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Not-for-Profit Advisory Committee Notes – November 9, 2021

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.

Cloud Computing Arrangements

The Not-for-Profit Advisory Committee received an update on the AcSB’s recent discussions about developing proposals to address the customer’s accounting for fees paid in a cloud computing arrangement and the related implementation costs. The proposals involve:

  • clarifying the application of existing guidance;
  • permitting entities to apply a simplified approach to account for cloud computing arrangements; and
  • capitalizing directly attributable implementation costs when the arrangement is a software service.

The Not-for-Profit Advisory Committee generally supported these proposals and provided additional feedback for the AcSB to consider. Specifically, the Committee discussed the term over which capitalized implementation costs should be expensed. Some Committee members advised that, in practice, cloud computing arrangements often can have a subscription term as short as only one year. However, the implementation activities can enhance the software service well beyond the subscription term. Therefore, determining the term over which the implementation costs should be expensed would require professional judgment.

The Not-for-Profit Advisory Committee also discussed the presentation of these capitalized implementation costs on an organization’s balance sheet. A few Committee members supported presenting such costs as intangible assets. They noted that the nature of the costs to implement a cloud computing arrangement is the same as the costs to implement an on-premises software solution. Therefore, the presentation of such implementation costs should be the same. However, some Committee members supported presentation as prepaid expenses. They noted that since the organization does not control the software, it does not meet the requirements for recognition as an intangible asset. Therefore, presentation of the asset and related expenses should be different than intangible assets and amortization expense. They also thought that presenting as prepaid expenses better reflects the service nature of the software.

The Not-for-Profit Advisory Committee then provided feedback on a preliminary draft of the accounting guideline, including the disclosure requirements and transition provisions.

The AcSB will consider the Not-for-Profit Advisory Committee’s feedback, as well as feedback from its Private Enterprise Advisory Committee, in December 2021.