Not-for-Profit Advisory Committee
July 5, 2018
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 received an overview of the activities completed for the Contributions project to date. The staff informed the Committee that the AcSB plans to issue a consultation paper. The staff noted that:
- the consultation paper will include the Board’s preliminary views on the issues related to the accounting for contributions and how those issues could be addressed;
- the consultation paper is not an exposure draft. Rather, its purpose is to obtain input from not-for-profit stakeholders on alternatives that the Board is considering on the accounting for contributions that NFPOs receive; and
- once stakeholder input has been received and analyzed and the Committee’s advice has been sought, the Board will be in a position to determine whether amendments to the contributions standards are necessary. Any proposed amendments to existing standards would then be exposed for comment.
The Committee discussed one proposed alternative the staff proposed for the Board’s consideration: to account for the contribution based on its characteristics. The staff will receive further input from the Committee on additional types of contributions commonly seen in practice and their characteristics. This information will be used to develop further the proposed alternative for the Board’s consideration.
The Committee agreed that any proposed alternative to account for restricted contributions should result in financial statements that are helpful to users. The Committee will continue to discuss proposed alternatives at its next meeting.
The Committee discussed the current draft of the Exposure Draft, “Agriculture,” and the next steps for the Agriculture project. The Committee discussed that, although not common, NFPOs do engage in activities and events related to agricultural production. Many agricultural producers currently apply the scope exemption in Section 3031, Inventories, to measure living animals and plants (biological assets) and the harvested product of biological assets (agricultural produce) at net realizable value rather than at cost. The proposals introduce conditions that must be met for agricultural inventories to be measured using the net realizable value model, which would limit the circumstances when agricultural inventories can be measured at net realizable value. These conditions may result in a change in practice for some agricultural producers.
The AcSB plans to consult with stakeholders to discuss the Exposure Draft in September, October and November 2018. Comments on the Exposure Draft are due by October 31, 2018.
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 activities:
- Accounting for Related Party Financial Instruments and Significant Risk Disclosures: On October 31, 2017, the AcSB issued the Exposure Draft, “Accounting for Related Party Financial Instruments and Significant Risk Disclosures.” In general, respondents supported the proposals, but suggested that further clarification is needed. As part of this clarification, staff recommended issuing guidance clarifying that the forgiveness of related party financial assets by NFPOs should be recognized in the entity’s statement of operations. The Committee agreed with the staff’s recommendation.
- Revenue: At its July 2018 meeting, the Board will be considering a project proposal to address stakeholders’ issues about insufficient guidance on accounting for revenue in Section 3400, Revenue. The staff noted that the project’s proposed scope would be to provide additional guidance on topics that stakeholders frequently raise. Concurrent with developing the proposed guidance, the staff have recommended that the Board monitor and assess the implementation of IFRS 15 Revenue from Contracts with Customers and decide whether to move to a control-based model for revenue recognition.
- Narrow-scope Amendments: At its June 2018 meeting, the Board approved the issuance of two exposure drafts in September 2018 relating to Section 3051, Investments, and Section 3465, Income Taxes. It is proposed that Section 3051 be amended to clarify that the guidance relating to the cost method in Section 3051 also applies to interests in jointly controlled enterprises accounted for using the cost method. It is proposed that Section 3465 be amended to remove an outdated example on “eligible capital expenditures” and remove the requirement to present future income tax assets and liabilities as current and non-current when the future income taxes method is applied.
- The AcSB’s Other Priority Topics: Related Party Transactions: In March 2018, the Board decided to add Section 3840, Related Party Transactions, to its priorities for fiscal 2018-2019. After considering feedback from its advisory committees and other stakeholders, the Board directed staff to explore all aspects of related party transactions. Although the Board has not decided whether any changes will be made to Section 3840, or the extent of such changes, it will consider aspects such as the scope of the standard and the definition of related parties. The Board decided to defer work on Section 4450, Reporting Controlled and Related Entities by Not-for-Profit Organizations, to focus on the Combinations project.
- The AcSB’s Other Priority Topics: Financial Instruments – Hedging: In March 2018, the Board added financial instruments – hedging to its priorities for fiscal 2018-2019. Research on this topic will focus on what types of hedging relationships exist in practice and whether there are opportunities to expand the scope of hedging relationships for which hedge accounting is permitted. This topic could affect Part III stakeholders that engage in hedging and whether hedge accounting could be applied to the hedging instruments of those entities. Similar to related party transactions, this topic is at a very early research stage and the Board has made no decisions on project scope.
- AcSB’s Other Priority Topics: Financial Statement Concepts: In March 2018, the Board decided to add financial statement concepts relevant to both Part II and III to its priorities. However, rather than a comprehensive overview of its concepts (similar to the International Accounting Standards Board’s or the U.S. Financial Accounting Standards Board’s approach), the Board directed staff to focus on financial statement concepts relevant to active projects and priority topics. For example, in the context of the revenue topic, the Board will consider the definition of revenue (and assets) in its research activities.
The Committee discussed potential projects for completion by CPA Canada’s Research, Guidance and Support group. The purpose of these projects is to support CPA Canada members in the not-for-profit sector in implementing Part III standards and to deal with external reporting matters.
Draft Framework for Reporting Performance Measures
The Committee was provided an overview and asked for input on the initiative to develop a Framework to improve the reporting of performance measures. The Committee was informed that stakeholder input on the Draft Framework is requested by September 17, 2018.
Member Survey Results
The Committee discussed the results of the annual volunteer member survey, which assesses Committee members’ level of satisfaction relating to the 2017-2018 fiscal year. Overall, the results were positive and indicated that members are clear on the Committee’s objectives and that it is meeting its stated purpose. The results also showed that stakeholders are encouraged to keep up to date with the Board’s activities by signing up for The Standard, Financial Reporting and Assurance Standards Canada’s weekly email publication.
Public Sector Accounting Board (PSAB) Update
Staff updated the Committee on some of PSAB’s current activities. It highlighted the following documents that are currently open for comment: