Contributions – Revenue Recognition and Related Matters

The AcSB discussed the status of its Contributions – Revenue Recognition and Related Matters project and provided input on the next steps. As part of this discussion, the Board considered input from its Not-for-Profit Advisory Committee and targeted outreach with 94 interested and affected parties, as well as results from a survey completed by 237 respondents.

The AcSB reaffirmed the project direction to issue a new exposure draft on recognition of restricted contributions and related matters. The Board will continue its discussion on this project at a future meeting.

The Not-for-Profit Advisory Committee discussed proposals to be included in the new exposure draft on recognition of restricted contributions and related matters. The Committee received a summary of the feedback from targeted outreach with 94 interested and affected parties, as well as results from a survey completed by 237 respondents. This input and the Committee’s discussion focused on proposals related to the definitions of a restricted contribution and endowment contribution, the recognition of contribution revenue using the restricted fund method, and the fund accounting presentation requirements.

Definition of “restricted contribution”

The Committee discussed the significant areas of feedback received on the definition of a “restricted contribution”, as well as staff’s proposed revised definition. Committee members provided feedback on proposals to clarify when a restriction has been explicitly communicated and who can impose restrictions on a contribution, including restrictions imposed by third parties or laws and regulations. The Committee also provided feedback on removing time-based restrictions from the definition of a restricted contribution and instead addressing contributions for use in future periods as a separate recognition issue.

Improvements to the restricted fund method of recognizing contributions

The Committee discussed feedback regarding issues with recognition of contributions under the restricted fund method and proposals to address these concerns. Specifically, the Committee discussed eliminating the option to apply the deferral method in the general fund when applying restricted fund method for contributions with purpose restrictions. Some Committee members agreed with requiring immediate recognition of restricted contributions under the restricted fund method (except for contributions designated for use in a future period). Other Committee members thought a hybrid approach, where restricted contributions with certain characteristics would be deferred, would produce more useful information.

Recognition of capital asset contributions

The Committee discussed feedback on recognition of capital asset contributions under the restricted fund method. It provided feedback on presentation of a capital fund and net assets invested in capital assets. The Committee generally agreed that capital asset contributions should be recognized immediately in income when applying the restricted fund method.

Fund accounting presentation

The Committee discussed feedback on a proposal to provide guidance on what funds should be presented on the face of the income statement when applying the deferral method or the restricted fund method of accounting for contributions. Views among Committee members on the extent of guidance that should be provided in this area were mixed.

Definition of an “endowment contribution”

The Committee discussed feedback on the definition of an “endowment contribution”, as well as the AcSB’s tentative decision that the definition of “endowment contribution” should include only contributions that are permanently restricted. The Committee supported the proposed definition and the proposal to require enhanced disclosure requirements on restricted contributions that would not meet the permanency criterion. Committee members had mixed views on the extent of the disclosures an organization should provide.

The Committee also agreed with the AcSB’s tentative decision that assessing permanency is an area of professional judgment and that additional guidance should be provided in the exposure draft to help organizations make this judgment. A few Committee members noted that providing examples in grey-area situations would be most helpful. The Committee discussed the application of the definition of an endowment contribution under several fact patterns.

Committee members expressed mixed views on staff’s proposal to replace the term “endowment” in Part III of the Handbook. The Committee acknowledged that there is confusion around the use of the term “endowment” given its use outside of financial reporting. However, while some Committee members welcomed the clarification that a change in terminology would bring, other members noted that the term is widely used across the sector and would likely continue to be used even if it is removed from Part III of the Handbook.

Finally, the Committee discussed transitional relief with respect to the clarified definition of an endowment contribution. Some Committee members disagreed with staff’s proposal to provide an option not to apply the clarified definition retrospectively to endowment contributions that were recognized before the date the new standard is first applied; however, other members thought staff should continue exploring some form of transitional relief. Committee members who did not support extensive transition relief noted the current definition of an endowment contribution already includes the permanency criterion and it would be hard to justify allowing entities not to correct past errors in assessing whether that criterion was met.

The AcSB will consider input from the Committee and from other outreach activities at future meetings as it continues to develop the new exposure draft.

The AcSB continued discussing proposals to be included in its new exposure draft on recognition of restricted contributions and related matters. As part of this discussion, the Board considered input from its Not-for-Profit Advisory Committee and targeted outreach with 94 interested and affected parties, as well as results from a survey completed by 237 respondents. This input and the Board’s discussion focused on potential areas for improvement in the restricted fund method of recognizing contribution revenue, fund accounting presentation, and the definition of “endowments”.

The Not-for-Profit Advisory Committee continued its discussions on the Contributions project. These discussions reflected the AcSB’s decision in March 2024 to develop a new exposure draft that proposes continuing to allow an accounting policy choice for recognizing contributions and that proposes improvements to both methods. Read the Board’s Feedback Statement for more information on this decision.

The Committee received a summary of feedback on the proposals in the 2023 Exposure Draft, “Contributions – Revenue Recognition and Related Matters,” related to contributed materials and services, as well as pledges.

The Committee provided input on the recognition criteria for contributed materials and services. Committee members discussed to what extent the criteria should limit what contributions can be recognized for organizations with a policy to recognize contributed materials and services. The Committee also discussed recognition of contributed materials that will be resold.

The Committee discussed recognition of pledges and bequests and whether separate guidance on recognition of bequests should be provided. Committee members thought that a clearer link to the definition of an asset could be helpful. The Committee also provided examples of situations where contributions are collected through intermediaries.

The AcSB will consider input from the Committee and from other outreach activities at its meeting in September 2024.

The AcSB continued discussing proposals to be included in its new exposure draft on recognition of restricted contributions and related matters. The Board deliberated the feedback on proposals in its 2023 Exposure Draft, “Contributions – Revenue Recognition and Related Matters,” regarding the definitions of “restricted contributions” and “endowments”. As part of this discussion, the Board considered input from its Not-for-Profit Advisory Committee.

Definition of “restricted contribution”

In response to the feedback that it is unclear when a contribution would meet the criteria of being explicitly communicated, the AcSB tentatively decided to provide additional guidance on the application of professional judgment to determine when a restriction has been explicitly communicated.

The AcSB discussed whether restrictions imposed by related parties or as the result of laws and regulations would be considered external restrictions. The Board tentatively decided that restrictions imposed by a related party would be considered to be an external restriction. The Board also tentatively decided that restrictions imposed as a result of laws and regulations would be considered external restrictions.

The AcSB discussed whether contributions that contain restrictions specifying that the contribution be used within a specific period of time should be included in the definition of “restricted contribution”. The Board tentatively decided that period-of-time restrictions would not result in the contribution being restricted, but that these restrictions would impact the timing of revenue recognition.

The AcSB also tentatively decided that contributions restricted to a specific aspect of an organization’s mandate would meet the definition of “restricted”.

The AcSB will consider these tentative decisions as it continues developing its new exposure draft. This will include interaction of the tentative decisions with other proposed requirements and the nature and extent of illustrative examples and other guidance to accompany the proposed requirements.

Definition of “endowment contribution”

The AcSB also discussed whether the definition of “endowment” should include only contributions that must be maintained permanently. The Board directed staff to conduct additional research to determine the prevalence and existing accounting treatment of contributions that are required to be maintained permanently and those that are not permanent but may be similar, such as those with long-term restrictions.

The AcSB will seek feedback through targeted outreach with interested and affected parties and through consultation with its Not-for-Profit Advisory Committee. The Board will continue its discussion on this topic at a later meeting.

Revised project proposal

The AcSB discussed and approved a revised project proposal to develop a new exposure draft that will continue to allow an accounting policy choice for the recognition of restricted contributions and propose improvements to the two existing methods. This new exposure draft will also incorporate relevant proposals and feedback from the first Exposure Draft , “Contributions – Revenue Recognition and Related Matters,” published in 2023.

The AcSB decided not to issue a consultation paper before developing the new exposure draft. Instead, the Board will seek input from interested and affected parties through surveys, outreach activities, and field testing while developing the new exposure draft.

The AcSB will continue discussing the proposals to be included in the new exposure draft at its June 2024 meeting.

Contributed materials and services, and pledges

The AcSB continued deliberating the feedback on relevant proposals in its 2023 Exposure Draft. The Board also discussed input from its Not-for-Profit Advisory Committee. The Board’s discussion focused on recognition of contributed materials and services, and pledges.

In response to the feedback received, the Board tentatively decided to retain the proposals from the previous Exposure Draft to require recognition of receivables when the recognition criteria are met for each individual pledge or bequest. The Board also considered whether to provide illustrative examples for bequests and contributions received through an intermediary. The Board will continue its discussions of illustrative examples at a future meeting.

The AcSB also discussed the proposed recognition criteria for contributed materials and services, as well as the feedback received on these criteria. The Board directed staff to conduct additional research to determine if the proposed recognition criteria would meet the needs of the not-for-profit sector.

The AcSB will seek feedback from its Not-for-Profit Advisory Committee at its July 2024 meeting.

The Not-for-Profit Advisory Committee continued its discussions on the Contributions project. These discussions reflected the AcSB’s decision in March 2024 to develop a new exposure draft proposing to continue allowing an accounting policy choice for recognizing contributions and propose improvements to both methods. Read the Board’s Feedback Statement for more information on this decision.

The Committee provided input on:

• feedback on the proposals in the previous Exposure Draft, “Contributions – Revenue Recognition and Related Matters,” regarding the definitions of “restricted contributions” and “endowment contributions”;
• the project proposal for the future direction of this project, including the scope, risks, and timeline; and
• issues in practice with the current restricted fund method for contribution recognition and potential solutions to address the issues.

Definition of “restricted contribution” and “endowment contribution”

The Committee discussed the significant areas of feedback on the definition of “restricted contributions”. Committee members thought it would be helpful for the AcSB to include some examples and/or additional guidance to address specific aspects of the definition, such as determining when a restriction is “explicitly communicated” or for a “designated purpose”. The Committee also recommended that the definition of a “restricted contribution” be expanded to explicitly include contributions from related parties, and restrictions imposed by third parties (including restrictions imposed by laws and regulations), and not just restrictions imposed by the contributor.

The Committee discussed concerns respondents raised about contributions related to a “designated period of time” that are for general operations. Committee members thought one approach could be to provide an exception under the restricted fund method that would require deferral of contributions with restrictions related to future periods, instead of immediate recognition in a restricted fund.

The Committee also discussed significant feedback received on the definition of an “endowment contribution”. Most Committee members supported a narrower definition of “endowment contributions”, whereby only contributions that must be maintained permanently would be considered an endowment. The Committee recommended the Board consider whether organizations would account for contributions that are similar to endowments but do not meet the definition, such as those with long-term restrictions, as general restricted contributions or whether specific guidance is needed.

Project proposal

The Committee provided input on the proposed plan direction of the project. The Committee recommended that the AcSB take its time to work closely with the sector to understand the existing issues in practice and develop relevant proposals.

Problems with the restricted fund method, and potential solutions

The Committee discussed issues with the current restricted fund method and potential solutions to address these issues.

The Committee discussed the current requirement that restricted contributions are recognized in the general fund in accordance with the deferral method when no corresponding restricted fund exists. The Committee indicated that the current requirement results in diversity as organizations have discretion over the restricted funds presented. However, the Committee indicated that in some cases deferring restricted contributions under the restricted fund method may provide more useful information, such as for contributions restricted to a future period or with a measurable performance obligation.

The Committee discussed whether providing clear guidance on the funds to be presented when applying the restricted fund method would result in financial statements that are less complex and more useful. The Committee indicated that allowing discretion in determining what funds to report allows NFPOs to present financial statements in a way that is useful and understandable to their financial statement users. The Committee also noted that endowment contributions should be presented in a separate fund on the face of the statement of operations when applying the restricted fund method, given they cannot be spent like other restricted contributions.

The Committee encouraged the AcSB to perform additional research with financial statement users and preparers to identify potential areas for improvement in the restricted fund method. The Board will consider the Committee’s input on these topics, as well as input from additional research, in future meetings.

The AcSB discussed a draft of its feedback statement regarding the Board’s Exposure Draft, “Contributions – Revenue Recognition and Related Matters.” The feedback statement summarizes the views heard on the Exposure Draft proposals and additional outreach activities. It also explains why the Board decided to continue to allow an accounting policy choice for the recognition of contributions and develop a new exposure draft that will propose improvements to both existing recognition methods. The feedback-statement document will be published in May 2024. The AcSB will continue discussing the project at its May 2024 meeting.

The AcSB continued deliberating the feedback on its Exposure Draft, “Contributions – Revenue Recognition and Related Matters.” The Board also discussed input from its Not-for-Profit Advisory Committee and from targeted outreach activities completed in January and February 2024 on potential options to address the feedback, and next steps for the project.

The potential options the AcSB considered to address the Exposure Draft feedback included:

• a revised recognition model that proposed new criteria for recognition of restricted contributions; and
• a recognition model consistent with the Exposure Draft proposals but with additional presentation or disclosure requirements.

Outreach participants agreed that presentation and disclosure alone do not adequately address the concerns raised in the Exposure Draft. Views were mixed on the revised recognition model ; some preferred it to what was proposed in the Exposure Draft, but others thought their current recognition model results in more decision-useful information.

Many Committee members and outreach participants saw merit in a single recognition model that could enhance comparability across the sector. However, most respondents indicated that comparability is more important within subsectors than across the entire not-for-profit sector. Participants also expressed concerns about the cost of moving to a single recognition model. Financial statement users indicated that a single recognition model would be helpful; however, they do not experience any significant challenges comparing financial statements prepared under the two existing recognition methods, provided there is adequate disclosure.

The AcSB considered the feedback on the Exposure Draft, as well as the input from additional outreach, and concluded that a single recognition model may not meet the diverse needs of the not-for-profit sector. Furthermore, considering the feedback from financial statement users, the benefits of moving to a single recognition model would likely not exceed the costs to develop, implement, and apply one model. Therefore, the Board decided to continue to allow an accounting policy choice for the recognition of contributions.

The AcSB will develop a new exposure draft that proposes improvements to the two existing methods for recognizing restricted contributions. This new exposure draft will incorporate the relevant proposals from the first Exposure Draft, and the feedback received, including topics such as definitions, recognition of restricted contributions using the deferral method, disclosure, and presentation. The project’s objective, moving forward, is to improve the quality and understandability of not-for-profit financial statements through improved consistency in application of the standards.

The AcSB plans to issue a feedback statement in May 2024, summarizing the views on the Exposure Draft proposals and additional outreach activities and providing an overview of the proposed direction and next steps. The Board will continue discussing the project at its May 2024 meeting.

Reporting Controlled and Related Entities

The AcSB discussed feedback from its Not-for-Profit Advisory Committee on improvements to the current disclosures and proposed additional disclosures in Section 4450, Reporting Controlled and Related Entities by Not-for-Profit Organizations in Part III of the Handbook. The Board also discussed proposed next steps to develop illustrative examples to support the application of definitions in Section 4450. These steps include forming a small focus group of experts who will help to provide a better understanding of the diverse scenarios encountered in practice.

The AcSB then approved a project proposal to:

• amend Section 4450 to improve the disclosures related to controlled and related entities;
• introduce illustrative examples to assist in the application of the definitions of control, significant influence, and economic interests in not-for-profit organizations in Section 4450; and
• revisit the current definitions of control, significant influence, and economic interests held in not-for-profit organizations, if necessary, based on any relevant learnings gained from the development of illustrative examples.

The Not-for-Profit Advisory Committee continued discussing the feedback on the AcSB’s Exposure Draft, “Contributions – Revenue Recognition and Related Matters.” The Committee received an update on targeted outreach activities on a narrowed set of options to address feedback on the proposed approach for recognition of restricted contributions. The Committee discussed refinements to those options to address the feedback heard to date, and next steps for this project, including further outreach on the narrowed set of options.

The Committee also commenced discussions on the Exposure Draft feedback related to the accounting for contributed materials and services. Committee members provided input on potential changes to the proposed criteria for recognition of contributed materials and services. Discussions on this topic will continue at a future Committee meeting.

The AcSB will discuss the Committee’s feedback, the results of additional outreach and will continue deliberating the feedback on the Exposure Draft’s proposals at its March 2024 Board meeting.

The AcSB continued deliberating the feedback on its Exposure Draft, “Contributions - Revenue Recognition and Related Matters.”

The AcSB discussed feedback from its Not-for-Profit Advisory Committee and from targeted outreach activities on a narrowed set of options to address the Exposure Draft feedback on the proposed approach for recognition of restricted contributions. The Board directed staff to continue to refine these options and to conduct additional outreach activities to determine if these options would meet the needs of the not-for-profit sector.

The AcSB will seek feedback from its Not-for-Profit Advisory Committee at its February 2024 meeting. The Board will discuss the Committee’s feedback, the results of additional outreach and will continue deliberating the feedback on the Exposure Draft's proposals at its March 2024 meeting.

The Not-for-Profit Advisory Committee received an update on the AcSB’s deliberations of feedback on the Exposure Draft, “Contributions – Revenue Recognition and Related Matters.” The Committee also discussed the Board’s tentative decisions regarding the project’s timeline, purpose, and next steps. The Committee supported the Board’s approach to defer the project’s timeline, allowing time for more outreach and consultation with the not-for-profit sector on the best path forward.

The Committee discussed a narrowed set of options to address the Exposure Draft feedback on the proposed approach for recognition of restricted contributions. Committee members discussed recognition and presentation of contributions under two proposed options and considered several illustrative examples. The Committee had mixed views on the potential options and recommended that the AcSB seek additional feedback through outreach with a range of relevant parties in the NFPO sector.

When it meets in January 2024, the AcSB will consider the Committee’s feedback and the results from preliminary outreach activities.

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.

The AcSB discussed preliminary feedback from outreach activities on the Exposure Draft, “Contributions – Revenue Recognition and Related Matters,” which closed for comment on September 30, 2023. The Board will redeliberate a complete analysis of all feedback on the Exposure Draft starting at its November 2023 meeting. As part of this redeliberation, the Board will consider the next steps and timeline for this project.

The Not-for-Profit Committee received an update on the preliminary feedback received to date on the AcSB’s Exposure Draft, “Contributions – Revenue Recognition and Related Matters.” Specifically, the Committee discussed significant feedback in three main areas:

• definition of a restricted contribution;
• recognition of revenue from restricted contribution; and
• accounting for endowment contributions.

Definition of a restricted contribution

Preliminary feedback on the Exposure Draft has raised practical application issues regarding:

• the definition of a restricted contribution, including whether restrictions could be communicated verbally;
• restrictions imposed by legislation or other third parties; and
• restricted contributions from related parties or entities under common control.

Many Committee members shared concerns with restrictions that are communicated verbally, highlighting issues with auditability of verbal agreements. For restrictions from legislation or made with other third parties, the Committee thought the definition of a restricted contribution should be expanded to include relevant restrictions from other parties and not just the contributor. The Committee also noted that further research may be needed to better understand restrictions from parties other than the contributor. Regarding contributions from related parties or those under comment control, Committee members suggested that disclosure requirements should be used to ensure financial statements users have sufficient information about the extent and nature of related party contributions.

Recognition of revenue from restricted contributions

The AcSB has heard from many roundtable participants concerns regarding the requirement to defer recognition of restricted contributions until the restrictions have been fulfilled. This feedback has specifically been raised by those from fundraising organizations such as community and other foundations. This feedback highlighted two underlying issues:

• It will be onerous and costly to track the information required to determine when restricted contributions would be deferred and when they would be recognized in revenue for organizations that are not required to do so currently.
• The resulting financial statement information under this recognition approach will not produce useful information for financial statement users, who expect contribution revenue to represent fundraising totals for the period. The proposed approach may also have a negative impact on certain key fundraising ratios, if unadjusted.

Regarding the first issue, Committee members indicated that organizations should have the information readily available to determine the amount of restricted contributions to be deferred and recognized in each financial reporting period, because organizations should already be tracking this information to ensure contributor requirements are fulfilled. Further, many organizations would already have been doing the necessary calculations when they determine the expenses in each fund for a given period.

On the second issue, Committee members provided suggestions on how presentation and disclosure could be used to mitigate the concerns regarding the usefulness of financial statement information. One suggestion was that organizations could show a reconciliation on the statement of operations of total contributions received during the period to revenue recognized. A Committee member who uses financial statements indicated that deferral accounting is typically adjusted to a restricted fund method- basis for calculating key ratios. The Committee indicated that the AcSB should consider whether any issues will arise with respect to reporting revenues to the Canadian Revenue Agency as a result of the proposed changes to recognizing revenue from restricted contributions.

Accounting for endowment contributions

Similar to the feedback on the recognition of restricted contributions, the AcSB has also heard from fundraising organizations, such as community and other foundations, about the usefulness of the underlying financial statements under the proposed recognition guidance for endowments. They indicated that financial statement users would expect contribution revenue to include endowment contributions received during the period. Further, it was noted that excluding these contributions from revenue could have a negative impact on unadjusted fundraising ratios.

The AcSB also heard concerns regarding the proposed clarifications to the definition of an endowment. Respondents indicated that the clarifications may require some organizations to reconsider whether arrangements previously classified as endowments would meet the proposed clarified definition. However, in some cases documentation may not be available for certain transactions (especially for contributions received many years ago).

The Committee discussed whether additional transition relief is required for endowments to address this concern. Committee members highlighted the importance of organizations accurately reflecting the nature of contributions, including ensuring amounts that are internally endowed are separately presented from external endowments. Accordingly, Committee members were generally not in support of providing transition relief in this area. Instead, some suggested that organizations may need to use their best effort and judgment to determine how historical amounts should be classified in light of the proposed clarifications.

In September 2023, the AcSB will discuss the preliminary feedback received, as well as input from the Committee. These topics capture only a portion of the feedback heard to date. A complete analysis of all feedback will be discussed by the Committee and redeliberated by the AcSB starting in November 2023, following the end of the comment period.

The Exposure Draft remains open for comment until September 30, 2023. The Committee and the AcSB encourage interested and affected parties to submit their feedback by participating in a virtual or in-person roundtable, completing a survey(s) or submitting a written response.

The AcSB discussed and approved an outreach and communications plan for the exposure draft on recognition of contributions and related matters. The Board plans to issue the exposure draft at the end of March 2023.

The Not-for-Profit Advisory Committee received an update on the AcSB’s recent decisions in response to feedback received from the Committee’s fatal flaw review of exposure draft proposals. The Committee recommended wording clarifications to the proposed requirement to disclose information about the availability of an organization’s financial and other assets to meet its requirements related to restricted contributions.

The Committee also provided input on the communications and outreach plan for the exposure draft. The AcSB will consider the Committee’s feedback on the communications and outreach plan at its meeting on February 15, 2023. The Board plans to issue the Contributions exposure draft in March 2023.

The AcSB discussed the results of a fatal flaw review of the exposure draft completed by members of its Not-for-Profit Advisory Committee and provided feedback on a revised draft. The Board discussed some wording changes to clarify:

• that an external restriction must be explicitly communicated between the contributor and the organization before or at the time the contribution is made;
• that the recognition guidance should be applied to each individual pledge for the recognition of pledges; and
• the proposed disclosure requirement related to availability of financial assets to meet an organization’s requirements related to restricted contributions.

The AcSB gave permission to begin the balloting process. The Board will discuss an outreach and communications plan for the exposure draft at its meeting in February 2023 and plans to issue the exposure draft in March 2023.

The AcSB discussed the results of field-testing draft proposals relating to the recognition of revenue from contributions. Generally, respondents reached the conclusions that the Board expected when developing the field-testing scenarios. However, the Board discussed some changes to clarify the proposed guidance based on the results. The Board also discussed illustrative examples to be included in the exposure draft, taking into consideration comments received from field-testing participants.

The AcSB discussed a revised draft of the exposure draft, including the basis for conclusions and proposals related to:

• presentation and disclosure of contribution revenue;
• definition, presentation, and disclosure of net investment income;
• definition and disclosure of endowments;
• presentation of net assets; and
• disclosure of restricted cash.

The AcSB will discuss the revised draft of the exposure draft at its January 2023 meeting. The Board will also consider the results of a fatal flaw review of the exposure draft to be completed by its Not-for-Profit Advisory Committee. The Board plans to issue the exposure draft in March 2023.  

The AcSB continued discussing exposure draft proposals and considered feedback from the Not-for-Profit Advisory Committee related to:

• recognition of revenue from restricted contributions and capital asset contributions;
• disclosure of endowments;
• recognition of contributed materials and services;
• transition; and
• the effective date.

The AcSB discussed the revised proposed criteria for determining whether a contribution is externally restricted. The Board tentatively decided that for a contribution to be externally restricted, the restriction must:

• be explicitly communicated between the organization and the contributor; and
• require the resources be used for a designated purpose and/or used within a designated period of time.

The AcSB reaffirmed its tentative decision that capital asset contributions should be accounted for differently than other types of contributions. To address stakeholder concerns related to volatility in the statement of operations, the Board tentatively decided that 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 AcSB discussed the proposed disclosure requirements relating to endowments. To add transparency to the financial statements, the Board tentatively decided that an organization should disclose:

• qualitative information about how the organization monitors the value of its endowments and compliance with the related endowment agreements; and
• information that allows users to understand, on an aggregate basis, the extent of endowments where the fair market value is less than the amount required to be maintained permanently.

The AcSB discussed the recognition of contributed materials and services. The Board tentatively decided that when an organization elects to recognize contributed materials and services if the recognition criteria are met, the policy should be applied consistently to all types of contributed materials and services.

The AcSB tentatively decided that the new standard should be applied retrospectively, with transition relief provided for capital asset contributions that were fully recognized in revenue prior to the beginning of the earliest period presented in the financial statements.

The AcSB also discussed the effective date of the new standard and recognized that stakeholders will require adequate time to adopt the new standard. Based on the current timeline, the Board tentatively decided that the proposed effective date of the new standard would be January 1, 2026, with earlier application permitted.

The AcSB will continue discussing the exposure draft proposals at its November meeting. The Board plans to issue an exposure draft in the first quarter of 2023.

The AcSB continued discussing the exposure draft proposals related to the recognition of revenue for restricted contributions, capital asset contributions, endowments, and contributed materials and services.

The AcSB discussed the criteria for determining whether a contribution is externally restricted. The Board reached the preliminary view that a contribution is externally restricted when the resources are designated for a specific purpose or period and this is explicitly communicated between the organization and the contributor.

The AcSB also discussed the recognition of capital contributions and whether they should be accounted for differently than other types of restricted contributions. To address stakeholder concerns related to volatility in the statement of operations, the Board considered whether deferring and amortizing capital contributions into income over the useful life of the asset would result in decision-useful information for financial statement users.

The AcSB reaffirmed its tentative decision that endowment contributions should be recognized as direct increases in net assets in the period in which an organization is entitled to the contribution. For contributions with external restrictions requiring that the resources be maintained for a specific period, the Board reached the tentative decision that they should be accounted for like other restricted contributions. This is because the organization is not required to hold these contributions permanently and typically, they can be used once the term lapses. The Board also discussed disclosure requirements for endowments.

The AcSB discussed the criteria to be met for organizations that choose to recognize contributed materials and services. The Board reaffirmed that an organization may choose to recognize contributed materials and services when the fair value can be reasonably estimated, they are used in the normal course of the organization’s operations, and they would have otherwise been purchased to fulfil the organization’s mandate.

When the Not-for-Profit Advisory Committee meets in October 2022, it will discuss and provide input on these topics and the draft proposals. When the AcSB meets in October 2022, it will consider the Committee’s input and continue discussing the exposure draft proposals. The Board plans to issue an exposure draft in the first quarter of 2023.

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.

The AcSB continued discussing the exposure draft proposals related to the recognition of revenue for restricted contributions and capital asset contributions.

The AcSB discussed the proposed guidance for determining whether a contribution is externally restricted. The Board reached a preliminary decision that for a contribution to be externally restricted, the restriction must be:

• explicitly communicated by the contributor;
• sufficiently specific in directing the organization how the resources must be used, beyond being used for the organization’s general mandate; and
• substantive.

The AcSB discussed factors that would indicate a restriction is substantive, including scenarios where a significant constructive obligation would indicate a restriction in substantive.

With respect to the recognition of revenue from restricted contributions, the AcSB reached a preliminary decision that an externally restricted contribution should be deferred and subsequently recognized in revenue when the substantive external restrictions are met.

The AcSB reaffirmed its tentative decision from its May 2022 meeting that capital asset contributions should be accounted for consistently with other types of restricted contributions. Therefore, a capital asset contribution should be deferred when there is a substantive external restriction on the use of the asset. For example, a contributed capital asset with an external requirement to use that asset in line with the general mandate of the organization would not be deferred because the requirement is not sufficiently specific and, therefore, is not considered externally restricted.

The AcSB will continue discussing the exposure draft proposals at its September 2022 meeting. The Board plans to issue an exposure draft in the first quarter of 2023. 

The AcSB discussed exposure draft proposals relating to endowments; contributed materials and services; pledges; and bequests and reached the following preliminary views:

• Permanent endowment contributions should be recognized as direct increases in net assets in the period in which the organization is entitled to the contribution as they represent resources that the organization will never be able to access or use for their own benefit.
• Organizations should continue to have the option to recognize contributed materials and services when specific criteria are met.
• Pledges and bequests should not be recognized until the contributed assets are received since an organization cannot control access to the benefit of these contributions until that point.

These preliminary views are subject to discussion with the Not-for-Profit Advisory Committee and further consideration by the AcSB as other aspects of an exposure draft are developed.

The AcSB also discussed fund accounting, presentation of net assets, and disclosure of restricted cash. The Board considered how presentation and disclosure requirements can complement the proposed approach for accounting for contributions and improve the relevance of financial statements prepared in accordance with Part III of the CPA Canada Handbook – Accounting.

The Not-for-Profit Advisory Committee will discuss and provide input on these proposals at its July 2022 meeting. The AcSB will continue discussing exposure draft proposals at its July 2022 meeting. The Board plans to issue an exposure draft in the first quarter of 2023. 

The AcSB discussed the exposure draft proposals and considered input from its Not-for-Profit Advisory Committee relating to the scope of a new standard; definitions of key terms; and revenue recognition for unrestricted contributions, restricted contributions, and capital asset contributions.

Considering the Committee’s feedback, the AcSB discussed the specific factors to include in the guidance for determining whether a contribution is externally restricted and when to recognize revenue from restricted contributions. The Board considered the current definition of a liability in Section 1001, Financial Statement Concepts for Not-for-Profit Organizations, and how it interacts with the draft proposals.

With regard to capital asset contributions, the AcSB discussed options for determining when to recognize revenue, and tentatively decided that they should be accounted for consistently with other types of restricted contributions.

The AcSB will continue discussing the exposure draft proposals at its June 2022 meeting. The Board plans to issue an exposure draft in the first quarter of 2023. 

The Not-for-Profit Advisory Committee was provided with an update on the AcSB’s decision to develop an exposure draft to improve the guidance on accounting for contributions and related topics. The Committee also discussed draft proposals for:

• the scope of the new standard;
• definitions of key terms; and
• recognition of revenue from unrestricted contributions, restricted contributions, and capital asset contributions.

The Committee commented on the proposed definitions of key terms and the proposals for recognizing revenue from contributions. The Committee discussed which types (time or purpose) of requirements associated with a restricted contribution would be viewed as substantive and, therefore, should be considered when determining when to recognize revenue. The Committee advised that refundability may not be a relevant consideration for all types of contributions as charitable donations cannot be refunded in Canada. The Committee agreed that administrative requirements, such as an audit requirement, would not be considered substantive for determining when to recognize revenue.

With regard to capital asset contributions, some Committee members preferred an approach that allows deferral of the contribution over the useful life of the asset. Other Committee members preferred an approach that recognizes capital asset contributions in a manner that is consistent with accounting for other types of restricted contributions.

The AcSB will consider the Committee’s feedback at its meeting on May 18, 2022.

The AcSB approved a project proposal to develop an exposure draft to improve the guidance on accounting for contributions and related topics. The exposure draft will be based on the proposed approach explored in the Consultation Paper, “Contributions – Revenue Recognition and Related Matters,” recognizing revenue from contributions based on the type of contribution and its characteristics.

The AcSB discussed the project timeline and will continue the discussion at its May 2022 meeting. The Board plans to issue an exposure draft in the first quarter of 2023.

The AcSB finished discussing stakeholders’ feedback on the Consultation Paper, “Contributions – Revenue Recognition and Related Matters.” The Board considered feedback from stakeholders and from its Not-for-Profit Advisory Committee on the topic of special types of contributions, including capital asset contributions, endowments, contributed materials and services, and bequests.

The Consultation Paper included the following topics:

• pledges;
• capital asset recognition exemption;
• recognition of revenue from contributions;
• fund accounting;
• presentation of net assets;
• disclosure of restricted cash; and
• special types of contributions.

The AcSB also discussed next steps for the project. Based on the feedback, the Board decided to move forward with a project that explores the approach proposed in the Consultation Paper that recognizes revenue from contributions based on the type of contribution and its characteristics. The Board will discuss a project proposal for developing an exposure draft at its meeting in March 2022.

The Not-for-Profit Advisory Committee discussed the stakeholder feedback received on the Consultation Paper, “Contributions – Revenue Recognition and Related Matters,” about special types of contributions, including contributed materials and services, contributed capital assets, endowments, and bequests.

With regards to contributed materials and services, the Committee advised the AcSB that NFPOs should continue to be given a choice whether to recognize these items when the recognition criteria are met. With respect to the criteria, the Committee observed that the criterion related to whether the contributed materials and services would have otherwise been purchased can be subjective. The Committee advised the Board to reconsider this criterion. 

The Committee supported capital assets contributions with similar characteristics being accounted for the same. However, the Committee had mixed feedback on what recognition method provided the most useful information.

With regard to endowments and bequests, the Committee noted that the current guidance on the definition of endowments is clear. However, there is diversity in practice regarding how this guidance is applied. The Committee thought additional application guidance such as illustrative examples could help to address this diversity. Similarly, the Committee thought that the guidance on how to recognize endowment income is clear. However, the Committee advised the AcSB that providing illustrative examples or other application guidance on endowment income would be challenging given the complexity and diversity in the terms of the underlying endowment agreements.

The AcSB will consider the Committee’s comments at the Board meeting on December 6-7, 2021.

The AcSB continued to discuss stakeholders’ feedback received on the Consultation Paper, “Contributions – Revenue Recognition and Related Matters.” The Board considered feedback from comment letters and roundtables on the topic of special types of contributions, including capital asset contributions, endowments and contributed materials and services.

The Not-for-Profit Advisory Committee will discuss the topic of special types of contributions at its meeting in October 2021, and the Board will consider this feedback at its meeting in November 2021.

The AcSB continued to discuss stakeholders’ feedback received on the Consultation Paper, “Contributions – Revenue Recognition and Related Matters.” The Board considered feedback from comment letters, roundtables, and the Not-for-Profit Advisory Committee on the topics of recognition of revenue from contributions, presentation, and disclosure.

The AcSB plans to discuss the topic of special types of contributions at its meeting in September 2021. The Not-for-Profit Advisory Committee will discuss this topic at its meeting in October 2021 and the Board will consider this feedback at its meeting in November 2021.

The Committee discussed the stakeholder feedback received on the Consultation Paper, “Contributions – Revenue Recognition and Related Matters,” about revenue recognition and fund accounting presentation.

With regards to revenue recognition, the Committee advised the AcSB:

• further guidance in the standard and illustrative examples would help clarify whether a contribution is externally restricted; and
• when determining when to recognize a contribution as revenue, the characteristics identified in the Consultation Paper are relevant.

With regards to fund accounting presentation, the Committee advised the AcSB that further guidance in the standard would help clarify when and how to apply fund accounting presentation.

The AcSB will consider the Committee’s comments at the Board meeting on July 21-22, 2021.

The AcSB continued to discuss stakeholders’ feedback received on the Consultation Paper, “Contributions – Revenue Recognition and Related Matters.” The Board considered feedback from comment letters and roundtables on the topic of recognition of revenue from contributions. The Not-for-Profit Advisory Committee will discuss this topic at its meeting in June 2021 and the Board will consider this feedback at its meeting in July 2021.

The AcSB will continue to discuss the feedback on the remaining topics of the Consultation Paper over a series of meetings. The Board plans to discuss the topic of special types of contributions at its meeting in July 2021.

The AcSB began discussing stakeholders’ feedback on the Consultation Paper, “Contributions – Revenue Recognition and Related Matters.” The Board considered feedback from comment letters, roundtables, and the Not-for-Profit Advisory Committee on the topic of asset recognition, which includes pledges and the capital asset recognition exemption.

The AcSB will continue to discuss the feedback on the Consultation Paper over a series of meetings. The Board plans to discuss the topics of recognition of revenue from contributions and special types of contributions at its meeting in May 2021.

The Committee received an update on stakeholder feedback received on the Consultation Paper, “Contributions – Revenue Recognition and Related Matters.” The Committee discussed feedback from the Consultation Paper on the topic of asset recognition, including pledges and the capital asset recognition exemption.

Regarding pledges, the Committee advised the AcSB:

• Most NFPOs are not currently recognizing pledges. The ones that do have a history of collection and can estimate a provision for uncollectable amounts;
• The nature of the pledge may affect whether it is recognized as an asset; and
• Disclosure of additional information related to pledges may be useful to users; however, this information could be provided in documents other than the annual financial statements.

Regarding the capital asset recognition exemption, the Committee advised the Board:

• Removing the capital asset recognition exemption would have disproportionately negative impacts on smaller NFPOs;
• If the capital asset recognition exemption is retained, the information that is required to be disclosed about capital assets is sufficient;
• If the capital asset recognition exemption is retained, it should be based on revenue, but the current threshold should be adjusted for inflation; and
• A simplified transitional provision would be helpful for organizations that previously applied the exemption and are recognizing assets for the first time.

The AcSB will consider the Committee’s comments at the Board meeting on March 23-24, 2021.

The AcSB approved the revised plan for obtaining feedback on the Consultation Paper issued on May 19, 2020. The planned outreach activities include virtual roundtables and targeted consultation that will take place throughout the comment period ending on December 15, 2020. The Board will monitor stakeholders’ ability to participate in the planned outreach activities and adjust the plan if necessary.

The AcSB discussed the comment period and the outreach plan for the Consultation Paper, “Contributions – Revenue Recognition and Related Matters.”

The AcSB decided to issue the Consultation Paper with an extended comment-period deadline of December 15, 2020, to allow stakeholders more time to respond in light of the COVID-19 pandemic. The Consultation Paper was issued on May 19, 2020.

The AcSB also discussed the outreach activities planned for obtaining feedback on the Consultation Paper and directed staff to revisit the timing of these outreach events. The Board decided that all outreach activities will be done virtually because of the COVID-19 pandemic.

The AcSB will proceed with issuing its Consultation Paper in May 2020. To give stakeholders more time to respond, the Board decided to extend the comment period . The Board will assess the comment period at its May meeting, reflecting on the importance of stakeholders’ ability to provide their feedback and moving the project forward.

The AcSB approved a plan to consult its stakeholders on the upcoming consultation paper, which it expects to issue in May 2020. The Board will undertake extensive outreach with key industry groups and stakeholders throughout the comment period, which will end in September 2020.

The AcSB considered the feedback from the Not-for-Profit Advisory Committee’s fatal-flaw review of the consultation paper. The discussion focused on the more significant comments raised relating to:

• examples of unrestricted contributions;
• characteristics of restricted contributions;
• recognition of contributed materials and services; and
• the definition of an endowment.

The discussion also included AcSB members’ general comments on the latest draft of the consultation paper. The Board approved the issuance of the consultation paper, subject to final drafting changes and a written ballot.

Based on stakeholder feedback that a comment period deadline in July 2020 is not preferred, the AcSB decided at its September 17-18, 2019, meeting to delay the issuance of the consultation paper. Therefore, it plans to issue the consultation paper in May 2020,with comments due in September 2020.

The AcSB continued its discussion on the consultation paper, including the illustrative examples to be included related to the recognition of revenue from contributions. The Board considered the feedback received from its Not-for-Profit Advisory Committee on the consultation paper, including the timeline for this project. The Committee noted that a comment period deadline in July 2020 is not preferred. Based on the Committee’s feedback, the Board plans to issue the consultation paper in May 2020 with a 120-day comment period.

Contributions

The Committee provided feedback to staff on a draft of the consultation paper, including the illustrative examples related to the recognition of restricted contributions. The Committee also provided input on this project’s timeline for the AcSB’s consideration at its September 2019 meeting. The Board plans to issue the consultation paper in March 2020.

The AcSB continued its discussion on the consultation paper, including the nature of illustrative examples to be included related to the recognition of restricted contributions. The Board also discussed how financial statement concepts are used by not-for-profit organizations when accounting for contributions, including the input to be sought in the consultation paper regarding financial statement concepts.

The AcSB continued discussing the topics that will be included in a consultation paper. The Board considered its Not-for-Profit Advisory Committee’s feedback and other research conducted to date. It discussed the questions it will ask stakeholders in the consultation paper for the following topics:

• contributed materials and services;
• size exemption from the recognition of capital assets;
• restricted contributions;
• presentation of net assets and restricted cash; and
• other presentation issues.

The AcSB also discussed the proposed content for the following topics in a consultation paper:

• the reason for the project;
• capital contributions;
• endowments;
• pledges; and
• bequests.

The AcSB considered the proposed project timeline and will continue its discussions at its June 2019 meeting.