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 overview of the feedback on the AcSB Exposure Draft, “Contributions – Revenue Recognition and Related Matters.” The Committee discussed feedback on the purpose of the project, the definition of a restricted contribution, and the recognition of restricted contributions. The Committee also discussed potential options to address the feedback, considered the guidance on accounting for contributions in other jurisdictions, and discussed the next steps.
Exposure Draft feedback
The Committee discussed feedback on the project’s purpose and agreed with keeping the objectives: reducing complexity, enhancing the comparability, and improving the usefulness of not-for-profit financial statements by removing the accounting policy choice for recognition of contributions. The Committee also considered whether these objectives would be best met by a single recognition method or by different recognition methods for types of contributions or types of organizations.
The Committee also discussed feedback on potential application challenges with the proposed definition of “restricted contributions”. These challenges included determining when a restriction has been explicitly stated and recognizing when a contribution is restricted to a specific period. Committee members recommended that the AcSB clarify the definition of “restricted contribution” to address the potential application challenges raised.
The Committee discussed feedback on the proposed recognition requirements for restricted contributions, including capital asset contributions and endowment contributions. Committee members considered whether presenting unspent restricted contributions as liabilities or as restricted net assets more clearly communicates the obligations resulting from restrictions. The Committee recommended that the AcSB investigate why respondents agreed or disagreed with the proposals, and that more research was needed regarding which recognition method is most useful in decision making.
Potential options to address feedback, including guidance in other jurisdictions
The Committee received an overview of accounting for contributions in other jurisdictions that have accounting standards specific to NFPOs, including international non-profit accounting guidance, U.S. generally accepted accounting principles (GAAP), and U.K. GAAP. The Committee discussed whether aspects of the guidance in other jurisdictions could be considered to address feedback on the Exposure Draft proposals.
The Committee discussed a variety of potential options to address the feedback on the Exposure Draft, ranging from modifying the presentation and disclosure requirements in the existing proposals, to entirely new approaches for the recognition of restricted contributions. The Committee had mixed views on the potential options and recommended that the AcSB undertake additional outreach activities to seek feedback on the options being considered.
The Committee also received an overview of accounting for contributions in other jurisdictions, including the United States and United Kingdom, that have accounting standards specific to NFPOs, as well as recently issued proposals for international non-profit accounting guidance. The Committee discussed whether aspects of the guidance in other jurisdictions could address feedback on the Exposure Draft proposals.
Next steps
The Committee discussed the impact of the proposed options to address the feedback on the project timeline. The Committee recommended extending the project timeline to allow sufficient time to undertake further research, which includes examining the needs of financial statement users, and to address the feedback.
The AcSB will discuss the Exposure Draft feedback and consider the Committee’s input at its November 2023 Board meeting.
Reporting Controlled and Related Entities
The Not-for-Profit Advisory Committee discussed potential improvements to the existing disclosures in Section 4450, Reporting Controlled and Related Entities by Not-for-Profit Organizations, as part of the AcSB’s project to Research Improvements to Section 4450. Improvements are being considered for the following:
- description of the controlled or related entity;
- disclosures related to the statement of financial position;
- disclosures related to the statement of operations; and
- disclosures of restrictions.
The Committee also provided feedback on potential new disclosure requirements for controlled and related entities. Examples of potential new disclosure requirements include:
- commitments and contingent liabilities;
- changes in control;
- debt and other liabilities; and
- material changes in operations and/or unusual transactions.
In determining next steps for this project, the AcSB will consider the Committee’s feedback at the December 2023 Board meeting.
Scaling the Standards
The Not-for-Profit Advisory Committee received an overview of the feedback on its Consultation Paper I, “Exploring Scalability in Canada,” which closed for comment on July 31, 2023. Committee members discussed specific scaling solutions from a not-for-profit perspective, including the proposals to simplify/implement tiering in Part II and Part III of the CPA Canada Handbook ̶ Accounting and the need for a new framework for smaller entities in the not-for-profit landscape. The Committee discussed the feedback from the Consultation Paper that indicated that the existing Part II and Part III of the Handbook are too complex, with Committee members providing mixed views on this feedback. The Committee also discussed the broad range of organizations in the sector that are subject to audit requirements, including very small NFPOs.
The AcSB will consider the Not-for-Profit Advisory Committee’s feedback at the December 2023 Board meeting together with feedback from the Private Enterprise Advisory Committee and Small Practitioners Working Group in determining next steps on this project.
Amendments in Other Frameworks
The Not-for-Profit Advisory Committee considered recent amendments issued in other jurisdictions to assess whether any of the amendments would provide significant benefit to Canadian NFPOs reporting under Part III of the Handbook. Committee members discussed amendments made to the following frameworks:
- U.S. GAAP issued by the U.S. Financial Accounting Standards Board (FASB);
- Public Benefit Entity Standards issued by the New Zealand External Reporting Board (XRB);
- Australian Accounting Standards issued by the Australian Accounting Standards Board (AASB);
- The Charities Statement of Recommended Practice, which provides guidance for financial reporting by U.K. charities; and
- IFRS® Accounting Standards issued by the International Accounting Standards Board (IASB).
The Committee discussed amendments issued by the FASB, IASB, and AASB relating to disclosure of supplier finance arrangements. The Committee recommended that disclosure of these arrangements is useful when they exist; however, they are not commonly seen in practice by Canadian NFPOs.
The Committee also discussed amendments issued by the IASB relating to the classification and disclosure of non-current liabilities with covenants. It indicated that this disclosure would be addressed in existing standards on subsequent events and/or contingencies, and therefore a similar amendment is not needed.
Finally, the Committee discussed the XRB's amendments relating to disclosure of total fees paid to an entity’s audit or review service provider. The Committee indicated that this information is already being communicated to those charged with governance, and therefore further disclosure in the financial statements is not needed.
The AcSB will consider the Committee’s feedback at the December 2023 Board meeting.
Annual Plan
The Not-for-Profit Advisory Committee discussed potential new projects to assist the AcSB in developing its 2024-2025 Annual Plan. The Committee recommended the Board consider whether certain existing disclosure requirements provide useful information to financial statement users.
The Committee also discussed the potential costs and benefits of adopting a control-based model for the recognition of revenue currently addressed in Section 3400, Revenue in Part II of the Handbook. The Committee discussed that it was unlikely that the costs of moving to a control-based model would be significant for the not-for-profit sector given the nature of their revenue transactions currently within the scope of Section 3400. The Committee also recommended that the AcSB consider how a control-based model would align with the proposals being contemplated in the contributions project.
The AcSB will consider feedback from the Not-for-Profit Advisory Committee and the Private Enterprise Advisory Committee, as well as the results of its Future Domestic Work Plan Consultation survey in December 2023 when it begins developing next year’s annual plan.