Hartford Business Journal

8 Hartford Business Journal • July 13, 2015 www.HartfordBusiness.com EXPERTS CORNER FASB proposes major accounting changes for nonprofits By Katrina Olson T he Financial Accounting Standards Board (FASB) announced in April pro- posed changes to reporting for nonprofit organizations that will impact the approximately 13,340 nonprofits currently registered with the state Department of Con- sumer Protection. The proposal represents the first major overhaul of nonprofit reporting requirements in more than two decades. Changes are expected to be wide- spread, affecting all areas of the financial statements. Here are a few of the significant changes: Net assets With multiple pro- posed changes on the table, the greatest impact calls for elimination of the three classes of net assets: unre- stricted, temporarily restricted, and permanently restricted. If passed, nonprofits would have to report two classes of net assets: net assets with donor restrictions and net assets without donor restrictions. The current distinction between permanent restrictions and tem- porary restrictions has become blurred in recent years due to changes in state laws. Many states allow nonprofits to spend from per- manently restricted endowment funds under certain circumstances. FASB hopes simplifying the number of classes of net assets will improve understandability and reduce complexity. Income statement Another significant change would impact the statement of activities, which presents a non- profit's income and expenses. The proposed rule would require all nonprofits to report net income or loss from operating activities sep- arate from non-operating activi- ties. This would more clearly show the income and costs directly related to accomplishing the mis- sion of the organization. Non-operating activities, such as investment earnings or losses, can distort the operating bottom line. This makes it difficult for an interested party to distinguish the financial performance directly related to the nonprofit's mission. Cash flows A change likely to stir the most controversy is the proposed overhaul of the statement of cash flows, which identifies the organi- zation's sources and uses of cash. Key stakeholders frequently gloss over the statement of cash flows, considering it unreadable. FASB's proposed change would present the statement using the direct method, requiring the reporting of cash receipts from key revenue sources as well as disbursements to suppliers versus to employees for wages. It's antici- pated that this change would pro- vide a clearer presentation of cash in and out related to operations. Proponents argue the change will pro- vide more useful infor- mation to key stake- holders, although some nonprofit advo- cates take issue with any change that would cause greater dispar- ity between reporting requirements of non- profits versus for-profit businesses. FASB's proposal comes at a time when stakeholders have increasing- ly complained that improvements are needed to the financial state- ment presentation for nonprofits to provide better information for deci- sion-makers regarding a nonprofit's financial performance, service efforts, need for external financing, and stewardship of donor funds. The proposal has been years in the making, dating back to late 2009 with the formation of the Not-for-Profit Advisory Com- mittee (NAC) — a group formed to work with FASB to focus on financial reporting issues affect- ing the nonprofit sector. A handful of nonprofit account- ing rule changes have passed in the years since the formation of the NAC — the current proposal represents the most sweeping modification to nonprofit report- ing requirements, thus far. Nonprofits and accountants may view these changes as extra work in the short-term, however we can only hope nonprofits will reap the anticipated benefits of providing better information to decision-makers. FASB's proposed changes are expected to be effective for 2017. In the meantime, FASB invites indi- viduals and organizations to weigh in on the proposed changes before Aug. 20, 2015. To comment, visit the FASB website at www.fasb.org and click on Exposure Documents Open for Comment, or email direc- tor@fasb.org. n Katrina Olson is an audit man- ager with Whittlesey & Hadley P.C. in downtown Hartford. Longobardi plots growth strategy for CohnReznick By John Stearns jstearns@HartfordBusiness.com F rank Longobardi, regional managing partner-New England for CohnReznick LLP, can look out the window of his downtown Hartford office and see the building a block away where his former accounting firm, Haggett Longobardi, started with a staff of six. That view is about to change dramatically for Lon- gobardi, who's moving to New York City to become CEO of CohnReznick, a roughly 2,700-person accounting, tax and advisory firm with 30 offices nationally. The move is bittersweet for Longobardi, 60, who has spent his entire accounting career in the Hartford area. Now he said he's excited to chart the firm's next growth phase, live in New York and attend more Yankees games — he's followed the team since growing up in West Haven. Longobardi said CohnReznick, created when J.H. Cohn LLP and Reznick Group PC merged in October 2012, wants to be a top 10 firm. It's No. 11 right now and has more than $600 million in annual revenues. "We should really be looking to be a $800 [million] to a billion-dollar firm in the next four to five years," Longobardi said of the growth he seeks by the end of his four-year term as CEO (It will be his only term because a partnership agreement mandates retirement at 65). Organic growth is part of the game plan. Mergers too could fuel growth, but on a smaller scale than when Cohn and Reznick joined forces years ago, he said. Longobardi said he wants to accelerate growth in four key national practices: private equity, commercial real estate, affordable housing and renewable energy. CohnReznick also has select city industry groups, which include not-for-profit, technology, life sciences, hospitality, construction, manufacturing and wholesale distribution. "We have some really solid strength in those indus- tries in some of our offices, but not all of our offices, so we have to start to building out that platform," Lon- gobardi said. CohnReznick also needs to grow its consulting practice, he said. Advisory services account for about $90 million of the firm's revenues, a number he'd like to approach $150 million in four years. Longobardi also intends to focus on leadership development. "We're in a situation right now where there's scarcity of talent; everybody's looking to hire accountants," he said. "So one of the things that we have to do is continue to identify the talent in-house and … be focused on recruiting." Longobardi also plans to spend time continuing to align the cultures of Cohn and Reznick and build on the firm's successful women's program — about 47 percent of its professional staffers are women versus 44 percent nationally in accounting. Tom Marino, one of the firm's co-CEOs with Ken Baggett — they were Cohn and Reznick CEOs, respective- ly, and will step down Oct. 1, per the partnership agreement — said Longobardi is the right leader at the right time. Longobardi has a great personality and people skills and is an excellent communicator, Marino said. "He's going to be very engaging," Marino said. "He's going to build a lot of consensus. But the one thing that stands out, he's a people person — it's not just going to be the partners, it's going to be to every employee we have." Marino added, "I have full confidence that Frank's going to do a great job and it's what this firm needs at this stage in our formation." The firm, meanwhile, is interviewing for a new region- al managing partner-New England to oversee offices in Hartford, Stamford, New London, Boston and Spring- field. Ed Kindelan remains office managing partner in Hartford, which has 220 employees, including 92 CPAs. Longobardi and his wife intend to live on New York's upper west side to be relatively close to CohnReznick's headquarters, which will relocate from 6th Avenue and W. 48th Street to 6th and 53rd in December. "I just enjoy the city life," Longobardi said. "For my wife and I, it's a great time because both our kids are grown." n Frank Longobardi Title: CEO of CohnReznick LLP, effective Oct. 1. Age: 60 Education: University of Connecticut, accounting, 1977. Played on hockey team. Family: Wife, Pat; two grown children, Matt, attorney in New York City, and Kristen, CPA in Boston. Experience: Joined a small accounting firm in Hartford after college, then a regional firm that was later acquired by Coopers & Lybrand before teaming with Bob Haggett to start Haggett Longobardi in 1984. The firm merged with J.H. Cohn LLP in 2007 and Cohn merged with Reznick Group PC in 2012. Katrina Olson Frank Longobardi will be trading in his corner office view of down- town Hartford for new digs in New York City when he takes over as CohnReznick's CEO this fall. FOCUS ACCOUNTING H B J P H O T O | J O H N S T E A R N S

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