DIOCESAN FISCAL MANAGEMENT
CONFERENCE
43rd ANNUAL CONFERENCE
Houston, TX
September 24, 2012
William G. Weldon, CPA
Chair, USCCB Accounting Practices Committee
CFO, Diocese of Charlotte
Agenda
Recent Updates to Diocesan
Financial Issues
 Update on Major FASB Projects
 Potential Changes to the Not-forProfit Financial Reporting Model
 Other Standard Setting Matters

Just who is the USCCB
Accounting Practices
Committee?
USCCB Accounting
Practices Committee


Committee of 20 members: 11 CPA/CFO’s
from dioceses, 4 CPA’s representing LCWR
and CMSM, and 5 CPA advisers from large
public accounting firms
Members and chairperson are recommended
by the Committee, subject to approval and
invitation by the General Secretary of the
USCCB.
USCCB Accounting
Practices Committee

Current members representing (Arch)dioceses:
Guy Chapdelaine – Manchester
Deacon Frank Chauvin – St. Louis
David Holden – Denver
Mary Beth Koenig - Austin
Bob Sellers – Birmingham
Mark Smith - Allentown
Paul Ward – St. Petersburg
Mike Weis – Dallas
Bill Weldon - Charlotte
USCCB Accounting
Practices Committee


Primary purpose is to represent the
Catholic Church before regulatory bodies
in the formulation of accounting
principles and reporting standards that
would affect the Church
Active in accounting, tax and financial
governance issues at the diocesan level
Diocesan Financial Issues

Document created by the APC and published
by the USCCB in 2002; on USCCB website:
http://www.usccb.org/about/financialreporting/upload/Diocesan-Financial-Issues.pdf


Provides specific guidance on financial
issues that are unique to Catholic dioceses
Supplement to the Guide to Preparing
Nonprofit Financial Statements (Cline,
Paschall, Eason, 2006), which provides
general accounting guidance on not-forprofit accounting
Diocesan Financial Issues

Topics include:
Financial Management Issues
Cemeteries
Compensation and benefits of Priests and Religious
Deposit & Loan funds
Diocesan Finance Officer and Diocesan Finance Council
Federal Funding
Foundations
Fundraising, diocesan appeals and gift acceptance
Income tax issues
Investments
Property and Equipment
Records Retention
Service funds
School tuition
Diocesan Financial Issues
Updates Posted June 2012

Chapter I – Financial Management
Issues: Establishment of a
Compensation Committee added as a
best Financial Management Practice
Administer pay and benefits of
highly compensated employees
(>$115,000/year for 2012)
Based on comparability data
Contemporaneous documentation
Diocesan Financial Issues
Updates Posted June 2012

Chapter XIII - Income Tax:
 Automatic
Excess Benefits
Reminder that perquisites such as
companion travel, personal services,
housing, etc. to a “disqualified
person” that are not excluded from
taxable wages under the IRC or as a
properly substantiated and qualified
expense reimbursement, are subject
to penalties unless the Church has
clearly indicated its intent to treat
these benefits as compensation at
the time they were paid.
Diocesan Financial Issues
Updates Posted June 2012

Chapter XIII - Income Tax:
 Foreign
Investments (investments in
offshore funds)
Filing requirement triggered by
transferring cash/assets of $100,000
in a given year; or a change in, or
actual ownership, of 10% or more
of the investment vehicle.
Diocesan Financial Issues
Updates Posted June 2012

Chapter XV - Property and Equipment:
updated limits for diocesan properties:
Activity
Leasing (mrkt value prop)
Alienation (pop <500K)
Alienation (pop >500K)
Other Juridic Persons
Subject to Bishop
Minimum Maximum
$1M or 3yrs $5.0M
$250,000
$3.5M
$750,000
$7.5M
> of $25K
or prior yr’s income
No longer subject to annual adjustments
$5.0M
Diocesan Financial Issues
Updates Posted June 2012

Chapter XVI – Records Retention
 New
sample policy included
Diocesan Financial Issues
Sample Policies/Forms


All receiving 1-GB USB drive with
Word/Excel documents of all the sample
policies and forms contained in DFI.
Use these as templates to modify for
your diocese.
Diocesan Financial Issues
Sample Policies/Forms
1. Audit Oversight Responsibilities of the
Audit Committee/DFC
2. Conflicts of Interest Policy
3. Policy to Report Wrong-Doing (Whistle
Blower Policy)
4. Fraud Policy
5. Code of Conduct
6. Parish Financial Reporting Form (Representation Letter) to Diocesan Bishop
Diocesan Financial Issues
Sample Policies/Forms
7. Parish Finance Council Guidelines
8. Parish Internal Control Questionnaire
9. Promissory Note – Deposit/Loan
Program
10. Diocesan Finance Council Statutes
11. Diocesan Financial Reporting Form
(Representation Letter) to Metropolitan
Archbishop
12. Records Retention Policy
Update on Major FASB
Projects
Leases
Revenue Recognition
Financial Instruments
Liquidity and Interest Rate Risk
Disclosures
Private Company Project
Disclosure Framework
Leases
Two models for both lessees and lessors –
based on how much of the underlying
asset is being consumed.
Typically equipment leases – high
consumption
Typically property leases – low
consumption
Leases
Lessee Accounting
At lease inception:
Debit: Right-of-use asset
Credit: Liability
(Calculated as the present value of the
lease payments as of lease inception)
Leases
Lessee Accounting
Throughout life of lease:
Equipment leases - Record interest
expense and amortization (of asset)
expense, with more interest expense
in the early years (similar to mortgage
style interest amortization)
Property leases – Record a single
expense straight-line over the life of
the lease
Leases
Lessor Accounting for Equipment Leases
At lease inception:
Debit: Receivable
Debit: Residual value of equipment
Credit: Equipment
Credit: Lease revenue
Throughout life of lease:
Record interest income using a mortgagestyle approach
Leases
Lessor Accounting for Property Leases
Similar to current operating leases
Record income on a straight-line basis
over the life of the lease
Revenue Recognition
Contributions
NO
Collaborative
Arrangements
NO
Contracts with
Customers
YES
Revenue Recognition
Likely to significantly impact software,
telecommunications and real estate
industries
Not likely to impact most Not-for-Profits
Exception from onerous performance test
for many NFP contracts with customers
Key changes for NFPs:
Bad debts as contra-revenue
Additional disclosures
Financial Instruments
Proposed changes no longer significant for
Not-for-Profits
Loans receivable and liabilities remain at
cost
NFPs already at fair value for debt
securities.
Liquidity and Interest
Rate Risk Disclosures
Expected cash flow obligations,
segregated by their expected maturities in
a tabular format.
Available liquid funds in a tabular format.
Quantitative or narrative information
about an entity’s exposure to liquidity
risks.
Identify significant changes relating to the
amounts of financial assets and financial
liabilities and their related liquidity risks
compared to the prior reporting period.
Private Company Council
Established by FAF on May 23, 2012
Independent Chair; 9 to 12 members; at
least 5 meetings per year
Overseen by FAF Private Company Review
Committee; formal reassessment in 3
years
PCC decisions subject to FASB
endorsement (simple majority)
Private Company Decision
Making Framework
Framework by which to determine
whether exceptions or modifications to
existing GAAP should be made for private
companies (not separate GAAP)
Discussion document issued July 31 of this
year outlining six factors that differentiate
financial reporting considerations of
private companies and public companies
Using framework, PCC will identify,
deliberate and vote on proposed changes
for private companies
Disclosure Framework
Project
Goal: A disclosure standard or conceptual
framework that reduces disclosure
overload while making disclosures more
comparable and effective.
Viewed as a critical project in addressing
GAAP complexity for all entities (public
companies, private companies, NFPs)
Discussion document issued July 12 of this
year; APC plans to issue a response.
Potential Changes to the NFP
Financial Reporting Model
NFP Advisory Committee
Net Asset Classification
Operating Measures
Line of Business Reporting
Liquidity
MD&A
NFP Financial Reporting
Model/NAC
Why did FASB create the Not-for-Profit
Advisory Committee (NAC)?
Provide a continuous source of input
focused on the NFP sector
Evaluate effectiveness of SFAS 116 & 117
– now two decades old
Increased emphasis on non-public
company reporting (private cos. & NFPs)
Impact of convergence of US GAAP with
IFRS
NFP Financial Reporting
Model/NAC
Primary functions of NAC
Provide input and guidance to the FASB
on existing and proposed standards,
projects and issues
Assist the FASB in communication and
outreach to NFP constituencies
NFP Financial Reporting
Model/NAC
Committee Composition – 18 members
NFP Financial Statement Preparers (NFP
CEOs and CFOs)
NFP Financial Statement Auditors
(Partners of national and regional CPA
firms)
NFP Financial Statement Users (Charitable
Giving Oversight, Rating Agencies, etc.)
NFP Financial Reporting
Model/NAC
Committee Composition – 18 members
Community/Social Service Organizations
Health Care/Hospitals
Foundations
Religious Organizations
Higher Education
Cultural Entities (Museums)
NFP Financial Reporting
Model/NAC
FASB staff comments about NAC
Real spirit of cooperation among all NAC
members
Providing constructive suggestions, not
complaints
Strong desire to improve standards
NFP Financial Reporting
Model/NAC
FASB Board member (Larry Smith) serves
as liaison with NAC – attends all meetings
Meet with full Board for two hours during
each two-day meeting
Board extremely open/receptive to NAC
suggestions
NFP Financial Reporting
Model/Net Asset Classification
Reconsidering the current three classes of
net assets based on donor-imposed
restrictions
Term “unrestricted” is misleading
PP & E investment
Bank covenants
Regulatory restrictions
NFP Financial Reporting
Model/Net Asset Classification
Reconsidering the current three classes of
net assets based on donor-imposed
restrictions
Should donor-restricted classes be
expanded to include restrictions imposed
by other sources (statute, debt
covenants, contracts, etc)? Q1
Should net asset classes be narrowed to
just two (donor-restricted and other or
restricted and other)? Q2
NFP Financial Reporting
Model/Operating Measure
Considering changes to the Statements of
Activities and Cash Flows to better convey
financial performance
Should an operating measure based on
“core” business be required in the Statement
of Activities? (Q3)
Single defined measure? (Q4a)
Flexible parameters, but based on specific
principles? (Q4b)
Currently this is allowed but not required by
SFAS 117
NFP Financial Reporting
Model/Operating Measure
Considering changes to the Statements of
Activities and Cash Flows to better convey
financial performance
Should Statement of Activities be two
statements: Statement of Operations and
Statement of Changes in Net Assets? Q5
Does the Statement of Cash Flows add
value? Q6
Could it be replaced/eliminated for some
NFPs?
NFP Financial Reporting
Model/Operating Measure
Considering changes to the Statements of
Activities and Cash Flows to better convey
financial performance
Can we better link the Statements of
Activities and Cash Flows by aligning an
operating measure in the Statement of
Activities with the operating cash flows? Q7
NFP Financial Reporting Model
Line of Business Reporting
Considering line of business or functional
expense reporting to better convey financial
performance
Should a Statement of Functional Expenses
still be required only for voluntary health
and welfare organizations, or expanded to
more or all NFPs? Q8
Should NFPs in multiple businesses provide
line of business reporting? Q9
Consider (arch)diocese consolidated
financial statements
NFP Financial Reporting
Model/Liquidity
Considering whether financial statements
provide adequate information about an
NFP’s ability to meet its financial obligations
Is better information needed about (Q10):
Whether & when assets convert to cash?
The extent of donor restrictions?
Non-donor restrictions (Board
designations, lease commitments, etc.)?
Matching of outflows (obligations) and
inflows to meet those obligations?
NFP Financial Reporting
Model/Liquidity
Considering whether financial statements
provide adequate information about an NFP’s
ability to meet its financial obligations
Is better information needed about how net
assets relate to liquidity? Q10e
Use of subclasses that correlate to liquidity
Spendable
Limited (for Restricted) & Designated
(for Other)
Nonspendable
NFP Financial Reporting
Model/Liquidity (N.A. Classification)
Restricted
(All) Other
• Spendable
• Spendable
• Limited
• Designated
• Nonspendable
• Nonspendable (e.g., PP&E)
Should there be subclasses of net assets
based on liquidity/spendability? Q11
46
NFP Financial Reporting
Model/Liquidity
Considering whether financial statements
provide adequate information about an
NFP’s ability to meet its financial obligations
Should there be a footnote narrative
addressing liquidity/reserves? Q12
Current disclosures about investments
(SFAS 157) and endowments (SFAS 117)
seem disconnected. (Inaccurate impression
that investments are available, but may be
permanently restricted)
NFP Financial Reporting
Model/MD&A
Considering whether a management
commentary that explains financial
information provided in the financial
statements would enhance financial
reporting
GASB requires MD&A
SEC requires MD&A
IASB talking about future business risks
NFP Financial Reporting
Model/MD&A
Considering whether a management
commentary that explains financial
information provided in the financial
statements would enhance financial
reporting
Limit to a financial discussion; not service
outcomes
Limit to information contained in the actual
financial statements
What about cost and burden, especially to
smaller NFPs?
NFP Financial Reporting
Model/MD&A
Considering whether a management
commentary that explains financial
information provided in the financial
statements would enhance financial
reporting
Should such information
Be required? Q13a
Be encouraged? Q13b
In Summary:
StandardSetting
Project
Reexamine
Net Asset
Classifications and
Improve Liquidity
Information
Improve
Reporting of
Financial
Performance
Streamline and
Improve NFPSpecific
Disclosures
Research
Project
Other Financial
Communications
(explore best
practices,
including
management
commentary)
Other Standard Setting
Matters Involving NAC
Definition of a nonpublic entity
Disclosure requirements for NFPs
Other Standard Setting
Matters Involving NAC
FASB has established a project to re-
examine the definition of a nonpublic entity
Currently there are multiple definitions in
the Codification
Of primary concern to NFPs: Issuers of
conduit debt are generally considered public
companies
NAC: Conduit debt may not be only/best
indicator
Other Standard Setting
Matters Involving NAC
FASB has established a project to reexamine the definition of a nonpublic entity
Similarity of NFPs to public companies:
Resources from broad group of providers
Public reporting (via form 990)
However:
Religious organizations are typically
funded from their members
Shouldn’t put all NFPs under same
umbrella
Other Standard Setting
Matters Involving NAC
FASB has established a project to reexamine the definition of a nonpublic entity
Similarity of NFPs to private companies:
Limited resources (personnel and
funding)
Valuation of organization not relevant
Other Standard Setting
Matters Involving NAC
FASB has established a project to reexamine the definition of a nonpublic entity
Other considerations:
Public interest
Favored tax-exemption privilege
Does tax exempt status imply public
accountability and, thus, a public entity?
Isn’t this a regulatory matter, under the
purview of the IRS, not FASB?
Other Standard Setting
Matters Involving NAC
FASB has established a project to reexamine the definition of a nonpublic entity
Is there a continuum from low to high
public accountability?
If so, is there a continuum of GAAP/
disclosures based on degree of public
accountability?
Other Standard Setting
Matters Involving NAC
Application of general GAAP to NFPs
Are certain required disclosures:
Intended primarily for investors seeking a
financial return and, thus, not relevant to
donors and other users of NFP financial
statements?
Better suited for mgmt. commentary?
Are certain accounting standards not
relevant to users of NFP financial
statements, i.e., fair value standards?
Other Standard Setting
Matters Involving NAC
Application of general GAAP to NFPs
Do these issues depend on the notion of
public accountability?
The NAC continues to provide input on the
Disclosure Framework project as it pertains
to NFPs
THANK YOU!