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Not-for-Profit Advisory Committee Meeting Notes – July 25, 2023

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.


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.

Reporting Controlled and Related Entities

The Not-for-Profit Advisory Committee continued its discussion of staff’s research on the definitions and disclosure requirements of controlled and related entities used by standard setters in other jurisdictions. This research is part of the AcSB’s project to Research Improvements to Section 4450, Reporting Controlled and Related Entities by Not-for-Profit Organizations. The Committee considered improvements to the definitions in Section 4450 and discussed what additional disclosure requirements might enhance the usefulness of information disclosed in Section 4450.

In determining next steps for this project, the AcSB will consider the Not-for-Profit Advisory Committee’s feedback at the September 2023 Board meeting.

Scaling the Standards

The Not-for-Profit Advisory Committee received an overview of the proposed scalability solutions in the AcSB’s Consultation Paper I, “Exploring Scalability in Canada.”

The Committee provided the following feedback on the AcSB’s proposed strategies:

  • Scaling the standards would help those NFPOs that find Part III too complex for their financial reporting needs. However, the scaling approach implemented (if any) should be carefully considered as different NFPOs may have different reporting needs and requirements given the diversity of organizations and user needs in the sector.
  • Providing simplified recognition and measurement options in select standards may be the solution with the greatest benefit for and least resistance from NFPOs in Canada.
  • The improved standardization and comparability from a new, simpler accounting framework would benefit some organizations. However, this needs to be balanced with the potential compliance costs and marketplace confusion it could create.
  • Scaling the standards based only on size may limit the outcome’s usefulness. Other scaling factors, such as those that consider an organization’s complexity, should be considered, and evaluated under any potential scaling solution.

The Committee was reminded that the Consultation Paper’s comment deadline is July 31, 2023.

The AcSB will consider the Not-for-Profit Advisory Committee’s comments when the Board begins deliberating the feedback on its Consultation Paper at the September 2023 Board meeting.

Due Process

The Not-for-Profit Advisory Committee discussed amendments and supported certain changes to its Terms of Reference and Statement of Operating Procedures.