December 2014 Vol. 5 No.

UHY LLP
Mid-Atlantic

Nonprofit Insider
U H Y L LP p r ovi de s sol utio ns to no np r of it firms
i n acc ou nt in g, tax and co nsult in g.

The Great Revenue Convergence

Step One of Five
By Deborah Crown, CPA, Senior Manager

n my previous
article,
The
Great
Revenue
Convergence: how
to recognize revenue, I presented
an overview of the
new accounting
standard, Revenue Form Contracts with
Customers, that was jointly issued by
the FASB (Financial Accounting Standards Board) and the IASB (International Accounting Standards Board).
ASC 606 and IFRS 15 were issued in May
2014 and represent a comprehensive
revenue recognition model.
The standard identifies a five-step approach to apply the new standard to
contracts with customers. This article
will address the first step more closely.

STEP ONE: Identify the

contract with a customer
The new standard should apply to
contracts with customers only when
all the following conditions are met:
The parties to the contract have approved the contract (in writing,
orally, or in accordance with other
customary business practices) and

are committed to perform their respective obligations;

The entity can identify each partys
rights;
The entity can identify the payment
terms;
The contract has commercial substance (the risk, timing, or amount
of the entitys future cash flows is expected to change as a result of the
contract); and
It is probable that the entity will collect the consideration to which it
will be entitled.
So, you have a contract, you know
who the parties are, what each partys
rights are and the contract has commercial substance. How do you determine if the collection of the consideration is probable? This is where ASC
606 and IFRS 15 differ. Under ASC 606,
probable is defined as likely to occur, while it is defined under IFRS as
more likely than not. Probable, under ASC 606, is a slightly higher threshold, which may mean there will be
differences between what is considered a contract with a customer under
the two standards.

New 1023-EZ
Makes Applying
for 501(c)(3)
Tax-exempt
Status Easier
By Justin Forster, CPA,
Technology Specialist

n July 1,
2014, the
IRS announced
the release of a
new, shorter
application for
small organizations seeking
recognition of tax-exempt status
under Section 501(c)(3). Form 1023EZ, Streamlined Application for
Recognition of Exemption Under
Section 501(c)(3) of the Internal
Revenue Code, is the IRSs attempt
to help small charities apply for taxexempt status more easily.

All entities will reassess the criteria

above for each reporting period to

The new form takes the complicated 26-page Form 1023 and
streamlines it to only three pages.
The IRS believes the new form will
allow small organizations to avoid
the overly complicated Form 1023
while freeing up resources within
the IRS to speed up the approval
process. Currently, per the IRS,

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For more information,

please contact Matt Duvall
at mduvall@uhy-us.com

8601 Robert Fulton Drive l Suite 210 l Columbia, MD 21046 l 410-423-4800 l Fax 410-381-5538 l www.uhy-us.com

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The Great Revenue Convergence
continued from page 1
determine if the criteria are subsequently met if they are not met at the
time of inception.

The goods or services in the separate

contracts represent a single performance obligation.

An entity that receives consideration

from a customer when the criteria are
not yet met will not recognize revenue until after either:

A contract modification exists when

the parties approve a change that either creates new, or changes existing,
enforceable rights and obligations.
Modifications are not considered to
be in place until all parties agree to
the modifications.

The entity has no remaining performance obligations and substantially all the consideration is received
and nonrefundable; or
The contract is terminated and
amounts received are nonrefundable.

Contract modifications

The entity should account for the

contract modification as a separate
contract only if both of the following
conditions are present:

Not-for-profit entities that have contracts which are considered cost-reimbursement contracts would recognize
revenue when goods or services have
been provided. For contracts where
the entire amount is paid in advance,
the entity would recognize revenue as
the terms of the agreement are met.
Until then, the consideration would
be recorded as a liability (unearned
revenue, refundable advance, deferred revenue).

The contract modification adds one

or more distinct performance obligation to the contract; and

There are a few other considerations

to keep in mind during this first step:

Account for the contract modification as if it were a termination of

the existing contract, and creation
of a new contract, if the remaining
goods and services are distinct from
the goods and services transferred
previous to the modification; and/or

Contract combination
If two or more contracts are entered
into with the same customer near the
same time those contracts should be
combined and accounted for as a single contract if any of the following
conditions are met:
The contracts achieve a single commercial objective and are negotiated
as a package;
The price or performance of one
contract influences the amount of
consideration related to the other
contract; and/or

The price of the contract increases

by an amount of consideration that
reflects the entitys standalone selling price of the additional distinct
good or service.
If both of the conditions above are
not met, the following options are
available:

Account for the contract modification as if it were a part of the existing contract, if the remaining goods
and services are not distinct.
Management will have to apply judgment throughout the application of
this first step and should be consistent with contracts that are similar to
ensure consistency in application of
the standard. Effective dates remain
the same.

New 1023-EZ Makes Applying

for 501(c)(3) Tax-exempt
Status Easier
continued from page 1
there are more than 60,000
501(c)(3) applications in its backlog, with many of them pending
for nine months.
As many as 70
percent of all
applicants are
believed to be
qualified to use
the new, streamlined Form 1023EZ. Most organizations with gross
receipts of $50,000 or less and assets of $250,000 or less are eligible. The IRS has provided an eligibility worksheet with the Form
1023-EZ instructions outlining organizations that are not eligible to
file the new form. Under the Form
1023-EZ Eligibility Worksheet, an
organization must do a projection
of annual gross receipts for their
current year and the two following years. If projected gross receipts during the next three years
exceed $50,000 annually, the organization would be ineligible to
file Form 1023-EZ.

1023-EZ

Form 1023-EZ is required to be

filed electronically and is expected
to drastically reduce the wait period for organizations to receive
favorable determination letters.
Organizations that have already
submitted a Form 1023 to the IRS
may still submit Form 1023-EZ if
the Form 1023 has not yet been assigned for review. In this case, the
IRS will treat the Form 1023 as
withdrawn and will instead process
the organizations Form 1023-EZ.

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