New Standards? Bill Targets Charitable Organizations.

AuthorFox, Jason
PositionCapitol Beat

AB 1181 by Assembly member Monique Limon proposes new standards for how charitable organizations- and the CPAs who work with them value noncash gift-in-kind contributions and how they are reflected on their financial find lax records.

Sponsored by the California Attorney General, the bill seeks to address concerns about how some charitable organizations value these types of contributions, particularly pharmaceuticals that are received in the U.S. and dispersed outside the country. Pharmaceuticals often have a wide spectrum of prices depending on when, where and how they are valuated. The fair value principles under generally accepted accounting principles (GAAP) outline the process for how charitable organizations and their CPAs would value these contributions and reflect them on their financials and tax forms.

However, the Attorney General argues that overvaluation of a pharmaceutical gift-in-kind could misrepresent the charitable organization's financial position and inflate its efficiency ratings, which could be used to mislead California donors in the solicitation of contributions. To address their concerns, enter AB 1181.

CalCPA has raised concerns with this bill because its current language would undermine uniform national accounting and valuation standards by essentially allowing California to set its own accounting standards and procedures. In effect, this would require CPAs representing charitable organizations across the country to comply with valuation and accounting standards that would result in non-GAAP financial and accounting records. Charities would then have two financials: one that is non-GAAP for California purposes and one that complies with GAAP for federal and other states' purposes.

This would create consumer confusion and significantly increase the complexity and cost of preparing and maintaining records for charitable organizations.

Specifically, the bill removes reference to the AICPA and Governmental Accounting Standards Board, two entities that arc core to the formation and application of GAAP. from current law. This makes it unclear as to whether AICPA guidance and GASB can be used when preparing a financial statement for a charitable organization.

Additionally, the bill's proposed new standard of determining the fair value of a noncash gift in kind is inconsistent with GAAP and does not take into account other factors and detailed guidance that would need to be considered in the valuation process. A nonprofit...

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