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:
- recognizing revenue from restricted contributions;
- recognizing revenue from capital asset contributions;
- disclosing endowments;
- recognizing contributed materials and services;
- applying transition relief; and
- proposing an effective date.
The Committee discussed the proposed criteria to determine when contributions are restricted and provided feedback regarding restrictions that are administrative in nature. The Committee discussed the proposed guidance for recognizing revenue from restricted contributions and agreed with the AcSB’s proposals. The Committee also discussed various examples that illustrate how the proposed guidance is to be applied.
The Committee agreed with the AcSB’s tentative decision for capital asset contributions. Specifically, capital asset contributions related to amortizable capital assets would be deferred and recognized as revenue on the same basis as the related amortization expense. Capital asset contributions related to assets that will not be amortized would be recognized as direct increases in net assets.
The Committee also discussed the AcSB’s proposed disclosure requirements related to endowments. Committee members noted that it may be challenging for many organizations to disclose specific information about its endowments, particularly for older endowments, or when an organization has a large number of endowments. Some Committee members thought more general disclosure requirements about the organization’s process for managing endowments and the information available would meet users’ needs.
The Committee agreed that organizations should continue to be provided an accounting policy choice for recognizing contributed materials and services and thought this choice should be applied separately to each type of contributed material or service.
The Committee agreed that the new standard should be applied retrospectively, with some transition relief provided. Specifically, members thought transition relief would be needed for capital asset contributions and endowments that were recognized in full in revenue prior to the beginning of the earliest period presented in the financial statements.
Some Committee members agreed with the proposed effective date of the new standard of January 1, 2026. However others noted that stakeholders may require more time to apply the amendments. The Committee also reviewed the proposed timeline to issue the exposure draft and suggested that the AcSB consider a longer comment period for the exposure draft to ensure stakeholders have adequate time to respond.
The AcSB will consider the Committee’s feedback at its meetings in October and November 2022 as it continues its discussion of the exposure draft proposals. As part of these discussions, the Board will consider the interaction of the tentative decisions for each topic discussed to date, and whether they result in financial reporting that is useful to financial statement users before finalizing the exposure draft proposals. The Board intends to issue the exposure draft in Q1, 2023.
Reporting Controlled and Related Entities
The Not-for-Profit Advisory Committee received an update on the AcSB’s recent discussions on Section 4450, Reporting Controlled and Related Entities by Not-for-Profit Organizations. The Committee provided feedback on applying the definition of control and the application of consolidation principles in practice with the purpose of identifying issues for further research.
Generally, the Committee noted that there can be challenges in applying the current definition of “control”, and that judgment is required when assessing control. Committee members identified limited circumstances in practice where consolidation is applied, noting that more often, controlled organizations are disclosed.
AcSB staff will continue the discussion with the Committee at its next meeting.
Revenue
The Not-for-Profit Advisory Committee received an update on the comments received on the AcSB’s Exposure Draft “Revenue – Upfront Non-refundable Fees or Payments”. This Exposure Draft proposed deferring the effective date of the previously issued amendments for upfront non-refundable fees or payments to periods beginning on or after January 1, 2025.
The Committee then discussed possible alternatives to address the concerns not-for-profit stakeholders raised about the amendments. It considered whether additional illustrative examples, application guidance or an exception to the guidance would result in more decision-useful reporting for entities with upfront, non-refundable membership dues.
The Committee also discussed whether any potential exception to the upfront, non-refundable fees guidance should apply to for-profit entities that have characteristics similar to those of not-for-profit entities with upfront non-refundable membership dues.
The AcSB will consider feedback from the Not-for-Profit Advisory Committee and the Private Enterprise Advisory Committee at the Board meeting in December 2022.
Insurance Contracts with a Cash Surrender Value
The Not-for-Profit Advisory Committee discussed accounting for insurance contracts with cash surrender value given that specific guidance is not provided in Part II of the CPA Canada Handbook – Accounting.
Some Committee members indicated that it is uncommon for not-for-profit organizations to receive contributions of insurance contracts with cash surrender value and that cash surrender value amounts are often not material. They noted that NFPOs may not recognize contributed insurance contracts with a cash surrender value.
The Committee discussed the presentation in the income statement and considered whether the change in cash surrender value should be presented separately from insurance premiums. The Committee also discussed whether contributed premiums should be recognized as contributions revenue.
Some Committee members noted that there is diversity in practice for accounting for insurance contracts and that providing guidance would benefit preparers and users.
The AcSB will consider feedback from the Not-for-Profit Advisory Committee and the Private Enterprise Advisory Committee at the Board meeting in December 2022.
Amendments in Other Frameworks
The Not-for-Profit Advisory Committee considered recent not-for-profit specific 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. generally accepted accounting principles issued by the U.S. Financial Accounting Standards Board (FASB);
- Public Benefit Entity Standards issued by the External Reporting Board in New Zealand;
- Australian Accounting Standards; and
- The “Statement of Recommended Practice – Accounting and Reporting by Charities,” which provides guidance for financial reporting by U.K. charities.
The Committee recommended the AcSB consider amendments to FASB accounting standards update 2022-03 Fair Value Measurement. This update clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.
The AcSB will consider the Committee’s recommendations at the Board meeting in December 2022.
Annual Plan
The Not-for-Profit Advisory Committee discussed topics the AcSB previously identified as future priorities to assist the Board in developing its 2023-2024 Annual Plan. The Committee noted that the topics currently on the Board’s work plan are priority projects to focus on completing at this time.
The Committee also discussed whether there are any application issues in practice relating to new sections or amendments that have been effective for two years or more to assist. This will help the AcSB determine whether a post-implementation review is needed. Considering whether a post-implementation review is needed is part of the Board’s due process. The Committee suggested Section 4441, Collections Held by Not-for-Profit Organizations, as one possible topic for consideration to determine whether the information provided from applying that new Section provides financial statement users with what they need.
The AcSB will consider feedback from the Not-for-Profit Advisory Committee and the Private Enterprise Advisory Committee in December 2022 when it begins developing next year’s annual plan.
Public Sector Accounting Board Update
The Not-for-Profit Advisory Committee received an update from the staff of the Public Sector Accounting Board (PSAB), which included discussion of PSAB’s Government Not-for-Profit Strategy project.
Due Process
The Not-for-Profit Advisory Committee discussed amendments and supported certain changes to its Terms of Reference and Statement of Operating Procedures.
The Committee also discussed the format of meetings for 2023 and prefers a mix of in-person and virtual meetings. The Committee also prefers short but more frequent virtual meetings.