California Bill Would Impose New Burdens on Nonprofits and Undermine National Accounting Standards

A troubling bill has been introduced in the California state legislature that would undermine uniform national accounting standards and impose significant new burdens on organizations registered to solicit charitable contributions in the state.

AB-1181 is apparently motivated by the California Attorney General office’s concerns with charities overvaluing certain gift-in-kind (GIK) contributions, which can lead to a lower ratio of reported overhead expenses to donors and state charity regulators. But to accomplish that goal, the bill would make the bold move of disregarding established generally accepted accounting principles that are consistently recognized and applied across the United States.

The Financial Accounting Foundation, parent of the Financial Accounting Standards Board (FASB), has shared a letter expressing its concerns with AB-1181:

[P]assage of AB 1181 would create separate, unique ‘California standards’ for nonprofits seeking donor contributions in the state. By itself, that fosters confusion and imposes extra costs on everyone throughout the financial reporting ecosystem, including nonprofit donors who will have to master two sets of financial reports versus the single set now. Multiply those costs and confusion across other states that may follow California’s action, and before long there is an environment in which financial reporting becomes increasingly expensive and fails to offer consistent, comparable information to anyone.

The foundation’s statement also claims the bill “radically oversimplifies” the complex nature of the issues and genuine challenges that nonprofits face when valuing GIK. For that reason, a special GIK working group has been established to study these issues and offer possible alternatives. Legislation like AB-1181 by the State of California would be a premature step while the FASB working group—including several members of the National Association of State Charities Officers (NASCO) and others in the community—is actively working to research the issues and offer possible alternatives.

Attorney Chip Watkins has also commented on the major economic and administrative burdens that such a provision would impose on affected nonprofits: “A related problem is that if A.B. 1181 is enacted, charities subject to the new rule might be obligated to spend substantial sums—reducing the amounts available for their charitable programs—to research and obtain wholesale market values for the same product in multiple countries to which a product was shipped, including many where there may be no ‘fair value’ because there is no commercial market for the product.”

If your organization is concerned about these developments with AB-1181, you may direct your comments to Tania Ibanez, Senior Assistant Attorney General in the California Attorney General’s Office and California Assembly member Monique Limón, the bill’s sponsor and chair of the Assembly “Nonprofit Sector” committee.

 

 


This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

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