The last two weeks have turned the world upside down and have taken the “normal” ways of doing things with it. The risks the virus pose have led to large scale social distancing and shelter-at-home requirements, which have greatly changed the day-to-day operations of all business (for-profit and nonprofit) entities in the state. We all hope that this is a temporary state and a gradual return to normal will be on the horizon soon. However, the impact to date in our sector is already large, and we would like to use this opportunity to update you on what we see for the sector as well as resources that are worth monitoring as we navigate these challenging waters.
Monitoring resources available due to this crisis
For nonprofit-specific resources, please see CalNonprofit’s excellent summary of resources located here. At the CalNonprofit site, there is information about COVID-19-related funding opportunities. Both of these links are being kept up to date with relevant and timely information that can be helpful to organizations in all manner of ways (from accounting issues to general operating concerns).
OMB Uniform Guidance Extension (and discussion on other deadlines)
Please be aware that, due to COVID-19, many deadlines are being adjusted by the government. One of the most significant for nonprofits with federal funding is explained by GAQC Alert No. 398 and followed by GAQC Alert 401 related to the U.S. Office of Management and Budget (OMB) released memorandum M-20-17, Administrative Relief for Recipients and Applicants of Federal Financial Assistance Directly Impacted by the Novel Coronavirus (COVID-19) due to Loss of Operations. The impact of these two items is that there is a six-month submission extension on any OMB compliance audits that are not yet submitted, including audits through the upcoming June 30, 2020 fiscal year-end. The good news is this extension is broad and does not require the recipient agencies to take any other action for the six-month extension to become effective. However, organizations should be mindful of the requirement they maintain documentation on file that includes the reasons for the delayed filing.
Other deadlines, such as the deadline for the Form 990, have not yet been changed. Please remember, however, that an automatic six-month extension is available for all organizations for any reason. For example, if you are calendar year-end, you can automatically receive an extension from the May 15th deadline to November 15th. There is no penalty for this and it is automatically granted.
At this time, we are not aware of any extensions being provided from the California Attorney General with regards to the requirements under the Nonprofit Integrity Act of 2004 which, among other things, requires nonprofit organizations to finalize their audit within nine months of year-end.
Anticipated impacts on financial statements
There is no question that this disruption of operations has the potential to be a financial statement matter in future (and current unissued) audits. For our calendar year-end audits, we are seeing that the impact from COVID-19 is something that is being disclosed as a risk factor related to potential contingencies. There is enhanced scrutiny and inquiry on subsequent events to identify anything that may have disclosure or recognition impact on the financial statements, such as significant loss of funding, known bankruptcy of a large donor or funder, or potential impairment of assets. Additional focus may be required on the liquidity of organizations going forward. You may also find your auditors a little more interested in your projections, contingency plans, and operations, since year-end. Along with reviewing subsequent events, it is important for management to consider the effects of COVID-19 on the niche industry, geographic area, customers and vendors, and accessibility to financing in regard to future operations and sustainability.
For upcoming fiscal year-ends, we imagine that the market downturn may have a significant impact on your accounting and disclosures related to endowments or other investment portfolios. It is worth noting that one provision in the recently adopted ASU 2016-14 financial statement presentation standard changed the way accounting and reporting is done for underwater endowments. Tracking of the underwater endowment component has not generally been an issue for most clients to date due to the strong performance of investments in recent years. However, we recommend that organizations with endowments familiarize themselves with the accounting and presentation for underwater endowments should that be a factor for this upcoming fiscal year-end.
Impact on auditing and tax services
We assure you that Windes continues to be able to service you in the manner you have come to expect. We as a firm have been working electronically and remotely for some time now so you can be assured that your accounting, auditing and/or tax service provider is fully equipped to provide you with uninterrupted service in an electronically secure environment. We are flexible and can perform services remotely or in any manner that helps the organizations we serve. While we always prefer to see you in person, we can work with you to develop a plan that everyone is comfortable with. We recognize that for our clients, working more remotely could be a new thing and pose some challenges. We understand, and you can count on us to work with you to overcome any obstacles. The key is communication and understanding, and you can count on that from Windes.
These are uncertain times. We want you to know that we are a resource for you and we stand ready to assist you any way we can.
Please keep an eye on this distribution list for our forthcoming analysts of the recently passed CARES act.
For general COVID-19 updates, please visit our resource page.
If there is anything you think we should be aware of or should communicate, please reach out to us at email@example.com or by phone at 844.4WINDES (844.494.6337).