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 Committee received the field-test results on the draft proposals for the initial measurement of a combination between organizations within the scope of Part III of the CPA Canada Handbook - Accounting. The Committee also discussed staff recommendations and advised the AcSB that:
- more clarity should be provided on the conditions to determine whether a transaction should be accounted for as a merger or an acquisition to reduce the potential for diversity;
- illustrative examples should be included in the standard for the types of combinations that should be accounted for as mergers and those that should be accounted for as acquisitions; and
- disclosure of the rationale for undertaking a merger or acquisition would be informative for financial statements users.
Committee members also advised on other sections of the draft proposals, the consequential amendments, and the proposed exposure draft questions.
The Committee will conduct a fatal-flaw review of the exposure draft in October 2019. The AcSB plans to issue the exposure draft in January 2020.
The Committee provided feedback to staff on a draft of the consultation paper, including the illustrative examples related to the recognition of restricted contributions. The Committee also provided input on this project’s timeline for the AcSB’s consideration at its September 2019 meeting. The Board plans to issue the consultation paper in March 2020.
Part II Developments
As part of the Committee’s mandate to monitor changes in Part II of the Handbook that may affect NFPOs, the staff summarized the following current activities:
- Revenue: The AcSB issued an Exposure Draft in May 2019, with comments due by July 31, 2019. The amendments have a proposed effective date of January 1, 2021. Committee members were encouraged to provide feedback on this Exposure Draft to the Board.
- Related Party Transactions: In March 2019, the AcSB approved a project to research related party combinations. The Board has formed a working group comprising assurance, tax, and advisory professionals with experience in designing and executing combination transactions. This working group, which held its first meeting in July 2019, will assist the Board in understanding the different types of combinations that occur in practice. The Board will also consider related party combinations by NFPOs that are identified as commonly occurring in practice.
- Financial Statement Concepts: In March 2019, the AcSB approved a project to research specific topics related to financial statement concepts for both Parts II and III of the Handbook. The Board directed staff to focus initially on considering financial statement concepts relevant to active projects and priority topics. It is currently reviewing financial statement concepts in conjunction with its Part III projects, Combinations and Contributions.
- Employee Future Benefits: As a result of recent regulatory changes related to the funding of pensions in Quebec and Ontario, stakeholders have raised an issue to the AcSB about diversity in practice. It stems from the measurement of defined benefit obligations when the funding valuation option is chosen in Section 3462, Employee Future Benefits. To address the issue, the Board has decided to issue an exposure draft proposing amendments regarding the measurement of defined benefit obligations when the funding valuation option is chosen. The Board proposes that the defined benefit obligation should be measured at the amount that is required to be funded in accordance with legislative, regulatory, or contractual requirements. When there is no legislative, regulatory, or contractual requirement to prepare a funding valuation, the Board proposes to remove an accommodation that allows such plans to be measured using a funding valuation. In this case, the plans would be required to be measured using an accounting valuation. The Board intends to issue this exposure draft in Q3, 2019.
Amendments to Other Frameworks
The Committee considered recent amendments issued in other jurisdictions to assess whether any of the new accounting in those standards would provide significant benefit to Canadian NFPOs reporting under Part III of the Handbook. Committee members discussed amendments made to the following frameworks related to NFPOs since February 2018:
- U.S. generally accepted accounting principles issued by the U.S. Financial Accounting Standards Board (FASB);
- Public Benefit Entity Standards issued by the External Reporting Board in New Zealand;
- Australian Accounting Standards; and
- The “Statement of Recommended Practice – Accounting and Reporting by Charities,” which provides guidance for financial reporting by Charities in the United Kingdom.
The Committee recommended that the FASB amendments related to accounting for cloud computing arrangements have merit for the AcSB’s consideration when deciding on future Part II and III projects. It also discussed recent FASB amendments related to the accounting for goodwill and intangibles by NFPOs and advised the Board that this topic has limited relevance to NFPOs in Canada.
Public Sector Accounting Board (PSAB) Government Not-For-Profit Strategy
The staff discussed with the Committee the PSAB’s Government Not-For-Profit Consultation Paper.
The Committee received an update on a project to gather data and perform analysis on NFPOs in the private and public sectors. The research is being gathered to support both the AcSB and PSAB to better understand the sector and to make informed decisions.
The results of the research will be shared with the Committee at a future meeting.
New Practice Issues
The Committee discussed a practice issue regarding the application of Section 1501, First-time Adoption by Not-For-Profit Organizations. This issue relates to NFPOs that applied this Section when they first adopted Part III of the Handbook, but subsequently prepared financial statements that were not in accordance with Part III. The Committee considered whether the NFPO can reapply Section 1501. Some Committee members indicated that, in their experience, this is not a common scenario for NFPOs.