The Not-for-Profit Advisory Committee’s purpose is to assist the Accounting Standards Board (AcSB) on maintaining and improving the accounting standards for not-for-profit organizations (NFPOs) in Part III of the CPA Canada Handbook – Accounting and in identifying the need for non-authoritative guidance about the standards. The Committee makes recommendations to the AcSB but is not authorized to interpret or provide authoritative guidance on accounting standards for NFPOs.
This document has been prepared by the staff of the AcSB and is based on discussions during the Committee’s meeting. The meeting notes do not necessarily represent the views of the AcSB and nothing in them constitutes authoritative guidance on acceptable or unacceptable application of accounting standards for NFPOs. Only the AcSB can make such a determination.
Strategic Research
The Not-for-Profit Advisory Committee received a status update on the AcSB’s 2022-2027 Draft Strategic Plan, which is being finalized and will be issued by March 31, 2022. With the core strategies now confirmed, the Committee was informed of the preliminary research the Board has commenced on the strategic initiatives relating to the Preface and scalability of the standards.
The Committee provided the following feedback to staff on these initiatives:
- It would be beneficial to reconsider the requirements in the Preface for certain entities. Specifically, cooperatives, member benefit organizations, and social enterprises (e.g., for-profit enterprises with a social purpose) were highlighted as entities that warrant further consideration.
- Scaling the standards would benefit NFPOs, especially smaller ones.
- Certain disclosures, including financial instruments, can often be generic and lack understandability and usefulness, especially for NFPOs that have only simple financial instruments.
- NFPOs with specific funder-reporting requirements would benefit from a scaled financial reporting framework.
The AcSB will consider the Committee’s feedback as it continues research on these strategic initiatives.
Reporting Controlled and Related Entities
The Not-for-Profit Advisory Committee considered feedback from stakeholders on the AcSB’s previously deferred project to improve Section 4450, Reporting Controlled and Related Entities by Not-for-Profit Organizations. The Committee advised the Board that assessing whether a NFPO has control over a related entity under the existing guidance continues to cause diversity in practice. Members also noted that providing optionality in accounting for controlled and significantly influenced entities allows NFPOs to best reflect the results of their operations. However, this prevents comparability among similar NFPOs.
The Committee also advised the AcSB that consolidating certain entities can cause significant issues for some NFPOs and, in some cases, may not accurately reflect the financial position and results of the NFPOs. For example, consolidating certain types of entities may affect the ability of some NFPOs to raise or receive funding.
The Committee advised the AcSB to reconsider the criteria used to assess control relationships in a not-for-profit group to reduce diversity in how the guidance is interpreted. The Board will discuss the Committee’s feedback at its March 2022 meeting and consider whether to recommence work on this project as part of its 2022-2023 Annual Plan.
Annual Plan
The Committee discussed topics the AcSB previously identified as future priorities. For the Board’s next annual plan, the top-three topics as voted by the Committee are:
- reporting controlled and related entities;
- social impact bonds; and
- accounting for insurance contracts with a cash surrender value.
The AcSB will consider the Committee’s feedback at its March 2022 meeting when it finalizes the 2022-2023 Annual Plan. This discussion will consider the Board’s forecasted capacity for the next year.
New Practice Issues
The Committee discussed two new issues emerging in practice:
- Many entities observed increasing data security risks in practice. Committee members indicated that this is a significant risk for many NFPOs, but it does not give rise to any related accounting issues at this time.
- The amendments to Section 3400, Revenue, which are effective for fiscal years beginning on or after January 1, 2022, affect the accounting for upfront payments received by NFPOs. The Committee raised concerns with the application of this guidance for NFPOs, including the associated costs and the usefulness of the resulting financial statements.
The AcSB will consider what action, if any, is required related to the accounting for upfront payments under Section 3400 at a future meeting.