Not-for-Profit Advisory Committee
June 21, 2016
The Not-for-Profit Advisory Committee’s purpose is to advise the Accounting Standards Board (AcSB) on maintaining and improving 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.
Statement of Operating Procedures
Committee members discussed changes the AcSB made to the Committee’s Statement of Operating Procedures including highlighting the importance of the Committee’s input on issues in accounting standards for private enterprises in Part II that may affect NFPOs. Committee members also discussed the AcSB’s decision that Part III should continue to rely on Part II when there are no unique transactions and circumstances for NFPOs. Committee members had no further comments.
Part II Proposals
As part of the Committee’s mandate to monitor changes in Part II that may affect NFPOs, Committee members were provided with a summary of current Part II projects. Committee members discussed proposed changes relating to the following:
(a) redeemable preferred shares issued in a tax planning arrangement
(b) 2017 annual improvements process
(c) subsidiaries and Investments relating to the application of the cost method;
(d) narrow-scope amendments to Section 1591, Subsidiaries, and Section 3056, Interests in Joint Arrangements.
Accounting Standards Improvements for NFPOs
Tangible Capital Assets and Intangible Assets
Committee members discussed decisions the AcSB made at its March 22, 2016 meeting:
- Tangible and intangible assets should be written down to their replacement cost or fair value to reflect partial impairment of the assets.
- Works of art, historical treasures and similar items not part of a collection should continue to be recognized in the same manner as other items (i.e., as capital assets or as inventory type items depending on their intended use).
- An exposure draft will be issued later this year and include proposals for tangible capital assets, intangible assets, works of art, historical treasures, and similar items not part of a collection, and collections.
Committee members noted that the proposal to direct NFPOs to apply Section 3061, Property, Plant and Equipment, requires NFPOs to address the concept of componentization, which is not included in Section 4431, Tangible Capital Assets Held by Not-for-Profit Organizations. Committee members discussed whether requiring NFPOs to consider the guidance on componentization in Section 3061 would cause issues in practice for NFPOs. In discussing the matter, Committee members did not identify any unique characteristics or reasons why NFPOs should be different than other entities and not be required to consider componentization. The Committee agreed to suggest to the AcSB that NFPOs should apply the guidance in Section 3061 on componentization.
Committee members continued their discussion of Section 4440, Collections Held by Not-for-Profit Organizations. They discussed the various approaches in other jurisdictions to account for collections. In many jurisdictions, collections are accounted for the same as other assets. Committee members noted that based on the definition of a collection, a collection has attributes that are different from other assets. For example, collections must be maintained in perpetuity and any proceeds from their sale must be used to acquire other collection items or to care for the existing collection. The Committee thinks that because of the unique nature of collections, they are not the same as other assets (i.e., property, plant and equipment). As a result, collections should not be accounted for in the same manner.
Section 4440 allows, but does not require, the recognition of collections held by NFPOs and, as a result, practice with respect to how collections are measured varies. Committee members discussed whether Section 4440 should be amended to require that all collections held by a NFPO be recognized in the statement of financial position. Committee members considered the outreach done by the AcSB staff of various NFPOs with different types of collections and how they account for them. Some members thought that, at a minimum, requiring an NFPO to recognize its collections at nominal value in the statement of financial position would be helpful since it would highlight the existence of the collection. Currently, it may only be evident in the financial statement notes. Nominal value would also give a collection as much prominence on the statement of financial position as other assets and would accommodate situations when the value of a collection is unknown or difficult to value.
Some Committee members thought that the current requirement of note disclosure is sufficient. However, other members were concerned because there are situations when the existence of a collection would not be readily apparent (for example, at a hospital or a university).
Committee members also discussed the alternative of including a note reference on the statement of financial position similar to a lease commitment note (i.e., Note X: Collections). The Committee agreed that a note reference on the statement of financial position would still highlight the existence of the collection but would not put an arbitrary nominal value on the financial statements. The Committee agreed to suggest to the AcSB that collections should be highlighted by including a note reference on the statement of financial positon.
Committee members discussed whether the choice of recording the collection at cost, or including a note reference, should be an accounting policy choice that would be selected once by an NFPO and applied to all of its collections, versus allowing a different policy choice for each collection. Committee members noted that for most NFPOs, all items are considered part of one collection or they choose the same policy for all their collections. The Committee agreed to suggest to the AcSB that the proposed amendment should be an accounting policy choice that is selected once by an NFPO and applied to all of its collections. Consistent with the proposals for tangible and intangible assets, the Committee agreed to request that the AcSB consider requiring NFPOs to recognize partial impairments of collections to reflect a decline in the value of the collections.
Committee members also discussed the need for guidance if collections are recorded at cost. The Committee agreed that guidance, including a description of what is included in the cost of a collection, would be useful to NFPOs. The Committee agreed to suggest to the AcSB that if collections were to be recorded at cost, guidance for determining cost should be added.
The Committee previously suggested to the AcSB that the proposed amendments be applied prospectively and that simplified transitional provisions may be necessary. Committee members discussed how prospective application of the amendments should be applied. Committee members noted that partial impairments would likely be infrequent and would usually result from redundancies or damage to major assets. The Committee agreed to suggest to the AcSB that a cumulative amount to reflect the changes during the year should be recorded in net assets at the beginning of the year the amendments become effective.
Contributions – Revenue Recognition and Related Matters
Currently, Part III permits NFPOs a free choice to apply one of two different methods of recognizing revenues from contributions. The methods result in recognizing revenue from essentially the same transaction in different accounting periods depending on the method chosen. Users that provide resources have regularly encouraged the AcSB to enhance comparability among NFPOs by adopting a single method of revenue recognition for contributions. Committee members discussed various factors to be considered in a research project on the recognition of revenue from contributions. The Committee agreed to suggest to the AcSB that a research project on the recognition of revenue from contributions should be done following the Accounting Standards Improvements Project.
Committee members discussed the need for a project on how to account for combinations between NFPOs and a project on the measurement of, and other matters pertaining to, related party transactions. Committee members also discussed common related party transactions and some of the related party transaction issues being encountered in practice. For example, common related party transactions include contributions to and from directors and other organizations, and purchases and sales of goods and services between the NFPO and its board members or family members of the board. Some of the issues cited included the difficulty in determining “control” and “significant influence”, and the absence of measurement guidance for related party transactions which creates diversity in practice. Committee members also noted that it would be helpful to consider disclosure objectives for related party transactions rather than a list of specific disclosures. The Committee agreed to request that the AcSB initiate projects on combinations between NFPOs, and related party transactions before the approved Controlled and Related Entities project.