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.
Contributions
The Not-for-Profit Advisory Committee received an update on the AcSB’s recent tentative decisions related to the development of an exposure draft on the recognition of contributions and related topics. Specifically, the Committee discussed draft proposals relating to endowments, contributed materials and services, pledges and bequests.
The Committee agreed that endowment contributions should be recognized as direct increases to net assets in the period in which the organization is entitled to the contribution. For contributions with externally-imposed requirements specifying that the initial contribution amount must be maintained and invested for a fixed term, the Committee advised that they should be accounted for like other types of restricted contributions and not like endowment contributions.
The Committee agreed that organizations should continue to have the option to recognize contributed materials and services when specific criteria are met. The Committee also commented on the draft criteria and disclosure proposals.
The Committee agreed that pledges should not be recognized until the contributed assets are received. With regards to bequests, they advised that in some scenarios, an organization could become entitled to the contribution before it is received.
The Committee also discussed fund accounting presentation, presentation of net assets, and disclosure of restricted cash. The Committee advised that additional guidance on the application of fund accounting presentation would be helpful. However, it should provide some flexibility to allow organizations to present information in a way that is useful to financial statement users. The Committee also provided input on draft presentation and disclosure proposals.
The AcSB will consider the Committee’s feedback at its meeting on September 14-15, 2022.
Cloud Computing Arrangements
The Not-for-Profit Advisory Committee discussed stakeholder feedback on the Exposure Draft, “Customer’s Accounting for Cloud Computing Arrangements.”
The Committee supported the AcSB’s tentative decisions at its July 20-21, 2022 meeting, specifically discussing the following:
- The accounting policy choices in the Guideline should be applied consistently to all cloud computing arrangements.
- Adding an example to illustrate the accounting for a software module implemented after access to the software has commenced would be helpful.
- Providing additional transition relief to address concerns raised by stakeholders.
- Deferring the Guideline’s effective date by one year to apply to annual financial statements relating to fiscal years beginning on or after January 1, 2024.
The Committee also considered feedback on the presentation of cloud computing expenditures on the balance sheet. In a software service situation, the nature of expenditures on implementation activities is like an operating expense because the entity does not control the software. However, given stakeholders’ concerns with the proposed prepaid expenses presentation, the Committee thought the Board’s tentative decision to create a new balance sheet caption to present capitalized expenditures on implementation activities is appropriate.
The Committee also provided input on the issue of how CONTRIBUTIONS – REVENUE RECOGNITION, Section 4410, should interact with the Guideline. Specifically, the Committee considered whether there is an issue that the AcSB needs to address with respect to contributed materials and services that may occur in a cloud computing arrangement. If a NFPO has historically selected an accounting policy to not recognize contributed materials and services in accordance with paragraph 4410.16, then it would not recognize contributed materials and services in a cloud computing arrangement, unless the NFPO retrospectively changes its accounting policy. The Committee expressed mixed views whether this will be an issue in practice. A few members noted that contributed materials and services in a cloud arrangement may be more prevalent in some sectors than others. Furthermore, the significance of contributed materials and services in a cloud computing arrangement may vary. They also observed that some NFPOs may receive funding related to a cloud computing arrangement instead of directly receiving contributed material and services.
The AcSB will consider the Committee’s comments at its meeting on September 14-15, 2022.
Other Topics
The Committee also discussed the results of its member-feedback survey for the 2021-2022 fiscal year to assess the volunteers’ level of satisfaction. Committee members raised no further comments.