October 21, 2024
Not-for-Profit Advisory Committee Meeting Notes – October 21-22, 2024
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.