Accounting Standards for Private Sector Not-for-Profit Organizations

Not-for-Profit Advisory Committee Notes – April 8, 2019

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.

Combinations

The Committee provided feedback on the staff’s draft of the proposed guidance for mergers and acquisitions. The Committee recommended that:

  • not-for-profit organizations should refer to Section 1582, Business Combinations, in Part II of the Handbook to account for the acquisition of a for-profit enterprise;
  • guidance on the accounting for a combination involving not-for-profit organizations, including when the combination is accounted for as an acquisition, should be provided in Part III of the Handbook;
  • consideration be given to the combining entities when either or both entities are limiting the application of Section 4433, Tangible Capital Assets Held by Not-for-Profit Organizations, or Section 4434, Intangible Assets Held by Not-for-Profit Organizations, as average annual revenues in the current and preceding periods of the organization and any entity it controls is less than $500,000;
  • the proposals are clear as to which standard the NFPO should be applying (i.e.- the proposals refer to initial measurement.) If the combination results in an acquisition, subsequent measurement is prescribed in Section 4450, Reporting Controlled and Related Entities by Not-for-Profit Organizations.
  • illustrative examples be added to the proposals to help NFPOs analyze the criteria for determining whether the transaction is considered an acquisition or a merger and the mechanics of accounting for the transaction if considered a merger.

The AcSB will discuss the Committee’s input and review the timeline of the exposure draft at the May 2019 Board meeting.

Contributions

The Committee provided input on:

  • the current practice issues;
  • the need for additional guidance and the various options to account for restricted contributions;
  • the $500,000 asset-size exemption and presentation; and
  • disclosure matters.

The Committee also discussed the possible questions to include in the consultation paper for the various topics. The AcSB will consider this input in its development of a consultation paper and will discuss at its May 2019 meeting.

The staff also updated the Committee on the Financial Statement Concepts project that the Board approved at its March 2019 meeting. The Committee discussed how financial statement concepts are used by NFPOs when accounting for contributions. This feedback, along with input from other sources, will assist the Board in deciding whether to revise the concepts, add application guidance, or keep the concepts unchanged.

Part II Developments

As part of its mandate to monitor changes in Part II of the Handbook that may affect NFPOs, the staff gave the Committee a summary of the following current activities:

  • Revenue: The AcSB continued its discussions through to its meeting in March 2019 when it discussed transitional provisions and a proposed effective date. It plans to issue an exposure draft no later than the second quarter of 2019. The amendments will have a proposed effective date of January 1, 2021.
  • Agriculture: Subsequent to issuing the Exposure Draft in July 2018, the Board received feedback through a series of cross-country roundtables and 13 comment letters. The feedback generally supported the proposals, with some suggestions for amendments. The Board is actively discussing the feedback and intends to issue the standard no later than fourth quarter of 2019.
  • Related Party Transactions: In March 2019, the Board approved a project to research related party combinations. The Board included in the scope of the project related party combinations that are undertaken by NFPOs. The Committee highlighted that related party combinations occur occasionally in practice and the transactions vary based on the circumstances of the organizations undertaking the transactions.
  • The Board’s other priority topics: The staff presented updates to the Committee on the following topics:
  • Financial Instruments – Hedging: The Board decided to not pursue a project in this area in response to the research done and input received; and
  • Financial Statements Concepts:The Board approved a project and directed the staff to prioritize work on the definitions of an asset and liability in conjunction with its ongoing domestic projects.

Survey Results

The Committee discussed an update on its member-feedback survey for the 2018-2019 fiscal year.

New Practice Issues

A member raised an issue relating to an organization that splits into two new organizations and whether the new organization should use fair values or carrying values.

Public Sector Accounting Board (PSAB) Update

PSAB staff updated the Committee on the following PSAB activities: