Not-for-Profit Advisory Committee
July 11, 2017
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 – Revenue Recognition and Related Matters
The Committee discussed the accounting for pledges, bequests, endowments and capital contributions and the issues in practice when accounting for these items. For example, the Committee noted the inconsistent accounting for the income subsequently earned on endowments. The Committee also provided input on what financial statement information relating to those items users find useful when making financial decisions about an organization.
The Committee also received an overview of the additional research and outreach that the Board will be conducting. This outreach includes consulting with users of NFPO financial statements on what information is useful to them in making decisions about contributions, such as resource allocation decisions (e.g. deciding whether to provide a grant) and for assessing stewardship (e.g. evaluating how management is using the funds). The Committee provided input on the method of consultation and the types of questions to ask in order to better understand what information users need to make contribution decisions and how users use that information.
Accounting Standards Improvements for NFPOs
The Committee discussed a summary of the feedback obtained on each question in the Exposure Draft, “Accounting Standards Improvements for Not-for-Profit Organizations”. A total of 17 comment letters were received. The Committee also discussed the feedback received in targeted meetings held with stakeholders during the comment period to obtain feedback on the proposals.
The feedback received from respondents and participants in the targeted meetings was largely supportive of the proposals. Additional comments received suggested changing or clarifying some parts of the proposals. The Committee provided the following input on those respondents’ suggestions on the more significant issues that were raised:
- Partial impairments of tangible and intangible assets should not consider future economic benefit as service potential is a more relevant measure – The Committee did not agree and thinks that both future economic benefit and service potential are relevant considerations for NFPOs when assessing impairments.
- Impairment guidance may be interpreted in a way that is costly and onerous to apply – The Committee noted that partial impairments would be infrequent and likely limited to buildings usually resulting from redundancies or damage. The Committee agreed to suggest to the Board that the impairment guidance be amended to more clearly articulate the Board’s intention regarding the requirement to test for partial impairments.
- Additional guidance is needed regarding componentization – The Committee agreed instead to suggest to the Board that implementation activities be undertaken on how to apply the componentization guidance following the issuance of the final standards.
- NFPOs should be permitted to value each collection differently – The Committee agreed to suggest to the Board that the guidance be amended to provide NFPOs with the ability to value multiple collections differently. The Committee also agreed to suggest that a requirement be added for NFPOs to disclose in the notes the composition of the total amount of collections and the measurement basis of each collection.
- Additional guidance is needed for accounting for the disposal of collection items – The Committee did not think additional guidance was needed.
The Board will consider the feedback received from stakeholders and the input from the Committee at its September meeting.
Financial Instruments – Narrow Scope Amendments
The Committee discussed, from a not-for-profit perspective, the following narrow-scope issues identified during the Post-implementation Review of Section 3856, Financial Instruments that is included in the Section 3856 narrow-scope amendments project:
- initial measurement of related party financial instruments;
- measurement of related party compound financial instruments;
- classification of impairment and forgiveness of related party loans; and
- scope of accounting for modifications and extinguishments of related party loans.
The Committee also discussed how NFPOs currently account for these transactions since NFPOs apply Section 3856. The AcSB considered the input from the Committee at its July 13, 2017 meeting.
Financial Statement Concepts
The Committee received an overview of the Board’s current activities relating to financial statement concepts in Parts II and III. The Committee discussed how Section 1001, Financial Statement Concepts for Not-for-Profit Organizations is used in practice. The Committee also discussed who uses NFPO financial statements and how NFPOs define, assess and apply the concept of stewardship. AcSB staff will consider the feedback from both the Committee and the Board’s Private Enterprises Advisory Committee and present recommendations to the Board for further consideration.
Part II Proposals
As part of the Committee’s mandate to monitor changes in Part II that may affect NFPOs, the Committee was provided with a summary of the following current projects:
- redeemable preferred shares issued in a tax planning arrangement; and
The Committee also received an update on the Board’s consultation with stakeholders about the relative priorities for Part II. The Committee was also advised that there will be no 2018 Annual Improvements Process (AIP) for Part II.
Public Sector Accounting Board Update
The Committee received an update from Staff of the Public Sector Accounting Board (PSAB) on PSAB’s 2017-2020 Strategic Plan and the 2017-2018 Work Plan relating to government NFPOs. This update highlighted that consultations with stakeholders have commenced in order to better understand:
- the fiscal and regulatory environment in which the government NFPOs operate in; and
- government NFPOs and their stakeholder’s financial reporting needs and perspectives.