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Managing Partner’s Message – May 2019

Pamela W. Baker CPA Managing Partner

Spring has sprung! Each day the view from my office window is livelier. The trees are budding, the mulch is fresh in the flower beds, and the crews are out patching the parking lot that was ravished by rain and cold over the winter. Spring is a time for renewal and planting seeds. Our seeds are planted as we participate in spring and summer conferences, attend professional meetings, and support our vast non-profit community through attendance and sponsorship of key events. Our Partners will be speaking and/or exhibiting at key Conferences in support of our governments (GFOA and PICPA), our non-profits (DANA, PICPA, and AICPA), and our housing authorities (MAHRA). In order to present effectively, each individual will be spending a considerable amount of time in research and development of their speaker topic. We have proven over time that this level of commitment not only expands our expertise, but also greatly enhances the quality of the work that we perform on a daily basis.

We are also working to sow the seeds of diversity throughout our organization. In late January, we became OSD Certified as a Women Business Enterprise (WBE). We fully recognize the importance of a diverse workplace and we celebrate the unique contributions of our diverse staff and clients. We look forward to participating in proposal requests from entities who recognize the importance of a certification like WBE.

In my last newsletter, I hinted at an exciting announcement. Our spring “renewal” will be celebrated with our launch of a new logo! We look forward to the many opportunities at upcoming trade shows and vendor exhibits to display our new brand. Our search for a new logo began last year when the firm leadership embarked on our annual retreat. We devoted some of our discussion on our mission, vision, and core values. It was important to our team that we both individually and collectively carry our consistent message of integrity, quality, and responsiveness. During the winter, we launched a “logo tournament” in search for something that would serve us well today and into the future. We obtained input from staff, business associates, clients, family and friends. A special thanks to all those who participated. We are excited with our new design and are confident that it will continue to convey our values.

Our second “busy season” will kick off in mid-July as we conduct June 30 year-end audits. In the meantime, we will be planning, scheduling, and enjoying the spring weather. Our offices will be closed every Friday from May 10 through June 14. We will also be closed the week of 4th of July. It is during these closed days that we encourage our staff to embrace the opportunity to integrate their personal and professional lives.

It is my hope that each of you also have the opportunity to “stop and smell the roses”. Happy summer!

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Jeffrey Kowalczyk, CPA,CFE,CGAP Named Chairman of CPAsNET’s Nonprofit Executive Committee


For Immediate Release:

For further information, contact:

Jeffrey Kowalczyk Named Chairman of CPAsNET’s Nonprofit Executive Committee


Boulder, CO – The Board of Directors has named Jeffrey Kowalczyk, CPA, CFE, CGAP of Barbacane, Thornton & Company LLP, Chairman of the Nonprofit Executive Committee.

Jeffrey is an Audit Partner at Barbacane, Thornton & Company LLP, the Delaware-based public accounting and consulting firm that exclusively serves Nonprofits, Schools and Governments. As Chairman of the Nonprofit Executive Committee he will be responsible for the strategic planning of the organization’s Nonprofit special interest group. In this role Jeffrey will also serve as the editor-in-chief of Nonprofit Examiner, a nationally syndicated publication that provides information to nonprofit entities that helps them stay abreast of important nonprofit-related issues.


CPAsNET’s Nonprofit special interest group is exclusive to members and is designed to provide a forum for firms that serve not-for-profit organizations. The group meets virtually 4-6 times per year and once in person during CPAsNET’s Annual Meeting. Through special interest groups, CPAsNET firms can collaborate with their peers to stay on the cutting edge of advancements in the profession.


Jeffrey was unanimously nominated and elected for this prestigious position by his peers.  Sarah Dobek, President of CPAsNET, noted that: “Jeffrey is well-respected within the organization, profession and overall community of trusted financial advisors. A natural leader, Jeffrey understands the importance of continued innovation and providing staff and clients with the cutting-edge technology needed to prosper in challenging markets and times. The Nonprofit Executive Committee will benefit from his expertise” said Dobek.


With over 10 years of auditing experience, Jeffrey specializes in the audits of nonprofit agencies and government units. In addition to his CPA licensure, Jeffrey is a Certified Fraud Examiner and Certified Government Accounting Professional. Jeff is also a member of the PICPA Not-for-Profit Technical Issues Sub-Committee and has served as a speaker for various state and local conferences. Jeffrey is a graduate of the University of Delaware and received his Master’s in Business Administration from West Chester University. Jeffrey gives back to his local community through time spent volunteering with organizations such as the PICPA nonprofit committee. He also serves as a Board Member and Treasurer for the Philadelphia Sinfonia.



Founded in 1994, CPAsNET is an association of independently owned public accounting and consulting firms who share resources to provide their clients with local, national and international perspectives.

With locations throughout the U.S., CPAsNET member firms collectively represent one of the 50 largest accounting firms in the nation. Through its strategic international affiliations, CPAsNET offers international support and guidance to member firms on all seven continents. For more information about CPAsNET, please call 609-890-0800 or visit

About Barbacane, Thornton & Company LLP
Barbacane, Thornton & Company LLP is a highly regarded, regional certified public accounting and consulting firm specializing in auditing and tax services for government agencies and nonprofits. For more information about Barbacane, Thornton & Company LLP, please call (302) 478-8940 or visit




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U.S. Postal Service Announces Rate Increases for 2019

Understanding the Changes to Unrelated Business Income

By: Doris Kerr, Firm Administrator

Doris Kerr, BTCPA Firm Administartor

On October 10, 2018, the Postal Regulation Commission (PRC) approved a proposal to increase the United States Postal Service rates for shipping and mailing service fees. The new prices, rising by up to 10 percent, will vary by product and take effect January 27, 2019.

Price changes include raising the cost of a first-class stamp by 10 percent from 50 cents to 55 cents each. Some items, such as postcards, will remain at 35 cents while the price letters weighing more than 1 ounce, will decrease.

This rate increase is an effort to keep the Postal Service competitive while providing the agency with additional revenue. As a reminder, the Postal Service does not receive tax dollars for operating expenses; instead, they rely heavily on the sale of postage, products, and services to fund its operations. In addition, mailing service prices are influenced by the Consumer Price Index, while shipping service prices are adjusted based on market conditions.

An analysis by the alliance of nonprofit mailers found the increase will also raise other classes of mail by about 2.5 percent. Overall, shipping services rates will increase 5.9 percent for priority mail and 3.9 percent for priority mail express.

Impact on Nonprofit Organizations

Organizations, but especially nonprofits that rely heavily on bulk marketing mailings will feel the impact of the 2019 rate increases. Nonprofit organizations should prepare and budget for the cost of their bulk outgoing mail to increase twice the rate of inflation. They also need to consider the cost of including a return envelope to facilitate donations as these will also incur a higher first-class letter rate.

If you need guidance on how to meet these challenges, please call the experts in our office.

Doris Kerr, Firm Administrator

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Disaster Relief Remains Top of Mind for Donors

Understanding the Changes to Unrelated Business Income

By Jeffrey A. Kowalczyk, CPA, CFE, CGAP

Year-end giving is historically the most critical period for charitable foundations. Movements like Giving Tuesday help nonprofits gather donor funds through a lot of social fanfare, while the holiday spirit inspires others to give generously to their favorite causes. This surge in giving helps many nonprofits finish strong – but there’s a lot to uncover when it comes to a donor’s intent to give.

What started as a huge question mark, is ending the year on a positive note. Early in the year, changing tax laws caused many to speculate whether taxpayers would lose their incentive to give. However, in the wake of wildfires, hurricanes, and floods, the opposite appears to be true. According to survey data released by Classy, an online and mobile fundraising platform for nonprofits, 48 percent of those surveyed feels disaster relief is a cause needing support, the highest percentage of all causes included in the survey. The Classy survey revealed that “nearly half of consumers (49 percent) plan to donate more money to charity than they did in 2017.”  This data varies based on income level, but the message is clear, donors are motivated to give.

When it comes to charitable contributions, the survey also found that the donation experience plays a significant role in a donor’s level of trust in an organization, as well as their likelihood to give. As new generations emerge in the philanthropy landscape, nonprofits shouldn’t be surprised to hear that technology – the ability to give electronically – often tips the scales for millennials and Gen Z donors. In fact, more than half of consumers (53 percent) prefer to give online, regardless of their generation. Nonprofits should focus on improving their digital giving experience if they want to gain more trust in 2019.

Americans are certainly proving their mettle this year, but it’s important to note that while many have already committed to fundraising and relief efforts, there are still some who are sitting on the fence. According to Classy, personal or family connections to a cause, recommendations from social media influences, ease of donating, and negative media coverage heavily influence donor spending. The survey findings also indicate that disaster relief is a top cause for both Democrats (47 percent) and Republicans (42 percent).

The experts in our office are here to help you uncover ways of getting in front of new donors – give us a call today!

Jeffrey A. Kowalczyk, CPA, CFE, CGAP

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Assessing Internal Controls

Assessing Internal Controls

By Steven N. Kutsuflakis, CPA

Every organization needs internal controls to safeguard assets, assure accounting data is accurate and reliable, promote operational efficiency, and encourage compliance with prescribed policies and procedures. The start of a new year is the perfect time to take a fresh look at these controls to see how they measure up.

A good internal control system consists of four elements.

  1. An authorization system that provides adequate accounting control over assets, liabilities, revenues, and expenses;
  2. Sound, uniform operating procedures for all departments;
  3. Segregation of duties, so no one person or department handles the complete accounting cycle for financial transactions; and
  4. Personnel recruitment policies that ensure competent individuals are hired.

Here are some recommendations to help you maintain a good internal control system.

Cash Receipts

  • Maintain a cash receipt log independent of the bookkeeper and reconcile it to the cash receipts.
  • Restrictively endorse checks upon receipt.
  • List all mail receipts when mail is opened.
  • Prohibit the bookkeeper from cash handling, including petty cash and bank deposits.
  • Issue duplicate, pre-numbered cash receipts for all cash and checks received that are more than the specific dollar limit established by the board.
  • Reconcile copies of the pre-numbered cash receipts to the cash receipts journal and deposit slips.
  • Use duplicate deposit slips.
  • Retain copies of the deposit slips validated by the bank or proof of deposit reports for online deposits made through a check scanner.
  • Have two individuals count and verify all cash received from sales made without using a cash register (e.g., a food booth).


  • Make all disbursements—except petty cash—by check.
  • Require all purchases on company credit cards to be accompanied by receipts.
  • Support each check with an approved voucher.
  • Use a “paid” stamp to cancel supporting documentation or invoice after payment.
  • Review and approve signing authority for vouchers and checks annually.
  • Prohibit the bookkeeper and executive director from signing checks.
  • Have separate individuals approve vouchers and sign checks.
  • Have the board establish a maximum dollar limit for each authorized signer.
  • Require two signatures for checks above a board-stipulated dollar amount.
  • Limit access to the supply of unused checks to authorized personnel.
  • Require the board or finance committee authorize all withdrawals from, and transfers between, bank accounts.
  • Appoint an individual authorized by the board to approve the executive director’s expense voucher.

Petty Cash

  • Require receipts for all petty cash disbursements.
  • Have each petty cash fund in the custody of one person.
  • Prohibit the bookkeeper from maintaining petty cash.
  • Require at least monthly submissions of petty cash vouchers for reimbursement.
  • Have the board establish the number and dollar amount of petty cash funds.
  • Prohibit employee IOUs in the petty cash fund.
  • Prohibit cashing personal checks with petty cash funds.


  • Require the employee and their supervisor sign all time cards.
  • Ensure the supervisor signing time cards has a personal knowledge of the hours the employee worked.
  • Line out, correct, and have both employee and supervisor initial all time card errors.
  • Prohibit the use of correction fluid on time cards.
  • Assign an individual independent of preparing payroll vouchers to receive and distribute paychecks and monitor direct deposits.


  • Require that bank reconciliations are performed by those whose duties do not include cash receipts and disbursements or account posting functions. Have bank statements mailed directly to that person.
  • Have executive director or treasurer review reconciliations monthly.
  • Reconcile bank statement balances, checkbook, and passbook balances and general ledger and cash balances monthly.
  • Have all bank accounts established and closed by approval of the board.
  • Require executive director to review and approve all general journal entries.
  • Present the balance sheet and statement of operations to the board for monthly review and approval.
  • Include all activities and sponsored programs in the general ledger.
  • Train an employee to serve as a backup bookkeeper.
  • Include all accounts in the general ledger—either actively or summarized—in financial reports presented to the board.
  • Segregate accounting duties. Nonprofits should have at least two persons responsible for elements of accounting and bookkeeping functions. Alternatively, consider outsourcing this function with a virtual CFO.
  • Adding background checks to your hiring routine, especially for any staff that will be managing payments and will have access to bank account information.
  • Leverage software that crunches the data for you and compares payroll numbers and output with algorithms. This data can often be the first hint that a fraudulent scheme is underway.

According to a 2018 analysis of fraud schemes released by the Association of Certified Fraud Examiners, the not-for-profit sector may not be the most victimized type of organization; however, they suffer some of the greatest losses. Per the report, “not-for-profit organizations were the victim of only 9 percent of frauds and had the smallest medial loss; however, for many not-for-profit entities, financial resources are extremely limited, and a loss can be particularly devastating.”

Generally, developing strong controls and maintaining a tight watch over your accounts can help you both prevent and catch fraud. The professionals in our office can assess your fraud risk and provide you with a comprehensive and personalized plan to mitigate that risk. Contact one of our professionals today for more information.

For more information, contact:

Steven N. Kutsuflakis, CPA

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Managing Partner’s Message – September 2018

Pamela W. Baker CPA Managing PartnerSummer is over and school has started across our region. The start of school for the students also marks the start of school audits for our audit teams. There is always an exciting buzz around this audit season as we arrive to start audit fieldwork as students arrive to start a new year. Many of our school districts have administrative offices located near or within school buildings so we have an opportunity to see firsthand how those first few days go. Our nonprofit clients also seem to get extremely busy as summer winds down. Whether they are planning fall appeals, working with programs in and around schools, or preparing for board meetings which might have taken a summer break, there is no denying how busy everyone is.

Summer at Barbacane Thornton & Company was full of activity. This is the time of year that we encourage everyone to take some time to spend with friends and family, nurturing good physical and mental health. We have a diverse range of interests, and our staff have traveled as far away as Europe and as close as the beach here on the Eastern shore. No matter where, they have returned well rested and motivated for our next audit season.

Summer is also the time that our team takes the opportunity to build on their technical skills. Over the past few months, our staff had the opportunity to travel to Las Vegas for conferences dedicated to the housing authority industry and ERISA plan audits. Both of these niche markets are significant to our practice and our staff put tremendous effort into development of their technical skills. We were also present at National conferences focusing on new and important changes to the non-profit and government sectors. Some of our junior associates traveled as far away as Atlanta and New York for specialized training on audit skills and techniques.

We will be working closely with all of our Government Accounting Standards Board (GASB) clients whose fiscal years end June 30 or later as they implement, for the first time, the new codification requirements relating to post-employment benefits. Our Partner, Tim Sawyer just attended the first finance committee meeting for a Delaware Charter School where he took the time to explain the reporting as well as the impact of the significant changes. This will continue throughout the next several months as the impact of the new requirements become evident in final financial statements.

We are planning a nonprofit conference to be held in Delaware on October 31st. Be on the lookout for more information.
Our firm is growing as we recently added three new staff to our team. Julia, Peter, and Carlton each join us ready to launch their CPA careers. We are thrilled to have them on board and look forward to their contributions.

Our personal family is growing as well. Our Partner, Jeff Kowalczyk and his wife Emily added to their family with the birth of John Daniel Kowalczyk. Welcome JD! We look forward to getting to know you. Bob Kaufmann will marry Samantha on October 12th. Our best wishes for a perfect wedding day and many happy years ahead!

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Six Challenges Nonprofit Executives Are Facing

Six Challenges Nonprofit Executives Are Facing

By Steven N. Kutsuflakis, CPA

Nonprofits have made headlines concerning challenges brought on by new federal rules on overtime pay, deferred compensation and new accounting standards for charities. Keeping up compliance with the various finance-related rules and regulations that govern the sector proves to be a challenge for nonprofits. To better understand what is keeping nonprofit executives up at night, Abila – a leading software provider to nonprofit organizations – surveyed 414 finance professionals who recently worked for a nonprofit or association. Key findings from the study reveal the primary challenges nonprofit executives are facing.

1.Managing Revenue

Survey participants identified managing multiple sources of revenue as the biggest financial challenge they face as finance professionals. Each source of income has complex rules and restrictions to be taken into consideration.


Nonprofit finance professionals have identified compliance as a significant burden that has become costlier over time, especially within the past two to three years. The study found that one of every four finance professionals is spending over 120 hours per year on compliance. Half of those surveyed believe if their organization grows, compliance difficulty and costs also will grow.

3.New rules and regulations

Finance professionals often support the introduction of new rules and regulations; however, they still worry what the effect will be on their organization. New rules and regulations often mean increased costs for nonprofit organizations. According to the survey, only one in five believes regulations do more good than harm.

4.Staff Turnover

The unexpected departure of an employee can significantly disrupt day-to-day operations. Forty-six percent of survey participants responded that they are unprepared if a key finance professional were to leave suddenly. Only 12 percent are confident they could survive a sudden departure in the finance department.


Organizations recognize fraud as a threat and have put significant effort into fraud prevention. Despite implementing practices, such as separating duties, only 38 percent of survey participants feel that members of their management and board of directors are very educated on how to avoid fraud.


According to the survey, 36 percent of finance professionals claim they experience more than one audit per year. With the typical preparation time exceeding two weeks, audits can be problematic for organizations that lose a significant amount of time – time that could be better spent deterring fraud or preparing for staff turnover.

We recognize it can be difficult to keep up a progressive pace when the rules and regulations are constantly changing. The professionals in our office can help you with the challenges your organization faces. We are often called upon when an organization loses one of its financial professionals to assist while they fill the void. We can also help ease the complexity that keeps you up at night. The professionals in our office are keeping a close watch on issues that affect nonprofits and are available to speak with you should you have concerns. For more information, contact:

Stephen N. Kutsuflakis, CPA

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Understanding the Changes to Unrelated Business Income

Understanding the Changes to Unrelated Business Income

By Jeffrey A. Kowalczyk, CPA, CFE, CGAP

While most nonprofits are tax exempt, that doesn’t mean they won’t pay business income tax.  When nonprofits generate income from unrelated activities, the activities can be taxed as unrelated business income (UBI) by the IRS.  To be taxed under UBI, an activity must generally meet three rules:

  1. It must be a trade or business, which the IRS defines as any activity which is carried on for the production of income from the sale of goods or performance of services.
  2. It must be carried on regularly.
  3. It must not be related substantially to the organization’s exempt purposes.

The legislation passed by Congress in December 2017, contains many provisions that will impact tax-exempt organizations. It is important for non-profit organizations to be mindful of these provisions.  To help clarify areas where we are seeing the most questions, we have highlighted a few of the most pertinent details below.

1. Provision: Disallowed Fringe Benefits Subject to Unrelated Business Taxable Income

Fringe benefits have traditionally been a benefit nonprofits could provide to their employees without those benefits being treated as UBI or included as taxable wages to the employee.  However, under the 2017 Tax Reform Act, some of those benefits have changed.  The following fringe benefit expenses, paid or incurred by the organization after 2017, will be now be disallowed and included as unrelated business income to the tax-exempt organization.

  • Qualified transportation fringe includes transportation in a commuter highway vehicle.  The transportation must relate to travel between the employee’s home and workplace.  It also includes any transit pass and qualified bicycle commuting reimbursement.
  • Qualified parking fringe includes parking provided to an employee on or near the businesses premises or near a location from which the employee commutes to work by transportation.
  • On-Premises Athletic Facility. The value of the use of on-premises athletic facilities which are operated by the employer and used exclusively by the employees and their dependents will be included as unrelated business income.

 What is the impact?

 Tax-exempt organizations that choose to continue offering nondeductible fringe benefits must pay tax on these employee benefits at the corporate tax rate and file a Form 990-T.

Tax-exempt organizations can also choose to increase an employee’s overall wages and discontinue offering these fringe benefits.  The increase in wages should help make up for the new expenses the employee will incur.

 2.Provision: Special Rule for Organizations with More Than One Unrelated Trade or Business

Tax-exempt organizations can no longer use the income and deductions between various unrelated trades or businesses to offset how much tax is owed.  Effective December 31, 2017, organizations that carry on multiple unrelated trade or business will be required to calculate and apply gains and losses separately.

Net operating loss deductions are limited to 80 percent of taxable income for tax years beginning after December 31, 2017.  Carryover of operating losses occurring before January 1, 2018 are still permissible to offset income from another unrelated trade or business.

 What is the impact?

Developing a process to categorize income is the first step to ensure compliance.  Tax-exempt organizations should analyze unrelated business tax costs to make sure they are properly allocating the expenses to the correct unrelated trade or business.  One strategy to consider is moving current activities into a separately-owned corporation.  This may allow a tax-exempt organization to report and offset unrelated trade or businesses under one entity.

3.Provision: Net Operating Loss Deduction

Net operating losses were previously allowed to be carried back two years and forward twenty.  There was no limit regarding how much taxable income could be offset by a net operating loss, allowing an entire loss to be used to counteract 100 percent of the taxable income in that current year.  Going forward, however, the net operating loss deduction will be limited to 80 percent of a tax-exempt organization’s taxable income and the carryforward period will be eliminated, allowing net operating losses to be carried forward indefinitely.

 What is the impact?

Organizations with an unrelated trade or business that have a net operating loss will pay 20 percent of their unrelated business income.

Many nonprofit entities have a difficult time classifying income for tax purposes as related or unrelated to the entity.  The tax reform law further complicates the treatment of unrelated business income.  On February 23, 2017, the American Institute of CPAs submitted a comment letter to the Internal Revenue Service, proposing guidelines on how to address the allocation of unrelated business income expenses of tax-exempt organizations for dual-use facilities and/or personnel.  The AICPA recommended that the IRS provide a simplified method for small businesses who lack the resources to adequately document the information needed to identify expenses relating to dual-use facilities and unrelated activities.  The IRS has yet to respond to the letter.

If you would like more information on the unrelated business income tax or assistance in developing a process to categorize your income, contact:

Jeffrey A. Kowalczyk, CPA, CFE, CGAP

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Managing Partner’s Message – April 2018

Pamela W. Baker CPA Managing PartnerSpring has finally arrived both within and beyond the borders of our firm. Internally, we marked the passing of another Department of Community and Economic Development (DCED) deadline for audit reports as well as the three month mark of the implementation of new audit software. Our team reports that our new software is a welcome addition to our arsenal of audit tools and even though implementation added additional strain during an already busy time, everyone looks forward to further integration of the new product.

We now are turning our sights to the next audit season – for entities with years ending June 30. For our government clients this will mean the first year of implementation of the Governmental Accounting Standards Board (GASB) Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. Similar to GASB Statement No. 68 for pensions, this new standard establishes standards for recognizing and measuring liabilities and related financial statement elements of the actuarially determined value of other post- employment benefits offered to employees. Our team of professionals have been evaluating the impact of this new standard since its release and are ready to assist our clients in facilitating a smooth implementation. On the horizon is a GASB project designed to develop eventual new standards regarding revenue and expense recognition. We are involved with that discussion and encourage you to visit our blog for our letter of comment to the GASB Board.

For our nonprofit clients, no changes for this year – but big changes on the horizon. We have been discussing the effects of new Financial Accounting Standards Board (FASB) rules that affect not-for-profit presentation of financial statements, revenue recognition, and reporting of leases. Those conversations will continue and for some of our clients, we will begin the process of preparing pro forma financial statements under the new requirements.

Spring is also a time to get outdoors and be active! Several of our staff have begun participating in community activities on behalf of our nonprofit clients. These are great outings to bring friends and family to. Eliza Kowalczyk, our Partner Jeff’s daughter loves participating in 5k events – she is a young philanthropist in training!

On Wednesday, May 9, we will be celebrating the retirement of our Founding Partner, Robert Barbacane. Rob has touched many lives through the past FORTY years since he began our firm. His passion and commitment to the accounting profession, the development of the next generation of CPA’s, the public sector and the mission of so many nonprofits has been felt by many. We will forever be grateful for his visionary leadership.

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Comment on the Governmental Accounting Standards Board’s (GASB) Revenue and Expense Recognition Project, No. 4-6I

Barbacane, Thornton & Company LLP
200 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810

T 302.478.8940
F 302.468.4001

April 24, 2018

Via electronic mail
Governmental Accounting Standards Board 401 Merritt 7
PO Box 5116
Norwalk, CT 06856-5116

RE: Revenue and Expense Recognition, Project No 4-6I

Thank you for the opportunity to comment on the Governmental Accounting Standards Board’s (GASB) Revenue and Expense Recognition Project, No. 4-6I. In our capacity as a public accounting firm specializing in providing accounting and auditing services to the government sector, we appreciate the GASB involvement of preparers and other stakeholders in order to enhance and promote consistent application of accounting principles in financial reporting.

Our firm works primarily with small to mid-size governments, many who do not have complex transactions, but do struggle with sometimes defining revenue and expense recognition principles. Therefore, we encourage the GASB to continue to pursue this project through to standards implementation. We offer the comments below in response to the questions posed in the above referenced project, not with the intention of selecting the “best” approach, but rather to offer insight from a user’s perspective.

Regarding the exchange/nonexchange model. Continuing to build on the existing guidance of exchange vs. nonexchange could prove effective if clarity is provided to further explore and explain the criteria for defining exchange transactions. Specifically, in paragraph 11 of chapter 2, “substantially accomplished” might result in different conclusions by different users. The two criteria offered in the same paragraph make sense and would provide a better foundation for determining recognition – we would suggest not using terms like “substantially accomplished” which lead to ambiguity. Specific criteria are much more effective. Current GASB guidance for nonexchange transactions is an area that many of our governments struggle with. Therefore, for this model to be effective, examples will need to be incorporated either as Appendices to the standard or through a dedicated implementation guide.

Regarding the performance obligation/nonperformance obligation model. This model, by taking a fresh approach in terms of terminology, might be more effective at gaining attention of governments in applying a new standard. The term “performance” seems to be more indicative of a principles-based approach as opposed to a “rules” based approach. Historically, based on application of gaap that we have seen, “exchange” vs. “nonexchange” can cause confusion in establishing correct accounting for certain transactions. Performance obligation also mirrors the FASB revenue recognition standard thereby increasing understandability for financial statement users of governmental entities who have a for-profit background.

We did not find the alternative models helpful or complete enough to be useful for this project and would recommend pursuing either the standards described in Chapter 2 or 3.

Additionally, we would recommend that, at the point in time that this becomes a GASB standard, that a specific implementation guide be completed in order to enhance interpretation of the standard.

On behalf of our firm and our clients we would like to thank the GASB for its efforts in putting together this project and for providing a forum for feedback. Please feel free to contact us if you have any questions.

Respectfully submitted,
Pamela W. Baker,CPA,CGFM Managing Partner
Barbacane, Thornton & Company LLP

Cc: Kristopher Knight


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