adequate internal controls in place, and is generally in compliance with program requirements. Non-federal entities ... include ... non-profit organizations." In what he called an “executive overview” of what to expect for 2023 single audits, Fetterman advised that COVID-19 programs continue to require audits, even if pandemic funding is down, so he suggested that the attendees be alert to guidance issued by agencies on expiring waivers.

“Infrastructure Investment and Jobs Act funding is beginning to flow to all organizations, including nonprofits, and the 2023 Compliance Supplement has more changes this year than usual,” he said. “This is the third year in a row where the new compliance has more changes than before. “The bottom line [is] stress to the single audit system” due to “$500 billion of normal federal funding on an annual basis, over $1 trillion in additional pandemic funding and now $500 billion in new infrastructure funding, which results in a significant increase in single audits and other compliance audits.”

Fetterman then highlighted key elements of the 2023 Office of Management and Budget Compliance Supplement. “There are approximately 250 federal programs, and this year's compliance supplement runs more than 2,000 pages,” he said. “It's available as always, on the OMB website, but this year, they finally did something did something better for us. They have, as always, a single PDF file, which means if you want to scroll down to something in Appendix 6 near the end, you got to scroll from 2,000 pages. This year, they have given us a version on their website, broken down by section, so you can go right to appendices and scroll through a lot fewer pages than you would if there was a single PDF file.”

Fetterman concluded his presentation by recalling the first AICPA nonprofit conference in 1979, held at the NYSSCPA offices. Forty people were expected to attend the event. It drew more than 100.