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Important Accounting and Auditing Updates By Junice Jones and Frank Jakosz

Important Accounting and Auditing Updates for Nonprofits

Several accounting and auditing standards updates go into effect in 2020 and 2021. Nonprofits need to understand these changes and plan for effective implementation.

Below is an overview of three of the key changes and how they may affect your organization. We’ll discuss these and other updates in detail during our session at the Outcomes Conference Digital Experience 2020.


Under FASB Accounting Standards Update (ASU) 2016-02, Leases, organizations that lease assets will now be required to recognize lease assets and liabilities on the statement of financial position.

Key points:

  • The new standards define a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.
  • Under the previous standards, organizations were only required to disclose operating leases in the footnotes of their financial statements. Under ASU 2016-02, only short-term leases with an original term of less than 12 months can be omitted from financial statements.
  • Virtually all leases will require balance sheet recognition as a right-of-use (ROU) asset and lease liability.
  • Previously the classes of leases were operating and capital; now they are operating and finance. The distinction between the two classes is very similar to the existing lease standards.
  • The lease classification (operating or finance) will impact the amount and timing of lease income or expense in the income statement
  • The balance sheet accounting is identical for operating and finance leases. Income statement accounting is a little more complex.
  • ASU 2016-02 also includes extensive disclosures.

In October 2019, the FASB extended the implementation deadline to give nonprofits an additional year to adopt the new standards.

Effective date for nonprofits:

  • Fiscal years beginning after December 15, 2020 (calendar year 2021; fiscal year 2022).
  • Fiscal years beginning after December 15, 2018 (calendar year 2019; fiscal year 2020) if the organization has conduit debt or securities that are traded, listed, or quoted on an exchange or an over-the-counter market.
  • Early adoption is permitted.

Even with the extra year, nonprofits should begin planning their implementation and ongoing compliance as soon as possible.

Grants and Contracts

FASB ASU 2018-08, Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made, applies to all nonprofit and business entities that receive or make contributions, unless otherwise indicated.

Key points:

  • It’s critical to design effective review procedures of agreements and transactions.
  • The term used in the presentation of financial statements to label revenue (for example, contribution, grant, donation) that is accounted for within the scope of Subtopic 958-605 (contribution accounting) is not a factor for determining whether an agreement is within the scope of that guidance.
  • The intent is to apply the same guidance for both grantors and recipients. The entities do not need to track each other’s accounting or mirror the same accounting treatment to achieve the same reporting results.
  • For contribution (nonreciprocal) transactions, follow the guidance in FASB ASC 958-605.
  • For exchange (reciprocal) transactions, follow the guidance in FASB ASC 606.

Effective date for nonprofits:

  • Effective for nonpublic recipient entities for periods beginning after December 15, 2018.
  • Resource providers have been given an additional year for implementation, because for them the ASU concerns expense recognition rather than revenue recognition.

Revenue Recognition

It’s also important for nonprofits to be aware of FASB ASU 2014-09, Revenue from Contracts with Customers, which applies to all entities with contracts with customers.

Key points:

  • Contributions are excluded from the standard. For nonprofits, the most common types of revenue covered by FASB ASU 2014-09 are tuition and housing (for schools and higher education institutions) and subscription and membership dues.
  • Record revenue as it is earned — that is, as the service is provided under the contract.
  • The new standard will increase the revenue disclosures in the Significant Accounting Policies footnote.
  • There will be additional disclosures for deferred revenue to disaggregate between revenue earned at a point in time and earned over time.

Effective date:

  • Effective for nonprofits with fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted.
  • For nonprofit entities with public debt offering, ASU 2014-09 is effective with fiscal years beginning after December 15, 2017.

Effective implementation and compliance begins with careful planning. Please contact us at with questions or to discuss how these issues might affect your organization.


Junice Jones serves as a Partner in the Dallas office of CapinCrouse. She joined the firm in June 2008 and has 11 years of professional experience serving nonprofit clients. In addition to providing audit and accounting services for clients, she also provides consulting and advisory services to help organizations with the issues they face. Junice is a member of the internal quality control team at CapinCrouse.

Frank Jakosz serves as Partner and Quality Assurance Director at CapinCrouse. Frank has more than 45 years of public accounting and nonprofit expertise and a deep understanding of nonprofit organizational best practice financial functions and operations. His expertise includes financial reporting and analysis, investments, internal controls, endowments, and grants management.

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