the impact of fasb/iasb/aicpa/rus standards, form 990 and visualizing a trillion dollars florida...

The Impact of FASB/IASB/AICPA/RUS Standards, Form 990 and Visualizing a Trillion

Dollars

Florida Statewide Accounting Group Meeting

Ocala FL

May 21, 2010

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There is a lot going on!• FIN 48 Accounting for Uncertainty in Income Taxes – An Interpretation of

SFAS 109• FASB Project Disclosures About Employer’s Participation in a Multiemployer

Plan• SFAS 141 Business Combinations• SFAS 157 Fair Value Measurements• FASB/IASB Project on Leases• FASB/IASB Project on Other Comprehensive Income• FASB/IASB Project on Financial Instruments with Characteristics of Equity• FASB/IASB Project on Emission Trading Schemes• FASB Project on Disclosure of Certain Loss Contingencies• FASB/IASB Project on Financial Statement Presentation• IASB Project on Rate Regulated Activities• IASB Project on SMEs• AICPA and FAF on Private Company GAAP• RUS memo on Renewable Energy Credits• Accounting for R&S plan contributions• Subsequent Events• FASB Accounting Standards Codification • Form 990 Update• How Much is a Trillion Dollars?

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FIN 48• On December 30, 2008, the Board issued FASB Staff

Position, FSP FIN 48-3, Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises. This completed phase one of the project. Rural electric cooperatives could elect to defer the application of FIN 48 for one more year.

• The election requires footnote disclosure as well as a description of the process the cooperative uses to evaluate any uncertain tax positions.

• On May 18, 2009, the FASB released FSP FIN 48d. The purpose of the FSP is to provide implementation guidance for pass-through and not-for-profit tax-exempt entities and disclosure modifications for nonpublic enterprises.

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FIN 48• FIN 48d provides that nonpublic entities would

be required to disclose the following:

– The total amount of interest and penalties recognized in the statement of operations and statement of financial position.

– For positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within 12 months of the reporting date:

• The nature of the uncertainty

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FIN 48• The nature of the event that could occur in the next 12

months that would cause the change• An estimate of the range of the reasonably possible

change or a statement that an estimate of the range cannot be made

– A description of the tax years that remain subject to examination by major tax jurisdictions.

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FIN 48

• One issue of importance to tax-exempt rural electric cooperatives is that the FSP concludes that management must determine whether the entity is in fact a pass-through entity or a tax-exempt not-for-profit entity in the jurisdictions in which it files a return or would otherwise be subject to income taxes.

• This requires management to access the tax positions inherent if the calculation of the 85-15 test.

• In addition, a tax-exempt not-for-profit entity must assess whether it has any tax positions associated with unrelated business income subject to income taxes.

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FIN 48

• Impact on tax-exempt rural electric cooperatives:– Top down approach– Bottoms up approach

• Lack of qualified staff at tax-exempt rural electric cooperatives to determine uncertain tax positions and the probability matrix.

• Independent auditor judgment is going to be critical.

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FIN 48

• What happens if a tax-exempt rural electric cooperative determines that it has an uncertain tax position in a key element of it’s 85/15 test?

• The new Form 990 requires that uncertain tax positions be disclosed in Schedule D.

• Can you “fail” the 85/15 test for book purposes but still be statutorily exempt for tax purposes?

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FIN 48

• In IRS Notice 2010-09, the Internal Revenue Service is considering changes to reporting requirements regarding certain business taxpayers’ uncertain tax positions in order to improve tax compliance and administration.

• The Service is developing a schedule requiring certain business taxpayers to report uncertain tax positions on their tax returns.

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FIN 48• The schedule will require a concise description of

each uncertain tax position in sufficient detail so that the Service can determine the nature of the issue.

• The sufficiency of a description will depend on the taxpayer’s particular facts and the nature of the underlying transaction.

• As currently contemplated, this concise description will include the rationale for the position and a concise general statement of the reasons for determining that the position is an uncertain tax position.

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FIN 48• To be sufficient, the description must contain:

– 1. The Code sections potentially implicated by the position;

– 2. A description of the taxable year or years to which the position relates;

– 3. A statement that the position involves an item of income, gain, loss, deduction, or credit against tax;

– 4. A statement that the position involves a permanent inclusion or exclusion of any item, the timing of that item, or both;

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FIN 48– 5. A statement whether the position involves a

determination of the value of any property or right; and

– 6. A statement whether the position involves a computation of basis.

• In addition, the schedule will require a taxpayer to specify for each uncertain tax position the entire amount of United States federal income tax that would be due if the position were disallowed in its entirety on audit.

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FIN 48• The Service intends the new schedule to be filed by a

business taxpayer with total assets in excess of $10 million if the taxpayer has one or more uncertain tax positions of the type required to be reported on the new schedule.

• This includes a taxpayer who prepares financial statements, or is included in the financial statements of a related entity that prepares financial statements, if that taxpayer or related entity determines its United States federal income tax reserves under FIN 48, or other accounting standards relating to uncertain tax positions involving United States federal income tax.

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FASB Project on Disclosures of Employers’ Participation in a

Multiemployer Plan• Among the concerns raised is the lack of information

in the financial statements, beyond the contributions made, about an employer’s participation in a multiemployer plan. Additionally, several users have published reports highlighting these concerns, including the potential for increases in contributions as a result of plans being underfunded.

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Multiemployer Plan• The funded status of many of these plans deteriorated

significantly during the financial crisis of 2008 when plan asset values dropped significantly.

• It is envisioned that expanded disclosures would enable users of financial statements to better assess the risks a reporting entity faces by participating in a multiemployer plan.

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Multiemployer Plan• At the March 17, 2010 FASB Board meeting, the

FASB chairman announced the addition of a new project aimed at expanding disclosures about an employer’s participation in a multiemployer plan (that is, pension and other postretirement benefits).

• The project was added in response to concerns raised by several constituents about the current disclosures for multiemployer plans.

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Multiemployer Plan• At the April 14, 2010 meeting, the Board deliberated on the disclosure

requirements of an employer’s participation in a multiemployer plan. The Board decided on the following:– The Board agreed on the staff’s recommendation for an employer to

disclose both quantitative and qualitative information about its participation in a multiemployer plan. This will inform the financial statement users about the employer’s commitment to the plan and the effect of future cash flows. The proposed disclosures are derived largely from the agreement between the employer and the plan. Additionally, some of the disclosure requirements are based on information that can be obtained by the employer from the plan under the requirements of the Pension Protection Act of 2006.

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Multiemployer Plan• Such disclosures might include information

such as:– The plan’s minimum funding level– The participant’s withdrawal liability– The cash flow and earnings assumptions embodied

in the plan

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Multiemployer Plan• The Board agreed to make the disclosure requirements effective

prospectively. The Board agreed to propose in the Exposure Draft that the new guidance should be effective for fiscal years ending after December 15, 2010, except that for nonpublic entities the new guidance should be effective for the first annual period beginning after December 15, 2010.

• The Board directed the staff to draft an Exposure Draft of a proposed Accounting Standards Update for vote by written ballot.

• The Board decided that the Exposure Draft should be exposed for a 60-day comment period and directed the staff to solicit comments from the constituents that may be affected by the final standard.

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Multiemployer Plan• The Board has directed the staff to begin drafting a proposed

Accounting Standards Update. The staff expects to issue the proposed Update in the second quarter of 2010 and a final Update early in the fourth quarter of 2010.

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SFAS 141 Business Combinations

• It is going to be problematic for the boards of two rural electric cooperatives to come to grips with the necessity to designate an “acquirer” and “acquiree”.

• Alternatively, we may see more virtual mergers as we have seen recently in the G&T community.

• Another issue is the requirement for the acquirer to value the assets and liabilities of the acquiree at fair value.

• What is fair value for a rural electric cooperative?

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SFAS 141 Business Combinations

• Boards need to be made aware that a business combination may result in rate increases even though the combination was a true merger with no cash changing hands.

• Unwillingness to raise rates, if necessary, to recover the new level of embedded costs may result in impairment writedowns.

• The net result could mirror that which would have been achieved via a pooling of interest.

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Fair Value Measurements

• The independence of the FASB – was it compromised by Congress?

• SFAS 157 – Measurement of Liabilities – The FASB discussed potential revisions to the

scope, guidance, and effective date of proposed FSP FAS 157-c, Measuring Liabilities under FASB Statement No. 157.

– The FASB decided that the final FSP will apply to the fair value measurement of liabilities under FASB Statement No. 157, Fair Value Measurements.

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• The FASB decided that the final FSP will require that practitioners generally use the same approach to valuing a liability under Statement 157 as used for an asset. The exception is that restrictions on the transfer of a liability will not affect the fair value measurement of that liability, whereas restrictions on an asset are considered when determining the fair value of that asset.

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• On April 3, 2009, the EU finance ministers made it clear that they may be headed for a showdown with the IASB over the need to have a level playing field as a result of the FASB’s action to modify SFAS 157 for other than temporary impairments.

• On April 2, 2009, the IASB stated they would not immediately adopt the FASB changes into IFRS.

• IASB Chairman, Sir David Tweedie, threatened to resign over “regulatory arbitrage” from having two sets of standards.

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• In October 2008, the EU ministers placed a similar demand on the IASB after the FASB adjusted mark-to-market accounting in response to the financial crisis.

• Initially the IASB refused to adopt the FASB approach, but the EU ministers said that they would unilaterally adopt their own changes and the IASB relented.

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Fair Value Measurements• At their combined meeting on January 10, 2010, the Boards

tentatively decided:– To retain the term fair value – To define fair value as an exit price. The Boards will discuss

where that definition should be used in a future meeting when they address the scope of a converged fair value measurement standard.

• Measuring fair value when markets become less active

The Boards tentatively decided that the guidance for measuring fair value in markets that have become less active:– Pertains to when there has been a significant decline in the volume and

level of activity for the asset or liability – Focuses on whether an observed transaction price is orderly, not on the

level of activity in a market.

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FASB/IASB Project on Leases

• On March 19, 2009, the FASB and the IASB published a discussion paper: Leases, Preliminary Views.

• The comment deadline was July 17, 2009• If adopted as proposed, accounting by rural electric

cooperatives for leases which are now classified as operating leases would change.

• The principle underlying lease accounting would now be:– Lease contracts create assets and liabilities that should be

recognized in the financial statements of lessees.

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• If this principle is adopted in a new standard on lease accounting, it would result in the lessee recognizing:– an asset for its right to use the leased item (the

right-of-use asset)– a liability for its obligation to pay rentals.

• The FASB and IASB think that ensuring that all leases are depicted on the statement of financial position would significantly increase the transparency and the comparability of lease accounting.

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• The asset and liability would be recorded at fair value.

• The FASB and IASB noted that in most leases the present value of the lease payments discounted using the lessee’s incremental borrowing rate would be a reasonable approximation to fair value.

• The FASB and IASB tentatively decided that the lessee should initially measure its right-of-use asset at cost. Cost equals the present value of the lease payments discounted using the lessee’s incremental borrowing rate.

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• Rural electric cooperatives low incremental borrowing rates will result in a larger asset and liability at initial recognition than a comparable investor owned utility.

• The FASB and IASB are expected to issue an Exposure Draft in the second quarter of 2010 with a final standard in 2011.

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FASB/IASB Project on Other Comprehensive Income

• The Boards also affirmed not to change the guidance on determining the items that must be presented in other comprehensive income. That guidance is contained in other standards that are not being amended by these new standards.

• The FASB affirmed that reclassifications between other comprehensive income and net income should be displayed in the same level of detail that the items were originally reported.

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• Timeline for issuing an exposure draft– The Boards directed the staff to draft an exposure

draft for vote by written ballot. – The Boards tentatively decided that the exposure

draft should be issued simultaneously with the FASB’s proposed update on financial instruments and the IASB’s exposure draft on postemployment benefits.

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• At the February 2, 2010 meeting, the Boards discussed the following issues:– Presentation of the sections of the statement of comprehensive income – The timeline for the issuance of an exposure draft. – Presenting the sections of the statement of comprehensive income

The Boards tentatively decided that:

An entity must display total comprehensive income and its components in a continuous statement of comprehensive income.

The continuous statement of comprehensive income must be displayed with two sections: profit or loss or net income and other comprehensive income. An entity reporting comprehensive income is permitted to use different titles for these sections as long as the meaning is clear.

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• The current expectation is that an Exposure Draft will be issued in the second quarter of 2010.

• This project is important because eventually Other Comprehensive Income will move to the income statement from the balance sheet and may have an impact on net margins.

• If and when that happens, we may need to consider redefining TIER etc to use net margins before OCI.

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Financial Instruments with Characteristics of Equity

• This project started in August 1990.• Made much more complex as a result of financial

innovation.• The FASB and IASB decided that a perpetual

instrument should be classified as equity. A perpetual instrument is defined as one that lacks a settlement requirement and entitles the holder to a portion of the net assets of the entity in liquidation. Instruments that are redeemable at the option of the issuer meet that definition because, although the issuer may choose to settle the instrument, it cannot be required to do so.

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• The FASB and IASB also decided that puttable and mandatorily redeemable instruments should be classified as one of the following two types, which should be considered differently in determining classification:– An instrument that is puttable or mandatorily redeemable

upon death or retirement of the holder would be classified as equity. The term retirement is used broadly to include events such as termination, resignation, or ceasing to be a member in a cooperative or partnership.

– An instrument that is puttable at the option of the holder or mandatorily redeemable if specified dates or events other than death or retirement occur would generally be classified as liabilities.

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• The Board discussed and expressed support for a set of draft principles that could be used to distinguish between equity and liabilities and a related set of decision rules to operationalize those principles.

• The decision rules are as follows:– An entity must classify as equity retained earnings and capital contributed without

the contributor receiving a claim against the entity in exchange, even if that entity has issued no equity instruments.

– An issuer must classify an instrument as a liability if the instrument has a fixed settlement date or must be settled on the occurrence of an event that is certain to occur, excluding those instruments described in items 3(a) and 3(b) below.

– An issuer must classify the following other instruments as equity:

• Instruments that the issuer cannot be required to settle before winding up its operations and distributing all of its assets (regardless of the amount of the claim).

• Instruments that the holder is required to own to do business with or otherwise actively engage in activities of the issuer and that are redeemable only if the holder dies, retires, resigns, or otherwise ceases to actively engage in the activities of the issuer. (This includes holdings, the amounts of which vary based on the volume of business transacted by the holder.)

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• Claim Status

All claims against an entity must eventually be satisfied (although some will not be satisfied until the entity winds up its affairs and distributes all of its assets). The term claim status means the order in which the claims are satisfied. Equity interests as a group are the claims against an entity with the lowest claim status. There may be more than one class of equity instruments, those classes may have different rights and obligations, and one may have a lower claim status than another. However, an equity instrument is never senior to a liability.

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• On January 18, 2010, the Boards decided not to adopt any of the approaches they have previously considered. Instead, they directed the staff to analyze a possible amendment to IAS 32, Financial Instruments: Presentation.

• The effects of that possible amendment have not yet been specified but the following are some possibilities:

– A requirement to classify as equity shares puttable only if specified certain events occur, such as the death or retirement of the holder

– A requirement to separate some puttable shares into equity and liability components

– A slight relaxation of the provision that to qualify as equity, a financial instrument involving exchanges of equity instruments for cash must require an exchange of a fixed number of shares for a fixed amount of cash.

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• At the joint meeting on February 18th, the Boards concluded that the following types of instruments should be equity in their entirety: – Perpetual instruments (instruments not required to

be redeemed unless the entity decides to or is forced to liquidate its assets and settle claims against the entity) issued by entities without specified limits to their lives. (That includes both ordinary and preferred shares.)

– Mandatorily redeemable and puttable instruments that meet either of the following criteria:

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i. The instrument’s terms require, or permit the holder or issuer to require, redemption to allow an existing group of shareholders, partners, or other participants to maintain control of the entity when one of them chooses to withdraw.ii. The holder must own the instrument in order to engage in transactions with the entity or otherwise participate in the activities of the entity, and the instrument’s terms require, or permit the holder or issuer to require, redemption when the holder ceases to engage in transactions or otherwise participate.

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• All other mandatorily redeemable instruments (instruments that an entity is required to redeem on a certain date or on the occurrence of an event that is certain to occur) should be classified as liabilities.

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• This issue is critical to rural electric cooperatives and we have been working closely with the FASB and the IASB during this process to ensure that what we classify as equity today will still be considered equity in the future.

• The FASB and IASB are expected to issue an Exposure Draft in the second quarter of 2010 with a final standard in 2011.

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Emission Trading Schemes

• The FASB did not reach any conclusions on the accounting questions related to initial recognition and measurement of tradable offsets that are issued to an entity free of charge in a cap and trade emissions trading scheme.

• The FASB noted that the accounting for assets and liabilities in an emissions trading scheme involves issues that are also being discussed in the joint conceptual framework project and the IASB project to amend International Accounting Standard (IAS) 37, Provisions, Contingent Liabilities and Contingent Assets. The Board directed the staff to conduct additional research to ensure that conclusions the Board may reach on this project are consistent with conclusions reached on those other two projects.

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Emission Trading Schemes

• Currently, the FASB anticipates issuing an exposure draft in the third quarter of 2010.

• The impact of a cap and trade program on rural electric cooperatives is expected to be material.

• Key questions will be:– are the attributes intangible assets or may they be

inventory?– should they be fair valued, and how?

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FASB Project on Disclosure of Certain Loss Contingencies

• The FASB issued an Exposure Draft, Disclosure of Certain Loss Contingencies, on June 5, 2008. The comment period ended on August 8, 2008.

• NRECA filed a comment letter with the FASB, objecting to certain of the Exposure Draft’s recommendations.

• On September 24, 2008, the FASB decided on a plan for redeliberations of its Exposure Draft, Disclosure of Certain Loss Contingencies. The FASB directed the staff to prepare an alternative model that will attempt to address the concerns that certain constituents raised about the Exposure Draft. This alternative model will be field tested along with the model in the Exposure Draft.

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• At the August 19, 2009 meeting, the FASB began redeliberations of disclosure requirements for certain loss contingencies. The FASB decided to initially focus its deliberations on loss contingencies associated with litigation and to consider other types of loss contingencies at a future meeting.

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• Disclosure Objective – An entity shall disclose qualitative and quantitative

information about loss contingencies to enable financial statement users to understand their nature, potential timing, and potential magnitude.

• Disclosure Principles – To achieve the above objective, an entity shall consider the

following principles in determining disclosures that are appropriate for its individual facts and circumstances:

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– During early stages of a contingency’s life cycle, an entity shall disclose information (even though its availability may be limited) to help users understand the nature and potential magnitude of a loss contingency. In subsequent reporting periods, disclosure shall be more extensive as additional information becomes available.

– An entity may aggregate disclosures about similar contingencies (for example, by class or type) so that the disclosures are understandable and not too detailed. If an entity provides disclosures on an aggregated basis, it shall disclose the basis for aggregation.

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• Disclosure Threshold – The Board decided to maintain the existing requirement to

disclose asserted claims and assessments whose likelihood of loss is at least reasonably possible.

– The Board also decided that disclosure of certain remote loss contingencies, due to their nature, potential timing, or potential magnitude, may be necessary to inform users about the entity’s vulnerability to a potential severe impact. An entity will need to exercise judgment in assessing its specific facts and circumstances to determine whether disclosure about remote contingencies is necessary. Factors that an entity may consider in making this determination include any of the following:

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• a. The potential effect on the entity’s operations • b. The cost to the entity for defending its contentions • c. The amount of efforts and resources management may have to

devote to resolve the contingency.

– The plaintiff’s amount of damages claimed, by itself, does not necessarily determine whether disclosure about a remote contingency is necessary although it could be one of the factors to be considered in this determination.

– When assessing the materiality of loss contingencies to determine whether disclosure is required, the entity shall not consider the possibility of recoveries from insurance or other indemnification arrangements.

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• Qualitative Disclosures • For all contingencies that meet the disclosure

threshold, disclose the following: – Qualitative information to enable users to understand the nature and

risks of a contingency or group of contingencies. – During early stages of asserted litigation contingencies, disclosure shall

include, at a minimum, the contentions of the parties (for example, the basis for the claim and the amount of damages claimed by the plaintiff and the basis for the entity’s defense or a statement that the entity has not yet formulated its defense). In subsequent reporting periods, disclosure shall be more extensive as additional information becomes available, for example, as the litigation progresses toward resolution and/or if the likelihood and magnitude of loss increase. Furthermore, if practicable, an entity shall disclose the anticipated timing of, or the next steps in, the resolution of individually material asserted litigation contingencies.

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– For individually material contingencies, the disclosure shall be sufficiently detailed to enable financial statement users to obtain additional information from publicly available sources such as court records. For example, an entity shall disclose the name of the court or agency in which the proceedings are pending, the date instituted, the principal parties thereto, a description of the factual basis alleged to underlie the proceeding, and its current status.

– When disclosure is provided on an aggregated basis, an entity shall disclose the basis for aggregation and information that would enable financial statement users to understand the nature, potential timing, and potential magnitude of loss.

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• Quantitative Disclosures • For all contingencies that are at least reasonably

possible, disclose the following: – Publicly available quantitative information, for example, in

case of litigation contingencies, the amount claimed by the plaintiff or the amount of damages indicated by the testimony of expert witnesses

– An estimate of the possible loss or range of loss and the amount accrued, if any

– If the possible loss or range of loss cannot be estimated, a statement that an estimate cannot be made and the reason(s) therefore

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– Other nonprivileged information that would be relevant to financial statement users to enable them to understand and/or assess the possible loss

– Information about possible recoveries from insurance and other sources only if, and to the extent that it has been provided to the plaintiff(s) in a litigation contingency, it is discoverable either by the plaintiff or by a regulatory agency, or it relates to a recognized receivable for such recoveries. If the insurance company has either denied or contested the entity’s claim for recovery, the entity shall disclose that fact.

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• For those remote contingencies that meet the disclosure threshold, disclose the following: – Publicly available quantitative information, for

example, in case of litigation contingencies, the amount claimed by the plaintiff or the amount of damages indicated by the testimony of expert witnesses

– Other nonprivileged information that would be relevant to financial statement users to enable them to understand and/or assess the contingency’s potential impact.

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• Information about possible recoveries from insurance and other sources only if, and to the extent that it has been provided to the plaintiff(s) in a litigation contingency, it is discoverable either by the plaintiff or by a regulatory agency, or it relates to a recognized receivable for such recoveries. If the insurance company has either denied or contested the entity’s claim for recovery, the entity shall disclose that fact.

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• Tabular Reconciliation – For each period for which a statement of income is

presented, public entities shall disclose reconciliations by class, in a tabular format, of recognized (accrued) loss contingencies to include all of the following:

• The carrying amounts of the accruals at the beginning and end of the period

• Increases (that is, amount accrued during the period) for new loss contingencies recognized during the period

• Increases for changes in estimates for loss contingencies recognized in prior periods

• Decreases for changes in estimates for loss contingencies recognized in prior periods

• Decreases for cash payments or other forms of settlements during the period.

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– An entity shall describe the significant activity in the reconciliation and disclose the line items in the statement of financial position in which recognized (accrued) loss contingencies are included. All loss contingencies recognized in a business combination shall be included in the reconciliation but shown separately if they have a different measurement attribute (for example, fair value versus probable loss amount).

• Scope • The Board decided that the disclosures shall apply to

all entities except that the tabular reconciliation of accrued contingencies is not required for nonpublic entities.

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• Reexposure • The Board decided that the draft standard should be re-

exposed and that the Exposure Draft should have a 30-day comment period.

• Effective Date • The new guidance shall be effective for fiscal years ending after

December 15, 2010, and interim and annual periods in subsequent fiscal years except that for nonpublic entities the new guidance shall be effective for the first annual period beginning after December 15, 2010, and for interim periods of fiscal years subsequent to the first annual period.

• The Board directed the staff to begin drafting the revised Exposure Draft.

• 16. The Board expects to issue the Exposure Draft in the second quarter of 2010 that will have a 30-day comment period.

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• Potential Impacts on Rural Electric Cooperatives:– Possible disclosure of lawsuit data prior to the time

it would have been recognized under SFAS 5.– Possible disclosure of environmental regulatory or

litigation actions (pending or threatened).– Possible disclosure of risks associated with the

regional transmission organization markets.– Possible disclosure of risks associated with OTC

transactions.– Expect the audit legal letter to take more time.

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FASB/IASB Project on Financial Statement Presentation

• On October 16, 2008, the FASB and IASB published for public comment a discussion paper, Preliminary Views on Financial Statement Presentation. The FASB discussion paper and the IASB discussion paper are the same except for differences in style/format. The comment period ended on April 14, 2009.

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• The proposal would require the use of the direct method cash flow statement.

• This change, if adopted, could have a significant impact on rural electric cooperatives from the conversion of existing software to provide the essential data.

• A benefit may be more timely and accurate information on cash flows.

• Another impact could be the need to revise cooperative financial models to accommodate the new format.

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• The single statement of comprehensive income would still include a subtotal for net income or profit or loss and a separate section for other comprehensive income.

• The proposed format would not change existing requirements that ‘recycle’ items in specified circumstances from other comprehensive income to net income or profit or loss.

• This may increase the volatility in rural electric cooperatives reported earnings, particularly from transactions subject to SFAS 133 and SFAS 158.

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Statement of Financial Position

Statement of Comprehensive Income

Statement of Cash Flows

Business Operating assets and liabilities Investing assets and liabilities

Financing

Financing assets Financing liabilities

Income taxes

Discontinued operations

Business Operating income and expenses Investment income and expenses

FinancingFinancing incomeFinancing liability expenses

Income taxes on continuing operations business and financing

Discontinued operations net of tax

Other comprehensive income net of tax

Business Operating cash flows Investing cash flows

Financing

Financing asset cash flowsFinancing liability cash flows

Income taxes

Discontinued operations

Equity Equity


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• At their February 16, 2010 joint meeting, the Boards continued their deliberations of the proposals in the Discussion Paper, Preliminary Views on Financial Statement Presentation. – Application guidance for analysis of changes in significant

asset and liability line items

The Boards addressed several implementation issues that relate to the tentative decision made in October 2009 to require an entity to present an analysis of changes in the balances of all significant asset and liability line items in the notes to financial statements (referred to herein as analysis or analyses of changes).

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• At the February meeting, the Boards tentatively decided that the Exposure Draft will permit an entity to present each analysis of changes with related information in the topic-specific note disclosure. For example, an analysis of changes in an entity’s property, plant, and equipment line items should be presented as part of the entity’s property, plant, and equipment note. In all cases, each analysis must be accompanied by a narrative explanation of the changes.

– Will require each analysis of changes reported in the current reporting period to include a comparative analysis of changes for the prior reporting period(s).

– Will clarify that an entity should always disclose the reconciliations of specific items as required elsewhere in IFRSs or U.S. GAAP, notwithstanding the factors to be considered in determining whether the change in an asset or liability should be analyzed in the notes.

– Will clarify that, when preparing a reconciliation of specific items as required elsewhere in IFRSs or U.S. GAAP, an entity should consider whether the reconciliation reflects the required components that are part of the analysis of changes.

– Will clarify that an entity should provide disaggregated information for each component of an analysis of changes. For example, an entity cannot aggregate items that meet the definition of a remeasurement into one line item.

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• At the February joint meeting, the boards directed the staff to draft an Exposure Draft for vote by written ballot based on the package of tentative decisions outlined in that meeting. The plan is to publish that exposure draft near the end of May 2010.

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IASB Project on Rate Regulated Activities

• In December 2008, the IASB added a project on rate-regulated activities to its agenda. The project objective is to develop a standard on rate regulated activities that clarifies whether regulated entities could or should recognize an asset or a liability as a result of rate regulation.

• The project is not included in the Memorandum of Understanding 2006 – 2008 (MoU) on a Roadmap for Convergence between IFRS and US GAAP

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• On July 23, 2009, the IASB issued an Exposure Draft with a comment deadline of November 20, 2009.

• The Exposure Draft specifically addresses rate-regulated activities that meet the following two criteria:

• (a) an authorized body is empowered to establish rates that bind customers.

• (b) the price established by regulation (the rate) is designed to recover the specific costs the entity incurs in providing the regulated goods or services and to earn a specified return (cost-of-service regulation).

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• The Exposure Draft provides that when the scope criteria are met, the entity recognizes regulatory assets and regulatory liabilities in addition to the assets and liabilities recognized in accordance with other IFRSs.

• The effect of this requirement is initially to recognize as an asset (liability) an amount that would otherwise be recognized in that period in the statement of comprehensive income as an expense (income).

• On initial recognition and at the end of each subsequent reporting period regulatory assets and regulatory liabilities are measured at their expected present value. Regulatory assets are assessed for impairment when the entity concludes that it is not reasonable to assume that it will be able to collect sufficient revenues from its customers to recover its costs.

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• In particular, this Exposure Draft requires an entity:– (a) to recognize a regulatory asset or regulatory liability if the

regulator permits the entity to recover specific previously incurred costs or requires it to refund previously collected amounts and to earn a specified return on its regulated activities by adjusting the prices it charges its customers.

– (b) to measure a regulatory asset or regulatory liability at the expected present value of the cash flows to be recovered or refunded as a result of regulation, both on initial recognition and at the end of each subsequent reporting period.

– (c) to provide disclosures that identify and explain the amounts recognized in the entity’s financial statements arising from a regulatory asset or regulatory liability and assist users of those financial statements to understand the nature and financial effects of its rate-regulated activities.

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• An entity shall recognize:– (a) a regulatory asset for its right to recover

specific previously incurred costs and to earn a specified return, or

– (b) a regulatory liability for its obligation to refund previously collected amounts and to pay a specified return when it has the right to increase or the obligation to decrease rates in future periods as a result of the actual or expected actions of the regulator.

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• On initial recognition and at the end of each subsequent reporting period, an entity shall measure a regulatory asset or regulatory liability at its expected present value.

• An entity shall reflect the following elements in the measurement of the expected present value of a regulatory asset or a regulatory liability:– (a) an estimate of the future cash flows that will arise in

a range of possible outcomes.– (b) an estimate of the probability of each outcome

occurring.– (c) the time value of money, represented by the current

market risk-free rate of interest.– (d) the price for bearing the uncertainty inherent in the

regulatory asset or regulatory liability.

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• An entity shall determine a range of possible outcomes and estimate the cash flows that it will recover or refund for each outcome. It shall also estimate the probability that each outcome will occur, including the probability that in the entity’s future rates the regulator will allow the entity to include the actual costs incurred or require the entity to include amounts collected.

• Interest rates used to discount the estimated cash flows shall reflect assumptions that are consistent with those inherent in the estimated cash flows. In other words, the discount rates used shall not reflect risks for which the estimated cash flows have been adjusted.

• However, the fact that the estimated future cash flows have been adjusted for the probability of different outcomes occurring does not eliminate the need to include in the discount rate the price for bearing the uncertainty inherent in the regulatory asset or regulatory liability. The price for uncertainty relates to the entity’s estimates of both the amount and the timing of the cash flows and the probabilities of different outcomes.

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• In some cases, a regulator requires an entity to capitalize, as part of the cost of self-constructed property, plant and equipment or internally generated intangible assets, amounts that would otherwise be recognized as regulatory assets in accordance with this [draft] IFRS.

• After the construction or generation is completed, the resulting capitalized cost is the basis for depreciation or amortization and unrecovered investment for rate-making purposes. In such cases, the amounts included in the cost of the asset for rate-making purposes shall also be included in its cost for financial reporting purposes, even if IAS 16 Property, Plant and Equipment, IAS 23 Borrowing Costs or IAS 38 Intangible Assets would not permit the entity to do so.

• Those amounts shall be included in the cost of the asset only if their inclusion in the cost for rate-making purposes is highly probable.

• Otherwise, they shall be accounted for as regulatory assets in accordance with this [draft] IFRS.

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• At each reporting date, an entity shall consider the net effect on its rates of its regulatory assets and regulatory liabilities arising from the actions of each regulator for the periods in which the regulation is expected to affect rates.

• The entity shall determine whether it is reasonable to assume that rates set at levels that will recover the entity’s costs can be collected from customers.

• In making this determination, the entity shall consider estimated changes in the level of demand or competition during the recovery period.

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• If an entity concludes that it is not reasonable to assume that it will be able to collect sufficient revenues from its customers to recover its costs, this is an indication that the cash-generating unit in which the regulatory assets and regulatory liabilities are included may be impaired.

• Accordingly, the entity shall test that cash-generating unit for impairment in accordance with IAS 36 Impairment of Assets.

• An entity shall recognize any impairment loss determined in accordance with IAS 36 and shall allocate it to the assets of the cash-generating unit in accordance with that standard. An entity shall reflect the impairment loss allocated to each regulatory asset by reducing the entity’s estimate of the future cash flows that it will receive from the regulatory asset as required by paragraphs 13(a) and 14 of this [draft] IFRS.

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• An entity shall present in the statement of financial position current and non-current regulatory assets and regulatory liabilities, without offsetting, separately from other assets and liabilities.

• An entity may present a net regulatory asset or a net regulatory liability for each category of asset or liability subject to the same regulator.

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• Disclosures:– An entity shall disclose information that:

• (a) enables users of the financial statements to understand the nature and the financial effects of rate regulation on its activities; and

• (b) identifies and explains the amounts of regulatory assets and regulatory liabilities, and related income and expenses, recognized in its financial statements.

– An entity shall disclose the fact that some or all of its operating activities are subject to rate regulation, including a description of their nature and extent.

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• For each set of operating activities subject to a different regulator, an entity shall disclose the following information:– (a) if the regulator is a related party (as defined in IAS 24

Related Party Disclosures), a statement to that effect, together with an explanation of why the regulator is related to the entity.

– (b) an explanation of the approval process for the rate subject to regulation (including the rate of return), including information about how that process affects both the underlying operating activities and the specified rate of return.

– (c) the indicators that management considered in concluding that such operating activities are within the scope of the Exposure Draft, if that conclusion requires significant judgment.

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• Significant assumptions used to measure the expected present value of a recognized regulatory asset or regulatory liability including:– (i) the supporting regulatory action, for example, the

issue of a formal approval for costs to be recovered pending a final ruling at a later date and that date, when known, or

– (ii) the entity’s assessment of the expected future regulatory actions.

– (e) the risks and uncertainties affecting the future recovery of the regulatory asset or final settlement of the regulatory liability, including the expected timing.

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• An entity shall disclose the following information for each category of regulatory asset or regulatory liability recognized that is subject to a different regulator:– (a) a reconciliation from the beginning to the end of the

period, in tabular format unless another format is more appropriate, of the carrying amount in the statement of financial position of the regulatory asset or regulatory liability, including at least the following elements:

• the amount recognized in the statement of comprehensive income relating to balances from prior periods collected or refunded in the current period.

• the amount of costs incurred in the current period that were recognized in the statement of financial position as regulatory assets or regulatory liabilities to be recovered or refunded in future periods.

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• other amounts that affected the regulatory asset or regulatory liability, such as items acquired or assumed in business combinations or the effects of changes in foreign exchange rates, discount rates or estimated cash flows. If a single cause has a significant effect on the regulatory asset or regulatory liability, the entity shall disclose it separately.

– (b) the remaining period over which the entity expects to recover the carrying amount of the regulatory asset or to settle the regulatory liability.

– (c) the amount of financing cost included in the cost of self-constructed property, plant and equipment and internally developed intangible assets in the current period in accordance with paragraph 16 that would not have been capitalized in accordance with IAS 23.

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• An entity shall apply this Exposure Draft to regulatory assets and regulatory liabilities that exist at the beginning of the earliest comparative period presented when it applies this [draft] IFRS.

• The entity shall reflect any adjustments required as a result of applying this Exposure Draft in the opening balance of retained earnings of that comparative period.


• At the February 2010 meeting, the Board began its discussions on the responses received on its Exposure Draft. At this meeting, the Board discussed the summary analysis of the comments received. The Board reviewed the background of the issue, a summary analysis of the respondent demographics and a summary of the primary technical issues.

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• The Board discussed the logistical considerations impacting this project and reviewed the potential paths forward for this project including a project timetable prepared by the staff.

• The Board did not make any tentative decisions on specific aspects of the project, except that the Board decided tentatively to finalise the transition relief for first-time adopters.

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• The transition relief is expected to be included in the omnibus Improvements to IFRSs due to be issued in April 2010.

• The Board directed the staff to continue its research and analysis on this project and to focus on the key issue of whether regulatory assets and regulatory liabilities exist in accordance with the current Framework for the Preparation and Presentation of Financial Statements and whether they are consistent with other current IFRSs.

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IFRS Small and Medium Size Entities (SME)

• On July 9, 2009, the International Accounting Standards Board (IASB) published a new standard compiling a new International Financial Reporting Standard (IFRS) for Small and Medium Size Entities (SME).

• Currently, private companies in the United States can prepare their financial statements in accordance with U.S. GAAP as promulgated by the Financial Accounting Standards ("FASB"); an other comprehensive basis of accounting ("OCBOA"), such as cash- or tax-basis; or full IFRS, among others. Now, with the issuance of IFRS for SMEs, U.S. private companies have an additional option.

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• In May, 2008, the AICPA’s Governing Council recognized the IASB as an accounting body.

• The amendment to Appendix A of AICPA rules 202 and 203 give AICPA members the option to use IFRS as an alternative to US GAAP.

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• SME: Small and medium-sized entities are entities that:

• (a) do not have public accountability, and

• (b) publish general purpose financial statements for external users.

• Examples of external users include owners who are not involved in managing the business, existing and potential creditors, and credit rating agencies.

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• An entity has public accountability if:– (a) its debt or equity instruments are traded in a

public market or it is in the process of issuing such instruments for trading in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets), or

– (b) It holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses. This is typically the case for banks, credit unions, insurance companies, securities brokers/dealers, mutual funds and investment banks.

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• Some entities may also hold assets in a fiduciary capacity for a broad group of outsiders because they hold and manage financial resources entrusted to them by clients, customers or members not involved in the management of the entity.

• However, if they do so for reasons incidental to a primary business (as, for example, may be the case for travel or real estate agents, schools, charitable organizations, Cooperative enterprises requiring a nominal membership deposit, and sellers that receive payment in advance of delivery of the goods or services such as utility companies), that does not make them publicly accountable.

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• A subsidiary whose parent uses full IFRSs, or that is part of a consolidated group that uses full IFRSs, is not prohibited from using this IFRS in its own financial statements if that subsidiary by itself does not have public accountability.

• If its financial statements are described as conforming to the IFRS for SMEs, it must comply with all of the provisions of this IFRS.

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• In May 2008, the AICPA governing Council voted to recognize the IASB as an accounting body for purposes of establishing international financial accounting and reporting principles. This amendment to Appendix A of AICPA Rules 202 and 203 gives AICPA members the option to use IFRS as an alternative to U.S. GAAP. As such, a key professional barrier to using IFRS and therefore IFRS for SMEs has been removed. CPAs may need to check with their state boards of accountancy to determine the status of reporting on financial statements prepared in accordance with IFRS for SMEs within their individual state. Any remaining barriers may come in the form of unwillingness by a private company’s financial statement users to accept financial statements prepared under IFRS for SMEs, and a private company’s expenditure of money, time and effort to convert to IFRS for SMEs.

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IFRS SMEDifferences with US GAAP

• IFRS for SMEs is an approximately 230 page, significantly reduced and simplified version of full IFRS. In creating IFRS for SMEs, the IASB eliminated many accounting topics that are not generally relevant to private companies (for example, earnings per share and segment reporting). Being based on full IFRS and missing many accounting topics, IFRS for SMEs therefore differs from U.S. GAAP in a variety of areas. Some of the key differences under IFRS for SMEs are:

• Disclosures are simplified in a number of areas including pensions, leases and financial instruments. • LIFO is prohibited. • Goodwill and indefinite life intangible assets are amortized over a period not exceeding ten years. • Depreciation is based on a components approach. • A simplified temporary difference approach to income tax accounting. • Reversal of impairment charges, if certain criteria are met, is allowed. • Accounting for financial assets and liabilities makes greater use of cost.

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IFRS SMEMeasurement of Assets and Liabilities

• At initial recognition, an entity shall measure assets and liabilities at historical cost unless this IFRS requires initial measurement on another basis such as fair value.

• An entity measures basic financial assets and basic financial liabilities, as defined in Section 11 Basic Financial Instruments, at amortized cost less impairment except for investments in non-convertible and non-puttable preference shares and non-puttable ordinary shares that are publicly traded or whose fair value can otherwise be measured reliably, which are measured at fair value with changes in fair value recognized in profit or loss.

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IFRS SMEMeasurement of Financial Assets and Liabilities

• An entity generally measures all other financial assets and financial liabilities at fair value, with changes in fair value recognized in profit or loss, unless the IFRS SME standard requires or permits measurement on another basis such as cost or amortized cost.

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IFRS SMEMeasurement of Nonfinancial Assets

• Most non-financial assets that an entity initially recognized at historical cost are subsequently measured on other measurement bases.

• For example:– (a) An entity measures property, plant and equipment at the

lower of depreciated cost and recoverable amount.– (b) An entity measures inventories at the lower of cost and

selling price less costs to complete and sell.– (c) An entity recognizes an impairment loss relating to non-

financial assets that are in use or held for sale.• Measurement of assets at those lower amounts is

intended to ensure that an asset is not measured at an amount greater than the entity expects to recover from the sale or use of that asset.

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IFRS SMENonfinancial Assets at Fair Value

• For the following types of non-financial assets, this IFRS permits or requires measurement at fair value:

• (a) investments in associates and joint ventures that an entity measures at fair value

• (b) investment property that an entity measures at fair value

• (c) agricultural assets (biological assets and agricultural produce at the point of harvest) that an entity measures at fair value less estimated costs to sell

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IFRS SMENonfinancial Liabilities

• Most liabilities other than financial liabilities are measured at the best estimate of the amount that would be required to settle the obligation at the reporting date.

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IFRS SMEComplete Set of Financial Statements

• A complete set of financial statements of an entity shall include all of the

• following:– (a) a statement of financial position as at the reporting date.– (b) either:

• (i) a single statement of comprehensive income for the reporting period displaying all items of income and expense recognized during the period including those items recognized in determining profit or loss (which is a subtotal in the statement of comprehensive income) and items of other comprehensive income, or

• (ii) a separate income statement and a separate statement of comprehensive income. If an entity chooses to present both an income statement and a statement of comprehensive income, the statement of comprehensive income begins with profit or loss and then displays the items of other comprehensive income.

– (c) a statement of changes in equity for the reporting period.– (d) a statement of cash flows for the reporting period.– (e) notes, comprising a summary of significant accounting policies and

other explanatory information.

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IFRS SMEIncome Statement Options

• If the only changes to equity during the periods for which financial statements are presented arise from profit or loss, payment of dividends, corrections of prior period errors, and changes in accounting policy, the entity may present a single statement of income and retained earnings in place of the statement of comprehensive income and statement of changes in equity.

• If an entity has no items of other comprehensive income in any of the periods for which financial statements are presented, it may present only an income statement, or it may present a statement of comprehensive income in which the ‘bottom line’ is labeled ‘profit or loss’.

• Because of the requirement to include comparative amounts in respect of the previous period for all amounts presented in the financial statements, a complete set of financial statements means that an entity shall present, as a minimum, two of each of the required financial statements and related notes.

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IFRS SMECooperative Equity

• Members’ shares in Cooperative entities and similar instruments are equity if:– (a) the entity has an unconditional right to refuse

redemption of the members’ shares, or– (b) redemption is unconditionally prohibited by local

law, regulation or the entity’s governing charter.

• An entity shall reduce equity for the amount of distributions to its owners (holders of its equity instruments), net of any related income tax benefits.

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IFRS SMECooperative Equity

• Sometimes an entity distributes assets other than cash as dividends to its owners.

• When an entity declares such a distribution and has an obligation to distribute non-cash assets to its owners, it shall recognize a liability. It shall measure the liability at the fair value of the assets to be distributed.

• At the end of each reporting period and at the date of settlement, the entity shall review and adjust the carrying amount of the dividend payable to reflect changes in the fair value of the assets to be distributed, with any changes recognized in equity as adjustments to the amount of the distribution.

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IFRS SMEPension Accounting

• IAS 19 requires that a defined benefit obligation should always be measured using the projected unit credit actuarial method. For cost-benefit reasons, the IFRS for SMEs provides for some measurement simplifications that retain the basic IAS 19 principles but reduce the need for SMEs to engage external specialists. Therefore, the IASB decided:– (a) If information based on the projected unit credit calculations of IAS 19

is already available or can be obtained without undue cost or effort, SMEs must use that method.

– (b) If information based on the projected unit credit method is not available and cannot be obtained without undue cost or effort, SMEs must apply an approach that is based on IAS 19 but does not consider future salary progression, future service or possible mortality during an employee’s period of service. This approach still takes into account life expectancy of employees after retirement age. The resulting defined benefit pension obligation reflects both vested and unvested benefits.

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• The IFRS for SMEs clarifies that comprehensive valuations would not normally be necessary annually. In the interim periods, the valuations would be rolled forward for aggregate adjustments for employee composition and salaries, but without changing the turnover or mortality assumptions.

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• One of the principal complexities of IAS 19 is recognition of actuarial gains and losses. Under IAS 19, an entity can choose among several options including deferral and amortization of actuarial gains and losses. Under the IFRS SME standard, only the following options are available:– (a) recognize actuarial gains and losses in full in

profit or loss when they occur.– (b) recognize actuarial gains and losses in full

directly in other comprehensive income when they occur.

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• Past service cost relating to employee service in prior periods arises when a new defined benefit plan is introduced or an existing plan is changed. IAS 19 requires past service cost to be deferred and amortized as an expense (or, in the case of benefit reductions, as income) on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately when a plan is introduced or changed, the past service cost is recognized in profit or loss immediately.

• The IFRS for SMEs requires immediate recognition of all past service cost (including that related to unvested benefits), without any deferral.

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IFRS SMEGovernment Grants

• The IFRS for SMEs requires a single, simplified method of accounting for all government grants. All grants are recognized in income when the performance conditions are met or earlier if there are no performance conditions.

• All grants are measured at the fair value of the asset received or receivable. IAS 20 permits a range of other methods that are not allowed by the IFRS for SMEs.

IFRS SME Implementation Group

• On 18 March 2010, the Trustees of the IFRS Foundation issued a Press Release inviting nominations of suitable candidates for membership of the SMEIG. Nominations are due by 30 April 2010.

The SMEIG will have between approximately 12 and 20 members appointed by the IASCF Trustees. Members serve on a voluntary, non-compensated basis. The Trustees have appointed Paul Pacter (the IASB's Director of Standards for SMEs) as the Chairman of the SMEIG. The SMEIG will conduct its work via email correspondence.

For further details and membership specifications, see http://go.iasb.org/SMEIG. 112

http://www.iasb.org/News/Press+Releases/SMEIGnominations.htm

http://go.iasb.org/SMEIG

IFRS SME Implementation Group

• The SMEIG will have two main responsibilities: – To consider implementation questions raised by users of the IFRS for

SMEs, decide which ones merit published implementation guidance, reach a consensus on what that guidance should be, develop proposed guidance in the form of questions and answers (Q&As) that would be made publicly available to interested parties on a timely basis, and request the IASB to review the Q&As before issuance. The Q&As are intended to be non-mandatory guidance that will help those who use the IFRS for SMEs to think about specific accounting questions.

– To consider, and make recommendations to the IASB on, the need to amend the IFRS for SMEs:

• for implementation issues that cannot be addressed by Q&As; and • for new and amended IFRSs that have been adopted since the IFRS

for SMEs was issued or last amended.

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AICPA IFRS for SMEs-US GAAP Comparison Tool

• The American Institute of CPAs (AICPA) staff have developed an IFRS for SMEs–US GAAP Comparison Tool, which is being added to collaboratively by those who use the tool. AICPA technical staff monitor and review the additions. Here is an excerpt of the AICPA's description:

• The purpose of this Wiki is to provide a detailed and comprehensive comparison of the International Accounting Standards Board's International Financial Reporting Standard for Small-and Medium-Sized Entities ('IFRS for SMEs') with corresponding requirements of United States generally accepted accounting principles ('US GAAP'). But this is more than just a comparison resource, it is a Wiki. That means it is a collaborative, ongoing work in progress for anyone to contribute and use.

• You can access the AICPA IFRS for SMEs – US GAAP Comparison Tool at http://wiki.ifrs.com/

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http://wiki.ifrs.com/

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AICPA and FAF on Private Company GAAP

• On Dec. 17, 2009 the American Institute of Certified Public Accountants (AICPA) and the Financial Accounting Foundation (FAF) today announced the establishment of a “blue-ribbon panel” to address how U.S. accounting standards can best meet the needs of users of private company financial statements.

• The panel will provide recommendations on the future of standard setting for private companies, including whether separate, stand alone accounting standards for private companies are needed. Members of the panel will represent a cross-section of financial reporting constituencies, including lenders, investors and owners as well as preparers, auditors, and regulators. Joining the FAF and AICPA as sponsors of the panel is the National Association of State Boards of Accountancy (NASBA).

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• The Panel will comprehensively review the current system of standard setting for private companies in the U.S., including the following matters:

– Who are the actual users of private company financial statements and how do they use GAAP financial statements in their decision making?

– What is the key, decision-useful information that the various users need from GAAP financial statements?

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– Are current GAAP financial statements meeting those needs? Why or why not?

– Are the benefits of GAAP financial statements outweighing the costs of preparing those statements for private companies?

– How does standard setting for private companies in the U.S. compare to standard setting in other countries, both those that have adopted IFRS for Small and Medium-Size Entities and those that have not?

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– To the extent that current GAAP is not meeting user needs in a cost-beneficial manner, what are some possible alternatives for private company standards (e.g., separate, stand-alone standards; base-level standards for all entities with additional disclosure requirements for public companies) and what are the implications for standard-setter structure and/or processes?

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RUS Memo on Accounting for Renewable Energy Credits

• The original RUS proposal would have treated RECs as intangible assets

• After getting feedback from borrowers and NRECA, RUS deferred accounting guidance until more information was available

• In 2008, RUS created a working group to recommend the appropriate accounting treatment.

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• The REC working group consisted of – RUS technical accounting and auditing staff– Staff from several G&Ts– NRECA– CFC

• The working group began in June 2008

• The result was a letter issued by RUS on accounting for RECs on April 16, 2009

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• RUS recommends establishing Account 159, Renewable Energy Credits, for recording the purchase and sale of RECs.

• REC inventory should be valued using either weighted average, FIFO or specific identification.

• Amounts received for the sale of RECs should be recorded as revenue.

• RECs should be removed from inventory at their carrying value (if any) and charged against expense at the time of sale.

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• RUS recommended establishing Account 459 Revenue from the Sale of RECs as part of Other Operating Revenues.

• RUS also recommended establishing Account 559 Renewable Energy Credit Expenses

• RECs used to satisfy state or regional renewable portfolio standards should be removed from inventory at cost and expensed if the RECs have a positive value.

• If an REC is accounted for on a unit basis with no associated cost, the utilization of an REC will reduce the number available for sale but will not result in a recordable income statement transaction.

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Accounting for R&S Plan Contributions

• With regard to the 2010 base contribution there are three options:– Do nothing and record pension expense when the

contribution is paid in 2010.– Prepay the contribution in 2009. In this case you would

record a prepaid asset in 2009 upon payment and you would amortize the prepaid asset to pension expense over 12 months beginning in January 2010.

– Defer revenue from 2009 until 2010 (or later years as well). Create a deferred credit under SFAS 71 and recognize the deferred revenue in 2010 or later years to offset some or all of the pension expense in those years.

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• Note that the only year for revenue deferral is 2009. RUS will not approve a revenue deferral plan which uses revenue from a subsequent year.

• RUS requires the following in order to approve a revenue deferral plan:– A detailed description of the plan and the

specific accounting journal entries. For a one-time economic event, the description must include the event that gave rise to the deferral, the amount of the deferral, and the timeframe over which the deferral will be amortized into income.

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– The journal entries required include: • an entry recording the deferred revenue; • an entry recording the subsequent amortization of the deferred

revenue; and • an entry segregating the cash equivalent of all revenues deferred in a

special fund. – A resolution from the cooperative's board of directors stating that

the cooperative is aware of the potential impact on its tax exempt and "cooperative" statuses and that it will accept the responsibility for implementation of the plan;

– A resolution from the cooperative’s board of directors stating that the cash equivalent of all revenues deferred will be segregated in a special fund until such time as a like amount is subsequently amortized into revenue; and

– Approval from the state regulatory commission in those states in which a commission has jurisdiction over the cooperative’s rate-making activities.

• You may not defer so much revenue that you fail to meet TIER in 2009.

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• Additional items:– The amount to be deferred each year is limited to the

35% increase in the base contribution– You may defer revenue to future years beyond 2010– You may defer revenue from any source – operating or

nonoperating, but when you reverse the entry in subsequent years, it must be put back in the same accounts.

– Instead of segregating the cash on your balance sheet with an accounting entry, you may deposit the revenue to be deferred in the cushion of credit account. In this case as long as the balance in your cushion of credit account exceeds the amount of revenue deferred from 2009, you will be deemed to have complied with the cash equivalent requirement.

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Accounting for R&S Plan DRC Contribution

• RUS has indicated that they will give NRECA a letter which will be a blanket approval of a SFAS 71 deferral for the pension expense involving any DRC contributions that may be required. (NRECA will know by March 2010)

• You will not have to request RUS approval for the DRC deferral, but you will need to maintain the same documentation which is required for the revenue deferral plans– Board resolution– Auditor approval– PSC approval if required

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Accounting for R&S Plan DRC Contribution

• RUS has indicated that the proper amortization period is the average remaining service life of the R&S plan as a whole.– That is, each cooperative will have the same

amortization period.– The average remaining service life changes but it is

currently about 14 years.

• Note that the deferral of the pension expense under SFAS 71 does not change the cash funding requirement.

FASB Accounting Standards Update 2010-09 Subsequent Events

• This Update requires all entities to evaluate subsequent events up to the date the financial statements are “available to be issued”.

• This extends the necessity to consider subsequent events beyond the traditional end of audit field work and may pose complications for those cooperatives which encounter material subsequent events post audit.

• Subsequent events must also be considered when an entity revises its financial statements for either correction of an error or retrospective application of U.S. GAAP.

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FASB Standards Codification

• The Codification is the single source of authoritative nongovernmental U.S. generally accepted accounting principles (US GAAP). The Codification is effective for interim and annual periods ending after September 15, 2009. All previous level (a)-(d) US GAAP standards issued by a standard setter are superseded. Level (a)-(d) US GAAP refers to the previous accounting hierarchy. All other accounting literature not included in the Codification will be considered nonauthoritative.

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FASB Standards Codification

• The Codification is the result of a major 5-year project involving more than 200 people from multiple entities. The Codification structure is significantly different from the structure of previous standards.

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FASB Accounting Standards Codification

• The FASB had three primary goals in developing the Codification:– 1. Simplify user access by codifying all authoritative

US GAAP in one spot.– 2. Ensure that the codified content accurately

represented authoritative US GAAP as of July 1, 2009.

– 3. Create a codification research system that is up to date for the released results of standard-setting activity.

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FASB Accounting Standards Codification

• NRECA has a professional subscription to the Codification, so if you need a cite or research about and accounting matter, please let me know and I’ll be happy to assist you.

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The New Form 990

• Final Revised Form 990 – Background• Final Revised Form 990 – Important

Governance, Compensation, and Related Organization Provisions– Compensation of Officers, Highest Compensated

Employees, and Independent Contractors– Governance, Management, and Disclosure– Business Relationships and Related Organizations– Financial Statement Audit Oversight– Form 990 – Penalties and Public Availability

Senate Finance Committee Letter

• May 29, 2007– Senator Max Baucus (Chairman)– Senator Charles Grassley (Ranking Member)

• Transparency and Openness of Charities

• Form 990 Update Needed– Top Priority

Dates

• Draft Revised Form 990– Released June 14, 2007– Comments Due by September 14, 2007– NRECA filed a comment letter

• Final Revised Form 990– Released December 23, 2008– 2008 Tax Year (Returns Filed in 2009)

Guiding Principles

• Enhancing Transparency to Provide Service and Public Realistic Picture of Organization and Operations, with Basis for Comparison to other Organizations

• Promoting Compliance by Accurately Reflecting Operations and Use of Assets, so Service may Efficiently Assess Risk of Noncompliance

Guiding Principles

• Minimizing Burden on Organizations– Asking Questions in Manner Relatively Easy to

Answer– Without Imposing Unwarranted Additional

Recordkeeping or Information Gathering Burdens

Corporate Officers, Directors, Key Employees and Highest

Compensated Employees• Current

– All Corporate Officers, and Directors, Regardless of Compensation

– Key Employees Exceeding $150,000– Five Highest Compensated Employees Exceeding

$100,000– Reportable Compensation from cooperative and

related organizations (Sch R)


Compensated Employees• Former

– Corporate Officers, Key Employees, and Highest Compensated Employees with Reportable Compensation (Form W-2) Exceeding $100,000

– Directors and Trustees with Reportable Compensation (i.e. Form 1099) Exceeding $10,000

– Compensation from the cooperative and related organizations (Sch R)


Compensated Employees• Final Instructions for Form 990, Part VII,

Section A, Line 1a, Column (C)– “… Check the ‘Former’ box with respect to former

highest compensated employees only if all four conditions below apply. … The individual was reported (or should have been reported, applying the instructions in effect for such years) on any of the organization’s Form 990, … for one or more of the five prior years as one of the five highest compensated employees. …”


Compensated Employees

– “… Transition rule for non-section 501(c)(3) organizations. Organizations other than section 501(c)(3) organizations do not report any former highest compensated employees on Form 990. …”

• 2008 Tax Year Only?

Key Employee

• The Glossary to the draft Form 990 defined a Key Employee as someone who meets all of the following tests:– Receives reportable compensation exceeding $150,000 from

the organization and related organizations– The individual has:

• Responsibilities, power or influence over the organization as a whole similar to those of officers, directors or trustees

• Manages a discrete segment or activity of the organization that represents 10% or more of the activities, assets, income or expenses of the organization compared to the organization as a whole

• Or has or shares authority to control or determine 10% or more of the organizations capital expenditures, operating budget, or compensation for employees

Key Employee

• Is one of the 20 employees with the highest reportable compensation from the organization that satisfy the $150,000 test and responsibility test


Compensated Employees

• The term “Reportable Compensation” is described in the draft instructions as– Box 5 of Form W-2– Box 7 of Form 1099-MISC

• Usually, Reportable Compensation Threshold Includes Compensation from– The cooperative and– related organizations


Compensated Employees• Disclosures required by the core Form 990

– Name and Title– No personal address (Privacy, Safety, and

Security Concerns)– Average Hours per Week– Positions– Reportable compensation from the

cooperative and related organizations


Compensated Employees• Complete Schedule J if:

– The cooperative pays a former director, corporate officer, key employee or former highly compensated employee

– Has any current director, key employee or highly compensated employee with reportable and other compensation exceeding $150,000

– Or any former or current director, key employee or highly compensated employee that receives compensation from an unrelated organization for services rendered to the cooperative

Independent Contractors

• Five Highest Compensated Independent Contractors Receiving more than $100,000– Name and business address– Description of services– Compensation

• Independent contractors typically include:– Any person that provides services to the

organization but is not treated as an employee

Schedule J Compensation• Questions

– Did the cooperative pay for first-class or charter travel?– Did the cooperative pay for travel for companions?– Did the cooperative make tax indemnification and gross-up

payments?– Does the person have a discretionary spending account?– Did the cooperative provide a housing allowance or personal

residence?– Did the cooperative make a payment for business use of a

personal residence?– Did the cooperative pay for health or social club dues or

fees?– Did the cooperative pay for personal services (Maid,

Chauffeur, Chef)?

Schedule J Compensation• If “Yes,” then

– Follow Written Policy? If “No,” then explain

– For example, did the cooperative require prior substantiation?

• “may raise … transparency concerns”

Schedule J Compensation• The draft instructions require the cooperative to

answer if the determination of compensation of corporate officers (CEO, CFO, etc) includes:– A review and approval by a governing body or compensation

committee, provided that persons with a conflict of interest with respect to the compensation arrangement at issue were not involved.

– Use of data as to comparable compensation for similarly qualified persons in functionally comparable positions at similarly situated organizations.

– Contemporaneous documentation and recordkeeping with respect to the deliberations and decisions regarding the compensation arrangement.

Schedule J Compensation

• In summary, with regard to corporate officer compensation, did the cooperative:– Have a Compensation Committee?– Retain an Independent Compensation

Consultant?– Review Form 990 of Other Organizations?– Have a Written Employment Contract?– Perform a Compensation Survey or Study?– Obtain Board or Committee Approval?


• Did the cooperative provide for any person:

– A severance or change of control payment?

– supplemental nonqualified retirement plan and/or equity-based compensation arrangement?

• If “Yes,” then List the Person and Amount


• Compensation for Schedule J is based on total compensation which includes:

– Reportable Compensation

• Base

• Bonus and Incentive

• Other

– Deferred Compensation

– Nontaxable Benefits

Rationale for Governance Questions in the New Form 990

• “the existence of an independent governing body and well-defined governance and management policies and practices increases the likelihood that an organization is operating in compliance with federal tax law”

Form 990 questions• Is there a “right answer”?

– Governance and Management Policy Questions Become “De Facto” Legal Requirements

– Certain Answers Lead to “Presumption of Wrongdoing”

• In the new Form 990, the cooperative will have – An opportunity to explain answers– Continuation schedules provided for Schedules J

(Compensation), N (Liquidation, Termination, Dissolution, or Significant Disposition of Assets), R (Related Organizations and Unrelated Partnerships)

Governing Body and Management

• Voting Members of Governing Body– Number?– Number that are “Independent”?

• The Draft Form 990 Glossary defines an Independent Director as a person:– That was not compensated as an officer or other employee of the

organization or related organization.;– Who did not receive total compensation or other payments exceeding

$10,000 as an independent contractor. Note: this threshold does not include reimbursement of expenses or compensation earned as a director or trustee; and

– Who was not involved (or a family member was not involved) in a transaction with the organization or a related organization required to be reported on Schedule L.


• Family or business relationships between corporate officers?

• Did the cooperative– Delegate management to management company?– Make significant changes to organizational documents?– Make a material diversion of assets?– Have any business relationship with some of its members?

• The organization is not required to provide information about the relationships identified for lines 5b through 5e if it is unable to secure the information after making a reasonable effort to obtain the information. An example of a reasonable effort would be for the Form 990 preparer, or an officer eligible to sign the Form 990, to distribute a questionnaire annually to each person listed in Part II, Section A. The questionnaire should require the name and title, date and signature of each person reporting this information.


• Are the cooperative’s Board decisions subject to member or other approval?

– If “Yes,” then describe

• Does the cooperative “contemporaneously” document governing body meetings and actions?

– If “No,” then explain


• Is a copy of the Form 990 provided to the Board before it is filed?

• What process does the cooperative use for the review of the Form 990

• Is there any corporate officer or director that cannot be reached at the cooperative’s mailing address?– If “Yes,” then the cooperative must provide that

persons name and mailing address

Policies

• Does the cooperative maintain a written conflict of interest policy?

– If “Yes,” then does the cooperative make annual disclosure of potential conflicts and regularly and consistently monitor and enforce policy?

– If “Yes,” then the cooperative should describe the monitoring and enforcement process

Policies

• Does the cooperative have a written whistleblower policy?

• Does the cooperative maintain a written document retention and destruction policy?

• Does the cooperative’s process of determining officer and key employee compensation include independent consultants, comparability data, and contemporaneous substantiation?– If so, describe

Policies

• Did the cooperative invest in, contributed assets to, or participated in a joint venture with a taxable entity?

– If “Yes,” then does the cooperative have a written policy or procedure to evaluate tax law compliance and safeguard the cooperative’s tax exemption?

Policies

• “Reasonable Effort” Information– Grants or Other Assistance from Cooperative– Business Relationships and Doing Business with

Cooperative– Director Independence– Relationships with Other Officers, Directors, Trustees, or

Key Employees– Compensation from Related Organizations

• Hours Devoted to Cooperative– Preparation, Travel, Attendance, Follow Up– Board Meetings; Education and Training Events; State,

Regional, and National Association Meetings; Etc.– Communications with Members regarding Cooperative– Not Sleep or Other Activities Unrelated to Meeting or Event

Policies

• Sample Electric Cooperative Whistleblower Policy

• Sample Electric Cooperative Records Management Policy

• Sample Electric Cooperative Conflict of Interest Policy

• Cooperative.Com https://www.cooperative.com/general/resources/Form990Resources/Form990Resources.htm

https://www.cooperative.com/general/resources/Form990Resources/Form990Resources.htm



Disclosure

• The cooperative must disclose states where Form 990 must be filed.

• The cooperative’s application for exempt status and Form 990 must be available for public inspection

– Available through the cooperative’s own website?

– Available through another website?

– Available upon request?

Disclosure

• The cooperative should describe whether and how the following are made available to the public– Governing documents– Conflict of interest policy– Financial statements

• The cooperative must provide the name, address, and telephone number of the person in possession of the cooperative’s books and records.

Entity Doing Business With

• Final Instructions for Form 990, Part IV, Line 28c– “… The organization should review carefully the

instructions to Schedule L … before answering these questions and completing Schedule L …”

• Final Instructions for Form 990 Schedule L, Part IV– “An interested person for purposes of Schedule L, Part

IV, is …, or any of the following: … An entity (other than a tax-exempt organization under section 50(c)) of which a current or former officer, director, trustee, or key employee listed in Form 990, Part VII, Section A, was serving at the time of the transaction as …”

Entity Doing Business With

• Electric Generation and Transmission Cooperative (G&T), Statewide Association of Electric Cooperatives (Statewide), or other Entity– If Exempt under section 501(c), then Not an “Entity”– If Nonexempt (Taxable), then may be an “Entity”

• Form 990 Schedule L, Part IV– Reporting Thresholds:

• Payments exceed $10,000 or 1% of total revenue unless total payments exceeded $100,000 or the payment is to a family member of an officer, director, trustee or key employee and exceeded $10,000

Two Directors From the Organization Serving on the

Board of Another Entity Sch L

• If G&T or Statewide is a “Business,” and if Two or More Electric Distribution Cooperative (Cooperative) Officers, Directors, Trustees or Key Employees Serve as Director for G&T, Statewide, or Other Business– Individuals may have “Business Relationship”

• Assume G&T or Statewide is a “Business”?– Minimal Reporting Required– Increase Transparency

• Explain Relationship between Cooperative and G&T or Statewide?– “Business Relationship” Sufficient– Increase Transparency– Minimize Questions, Scrutiny, or Criticism of Relationship

Schedule L Transactions with Interested Persons

• The cooperative must disclose whether any current or former corporate officer, director, trustee or key employee has a business relationship with the cooperative

• For this purpose, “doing business with” excludes goods and services offered on the same terms to the general public.

• The cooperative must also disclose if any of these persons have a family member that has a business relationship with the cooperative?– That is, is the family member affiliated with any

entity doing business with the cooperative?

Schedule L Transactions with Interested Persons

• If “Yes,” then Complete Schedule L– Name of Interested Person– Relationship– Amount of Transaction– Description of Transaction

• The Draft Instructions provide “the organization is not required to provide information about the relationships identified for this purpose if it is unable to secure the information after making a reasonable effort to obtain the information. An example of a reasonable effort would be for the Form 990 preparer, or an officer eligible to sign the Form 990, to distribute a questionnaire annually to each person listed in Part II, Section A. The questionnaire should require the name and title, date and signature of each person reporting this information.”

Schedule L Questionnaire

• A Sample Electric Cooperative Internal Revenue Service Form 990 Questionnaire to be used for determining possible conflicts of interest and other information necessary to filing a complete Form 990 is available on coopertive.com– Updated Periodically– Current and Former Officers, Directors, Trustees, Key

Employees, and Highest Compensated Employees– Form 990 Questions, Instructions, and Definitions– 2008 and Future Tax Years

Schedule R Related Organizations

• Does the cooperative

– Own a disregarded entity such as an LLC or a partnership?

– Is the cooperative “related” to another entity?

– Does the cooperative control any “related organization”?

• If “Yes,” then the cooperative must complete Schedule R

“Related Organization”

• The Draft Form 990 Glossary defines a “Related Organization” as:

– An organization which controls the cooperative (Parent)

– An organization controlled by the cooperative (Subsidiary)

– An organization controlled by same persons as the cooperative (Brother/Sister)

“Control”

• The Draft Form 990 Glossary defines “Control”

– Own More than 50% of Taxable Corporation, Partnership, Limited Liability Company, or Trust

– Partner or Member of Taxable Partnership or Limited Liability Company

– Appoint Majority of Directors of Tax-Exempt Organization

– Share Majority of Tax-Exempt Organization Directors


• Types of Related Organizations

– Disregarded entities

– Related tax-exempt organizations

– Related taxable partnerships, corporations, and trusts

– Unrelated taxable partnerships


• Did the cooperative have any transactions with a related organization?– Interest, annuities, royalties, rent?– Gifts, grants, contributions, loans?– Transfers of assets, cash, property?– Performance of services?– Sharing of assets or employees?– Expense reimbursements?


• If “Yes,” then the cooperative may have to disclose (based on certain threshold criteria)

– The organization’s name

– The type of transaction

– The amount involved

Core Form 990 Disclosures about Preparation of Financial

Statements• Were the cooperative’s financial statements

– Compiled or reviewed by independent accountant?

– Audited by independent accountant?• If “Yes,” then did the audit committee of the

Board– Oversee audit, review, compilation?– Select independent accountant?

Unreasonable Failure to Include Information

• If there is an “Unreasonable” failure by the cooperative to include required information or otherwise show correct information, then the cooperative may have to pay a penalty:– $20 Per Day so long as the failure continues,

not to exceed the smaller of $10,000 or 5% of gross receipts

– If the cooperative’s gross receipts exceed $1,000,000, then the penalty becomes $100 per day so long as the failure continues, not to exceed $50,000


• Congressional Intent– Provide Information “Timely and

Completely”– Provide Information to Enforce Tax Laws

• Incomplete Return– Service’s Ability to Perform Duties

“Seriously Hindered”– Public’s Right to Obtain Information

“Impaired”


• “Use of a Paid Preparer Does Not Relieve the Organization of its Responsibility to File a Complete and Accurate Return”

• The IRS will send a letter indicating the time period by which the cooperative must furnish the correct information or face a penalty for failure to comply

Willful Failure to Supply Information

• “Willful” Failure to Supply Information– “In Addition to Other Penalties Provided by

Law”– Guilty of Misdemeanor

• Upon Conviction– Fined Not More than $100,000,– Imprisoned Not More than 1 Year, and/or– Assessed Costs of Prosecution

Public Availability of Form 990• IRS Form 990

– Available for Public Inspection– Provide Copy upon Request

• Penalties– Unreasonable Failure to Comply– Willfully Furnishing to Public Known Fraudulent or

False Material Information (and Prison)• Internet

– Guidestar.org– Foundationcenter.org

2009 Changes to Form 990 Part IV

• Line 11: Includes more detailed trigger questions to help the filer determine whether it needs to complete Parts VI, VII, VIII, IX, or X of Schedule D.

• Line 12a (new): Asks whether the filer was included in consolidated, independent audited financial statements for the tax year.

• Line 28: Simplifies trigger questions for Schedule L, Part IV.

• Line 38 (new): Asks whether the filer completed Schedule O, as required.

2009 Changes to Form 990 Part V

• Line 1a: Clarifies that the filer must include on this line the number of its employees reported on Forms 1099, 1098, 5498, and W-2G by its reporting agents.

• Line 2a: Clarifies that the filer must include on this line the number of its employees reported on a Form W-3 by its reporting agents.

• Lines 1c, 7g, and 7h: Clarifies that the filer should leave these blank if questions are not applicable

2009 Changes to Form 990 Part VI

• Line 2: Clarifies that, if two officers, directors, trustees, or key employees of the filer serve in similar positions with another tax-exempt organization, that involvement does not create a reportable business relationship between the two.

• Line 4: Explains that the filer must report significant changes to its organizational documents on its Form 990, Part VI and in Schedule O, rather than in a letter to EO Determinations.

• Line 5: Modifies standard for determining if diversion is material and must be reported on line 5.

• Line 11: Describes the conditions the filer must meet to answer Yes when it e-mails board members a link to its Form 990.

• Line 15: Defines conflict of interest for compensation arrangements. • Line 18: Explains when a filer may check the box for Another’s website

2009 Changes to Form 990 Part VII

• Clarifies that the current five highest compensated employees to be reported in the Section A table do not include officers, directors, trustees, or key employees.

• Clarifies that the key employee responsibility test may be met at any time during the tax year. • Clarifies that if a person is a key employee for only part of the tax year, the filer must report that

person’s entire compensation for the calendar year ending with or within the tax year. • Explains how compensation to foreign persons from the filing organization or a related

organization should be reported in the Section A table. • Explains when and how compensation from unrelated organizations to the filing organization’s

officers, directors, trustees, key employees, and highest compensated employees must be reported in Part VII.

• Explains when and how compensation to leased employees must be reported in Section A. • Explains how compensation paid by common paymasters and other reporting and payroll

agents should be reported in Section A. • Clarifies that the filer must report all compensation paid by a related organization during the

calendar year to listed persons, even if the other organization was related for only a portion of the tax year.

• Clarifies (in compensation table) that employee deferrals to 401(k) and 403(b) plans must be reported in Part VII, columns (D) and (E), and in Schedule J, column B(I).

2009 Changes to Form 990 Glossary

• Includes new definitions of audit, fair market value, and principal officer.

• Includes revised definitions of-- – Control: Clarifies means by which the filer can

control or be controlled by another organization, for purposes of determining the filer’s related organizations.

– Related organization: Clarifies that related organizations may include governmental units and other government entities.

2009 Changes to Form 990 Schedule D

• Part X: Asks the filer to complete Part X if its financial statements for the tax year included a footnote addressing its liability for uncertain tax positions.

• Parts XI-XIII: Clarifies that if the filer was included in consolidated financial statements (not in separate financial statements), completing Parts XI-XIII is optional.

2009 Changes to Form 990 Schedule L

• Part IV – Explains how to report joint ventures with interested

persons as business transactions.

• Clarifies that governmental units and instrumentalities are not interested persons.

2009 Changes to Form 990 Schedule R

• Explains how the filer can control or be controlled by another organization for purposes of determining related organizations; includes several new examples of control.

• Part V, line 2, column (c): Asks the filer to describe in Schedule O the method used to determine the value of services, cash, and other assets reported in column (c).

Tower Attachments• The IRS initially ruled in PLR 9816027 that

antenna tower pole attachments were excluded from unrelated business taxable income under Code section 512(b)(3).

• In order to reach this conclusion, the IRS considered the tower to be real property and that it was permanently attached to the land and could not be severed.

Tower Attachments

• On November 9, 1998, the IRS notified the coop that it was reconsidering its initial ruling.

• Subsequently, the IRS modified PLR 9816027 by concluding that the tower, because it is considered to be “other tangible property” under regulations section 1.48-1(d) is not real property.

• Consequently, the exclusion of lease income from real property from the unrelated business income tax does not apply.

Tower Attachments

• In other words, rental income from a tower is considered to be from tangible personal property and is subject to the unrelated business income tax under Code section 511.

• Note that a cooperative can deduct allocable costs in arriving at unrelated business taxable income.

• These costs include tax depreciation which can be based on an accelerated method.

• All other operating costs can be allocated to the

tower in the ratio of the towers cost to the cost of all other plant and equipment.

• Allocation of costs typically creates a net operating loss.

• In order to claim the loss, the cooperative must file a Form 990-T, otherwise the loss is not available for carryforward purposes.

• In general, net operating losses can be carried back two years and carried forward twenty years.

Tower Attachments

How Much is a Trillion Dollars?

One Million Dollars = 100 Packets of $10,000 Bills

$100 Million Dollars Fits on a Standard Pallet

One Billion Dollars fits on 10 Standard Pallets

A Trillion Dollars aka One Thousand Billion aka One Million Million

5000 Pallets = $500 Billion

US National Debt of $11 Trillion (March 2009)

5000 Pallets Stacked 22 Rows High

US National Debt of $12.9 Trillion (March 2010)

How Much is a Trillion?

• Picture a stack of $100 bills. • It might surprise you to know that it only takes a stack four

inches high to be worth $100,000. So $1,000,000 would be a stack of $100 bills 40 inches tall.

• How about a Billion? Well, you would have to stack $100 bills up to the top of the Empire State Building...twice...in order to reach a Billion.

• So to picture $1.25 Trillion (the Fed’s MBS purchases) represented by a stack of $100 bills - that stack would be 850 miles high. If you could turn that stack on its side and were able to drive alongside it, it would take you longer than 14 hours to reach the end. If you laid those $100 bills down side by side, they would travel around the world 50 times. We're talking about a lot of money here.

If This Were A Normal Recovery• Employment would already be at a new high, not 8.4 million shy of the old

peak. • The level of real GDP would already be at a new cycle high, not almost 2%

below the old peak. • Consumer confidence would be closer to 100 than 50. • Bank credit would be expanding at a 14% annual rate, not contracting by that

pace. • The Fed would certainly not have a $2.3 trillion balance sheet • And, the government deficit would not be running in excess of 10% of GDP or

twice the ratio that FDR ever dared to run in the 1930s.• If this were a normal cycle, then there would be a ‘clean’ 5-6 months’ supply of

homes on the market, not the 21 months overhanging as is the case now when all the shadow inventory is included from the foreclosure pipeline.

• If this were a normal cycle, then the funds rate would not be near zero and one in six Americans would not be either unemployed or underemployed.

• If this were a normal cycle, then mortgage applications for new home purchases would not be down 13.9% year-over-year (just reported for the week of March 12) on top of the already depressing 29.4% detonating trend of a year ago.

• The government would not control 80% of the housing market, two out of three domestic automakers, and have bailed out all the remaining large banks and investment banks.

Summary

• As far as Walls Street is concerned, the Recession is Dead… Long Live the Recession?

• Consumer weakness will likely continue for some time and consumers account for 70% of the economy

• Businesses are a wild card• Housing bounce won’t last• Banks not out of the woods yet• Commercial real estate trouble to continue• Significant chance of a double dip recession• Higher interest rates coming down the pike• Unknown cost of significant government programs• Sovereign systemic risk increasing

208

Contact Information

Russ WassonDirector of Tax, Finance and Accounting PolicyNational Rural Electric Cooperative Association4301 Wilson Blvd. Mail Code EP11-253Arlington, VA 22203-1860Voice work: (703) 907-5802Mobile: (225) 939-1298 Mobile: (703) 402-2510Fax: (703) 907-5517 email: [email protected]

the impact of fasb/iasb/aicpa/rus standards, form 990 and visualizing a trillion dollars florida...

Documents

fsp fin

fasb project disclosures

leases fasbiasb project

application of fin

uncertainty slide

income taxes

tax years

uncertain tax positions