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Accounting Standards for Private Sector Not-for-Profit Organizations

Transcript – AcSB Exposure Draft – Contributions – Revenue Recognition and Related Matters

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Danielle MacLeod

Hi everyone and welcome to today's webinar on the Contributions Exposure Draft. Attendance at this webinar and successful completion of the quiz may count towards your CPD requirements. The link will be provided at the end of this presentation.

On behalf of the Accounting Standards Board, it's now my pleasure to introduce today's speaker, Armand Capisciolto. Armand has served on the Accounting Standards Board since 2015, including as a member, vice-chair and now chair. On top of his standard-setting experience, Armand was the national accounting standards partner with BDO Canada.

And a quick introduction of myself as well: I'm Danielle MacLeod, a principal on staff with the Accounting Standards Board. As a principal, I work closely with the Board, our volunteers, and other parties to develop accounting guidance and standards, and have been involved with the contributions project over the last couple of years.

In today's webinar, we'll provide an overview of the project, including why the Board decided to undertake a project on contributions. We'll then provide an overview of the key proposals in the exposure draft. We'll discuss how you can share your views on the proposals, and lastly, we'll leave time at the end for questions. Throughout the presentation, you can leave questions in the Q&A box, and we’ll try to get to as many as we can at the end.

So before we get started with our agenda, we wanted to do a quick polling question just to understand who’s listening in live today. So if you could answer the question, “What is your current role?”

Alright, so it looks like we've got a good mix, mostly preparers, and we also have a lot of practitioners as well. So that's great to see. Sorry, I'll just share those results.

Alright. So, I'm now going to pass it over to Armand to discuss our first agenda item.

Armand Capisciolto

Need to take myself off mute. Okay, thanks, Danielle, and thanks everyone for joining.

So, just to talk a little bit about what we're actually doing with this project on contributions, and then we'll get into the proposals. Danielle, if we could go to the next slide. I think it's really important to start off with “Why did we undertake this project?” Some of you might be thinking, “What do they do? They just sit around the table, the Accounting Standards Board, and think about ways to make my life difficult by changing accounting standards?” That is definitely not the case. We always start with why: Is there a change needed? And when we look at the current standards related to contributions, they've been in place since 1996. And they've served us well since 1996. But a lot has changed since 1996. When I think about myself, I wasn't even a CA in 1996. I wrote my UFE in 1997, and it was actually the first time the not-for-profits standard was testable that year.

So a lot has definitely changed for all of us since then. And when we think about the types of transactions that not-for-profit organizations enter into, they're entering into much more complex transactions today.

And the fact that we have a policy choice, that adds to the complexity for accounting for contributions in the not-for-profit space. And so when we looked at this, and we started down this project, we, as the Board, felt eliminating the accounting policy will reduce complexity in an already complex world and improve comparability. And those are two things that are important: reducing complexity and improving comparability. I think it's a good goal for us to strive for.

As far as the timeline goes, if we look at where we are in the standard-setting process, we've been doing research on this topic for a while. Some of you might even remember a joint project relating to not-for-profits that the Accounting Standards Board was doing with PSAB, and that dates back to a number of years ago. But since that stopped, we continued to do research at the Accounting Standards Board related to not-for-profit issues, including contributions, and in 2020 we issued a consultation paper. We've now looked at the comments that we got back on that consultation paper and the feedback we received through various outreach activities, and we then took on a project to do standard setting, which leads us to the exposure draft, which was just issued at the end of March. And we're now in that outreach period. And we have a very long outreach period. The outreach will continue until the end of September, knowing full well that those of you in the not-for-profit space are probably busy with your ends right now and then summer vacation, so taking all that into consideration, giving everybody enough time to provide us with the input we need to ensure we get this right.

So let's go on to what we are proposing. So if we look at the proposals from a big-picture standpoint, there are really three things that we're proposing: a single approach to recognizing revenue from restricted contributions and issues, specific guidance related to special types of contributions, and those two high-level proposals really will appear in a new Standard 4411, or proposed new Standard 4411, which will replace 4410 and 4420.

In addition, we are also proposing amendments to the current guidance on financial statement presentation, so amending section 4400. So basically, we're replacing two standards with one standard and making amendments to 4400.

So let's start off by talking about unrestricted and restricted contributions.

So let's talk about what we're not changing.

We are not proposing any changes to the accounting for unrestricted contributions.

They will continue to be recognized in the period in which the organization is entitled to the contribution, assuming it meets the criteria for recognition of reasonable assurance regarding the measurement of the contribution and collectability is reasonably assured. That being said, although we are not changing anything for unrestricted contributions, we are proposing changes to the definition of what is a restricted contribution. And given we're changing that definition, it could impact things that are currently considered unrestricted.

So, what is a restricted contribution? What are we proposing the definition of a restricted contribution be? When we look at this, a restricted contribution is subject to an external restriction – external. When we talk about recognition and measurement, we're talking about external restrictions – not internal. And there'd be two criteria to be considered a restricted contribution: if the restriction has been explicitly communicated between the organization and the contributor. So both parties – the contributor and the organization – receiving the contribution understand there is a restriction to it, and that's been communicated explicitly at the time of the contribution, and that the restriction requires resources to be used in a designated purpose and/or within a designated period of time.

Now, I want to talk a little bit about the second criterion in a little bit more detail. A couple of things that are really important here: that restriction of designated purpose needs to be more specific than that the organization just use it for its general mandate. It has to be beyond the general mandate to be for a designated purpose. And as far as what isn't a designated purpose, we also have proposals to clarify that administrative matters are not part of that designated purpose. So, if you need to account for how the money was spent, get an audit of how it was spent, well, those are administrative in nature, and that doesn't change whether or not there is a restriction or not.

So, when will these be recognized then? So if we get to the next six, we're going to recognize revenue when the external restrictions associated with the contribution have been met, and the other criteria measurable and collectability being met as well. So when the contribution is being used or has been used for the designated purpose, or in that designated period of time, that's when it will be recognized. Until it's recognized – so you receive it, and you don't meet the recognition criteria yet – it'll be recognized as a liability. So it'll be deferred. So, recognition very much focused on “Have those restrictions been met?” is basically the restriction.

So far, for those of you applying the deferral method, you might see it's not that different, but we'll get into a little bit more of the details. So let's start off by going through an example.

So, we have an example. We have ABC University. It has a June 30 year-end and spends approximately $200,000 a month on operating expenditures. It receives an operating grant on January 15 of $100,000, and must be used, say, it must be used by December 31, 2000. So, there's the fact pattern. Is this an operating grant, or sorry, is it the operating grant a restricted contribution?

And the answer is, yes, the grant must be spent in a fixed period of time that has been explicitly communicated in the contribution agreement. So they have to spend this money by December 30. That meets the definition of a restriction.

So then when will the contribution be recognized in revenue? So it's going to be deferred when received on January 15 and recognized in revenue as the operating expenses are incurred. So as of June 30, the year-end, given that we said they spend approximately $200,000 a month, they will have met all of the restrictions and, therefore, be recognized.

In fact, in this case, they’re probably going to recognize it shortly after receipt because they received it mid-January. It’s $100,000. They spend about $200,000 a month. They probably met the criteria by the end of January. So I think this is really important in this example because there are many things that will meet the definition of being restricted. However, some of those restrictions may have been met in a very quick period after receipt.

So let's change the fact pattern a little bit. So what if the agreement required the organization to spend the grant equally over each quarter of the calendar year?

So again, it's still a restricted contribution because it's for a specified time period. But it's not related to any expenses, saying, "We're giving you $50,000 a quarter or $25,000 a quarter." So if we look at that, then as of June 30, $50,000 (half of the grant) would have met the restriction criteria, and $50,000 would remain deferred. So again, you can see how the fact pattern and what it says in the agreement could change the pattern of recognition.

So, what does this mean?

For not-for-profits using the restricted fund method, this is a change. The timing of recognition will change for restricted contributions because if you’re using a restricted fund, you're recognizing them immediately. And that may not be the case because you’re not going to recognize till the restrictions are met now under the proposals.

For entities using a deferral method, some of you might be thinking, "Well, that sure sounded like the deferral method." But it's not exactly the same, and the revenue recognition may change for certain contributions. And as I said before, we're proposing changes to the definition of what a restricted contribution is. So something that might have been considered unrestricted before, but now it's considered restricted, well, that might change when it's recognized. And again, the criteria related to the time period might actually change when revenue is recognized. So although the proposals, the impact is probably less on those using the deferral method, it does impact both methods.

Okay, so that's the basic recognition method for unrestricted contributions. Now, let's get into some specific contributions. Let’s start off with endowments.

When we were doing our research, we were looking at the feedback that we received on the discussion paper and talking to different parties and talking to not-for-profit advisory committee, what we realized is there is some diversity in practice on what is even considered an endowment. So when we looked at the definition of an endowment, we clarified some things. So when we look at the definition, I really want to point out a couple of key words. Endowment needs to be restricted and subject to external restrictions.

I'm going to say external a number of times here because we're not talking about internal restrictions. We're not talking about decisions the board makes to say, "Well, no, we're going to restrict that permanently." Well, that's an internal restriction we're talking about. The recognition and measurement we're talking about are external restrictions. So it's very much focused on external restrictions. I said external a lot just now, and I think that's important because what we heard when we talked to people was that some were treating internally restricted amounts as endowment contributions.

The other word that I want to pick up on is permanently. So we're saying an endowment contribution is a type of restricted contribution subject to external restrictions, specifying the contribution must be maintained permanently. Permanently is important as well. Again, when we were doing our research, what we heard is a number of people referred to temporary endowments, and really, what is a temporary endowment? I thought endowments were endowed to be maintained internally, but there were some restrictions. There were some contributions that restricted the funds and said, "Well, no, you keep it. You treat it as an endowment fund for lack of a better word to use for 10 years or 20 years, and once that time period's over, it's yours to do whatever you want with." Well, that's not permanent. So we clarified that only permanent amounts will be, in our proposals, subject to the accounting for endowment funds.

So again, these clarifications to the definition, these proposals may change practice for some because we are aware that the definition of endowment was not being applied consistently. So then when do we recognize endowment contributions, and how do we recognize them? An endowment contribution will be recognized as a direct increase to net assets. And how did we come to this decision? Well, based on the feedback that we received during our research, that was the most relevant information because the endowment itself – the organization never gets to use that for whatever it wants. Therefore, showing it all as revenue wasn't necessarily providing decision-useful information, whereas putting it as Internet assets is, and then you’re showing in revenue what can actually be used by the organization. So, again, this is similar to what is done in the deferral method. So, again, a change for those using the restricted fund. So that’s endowments.

The next area of special types of contributions is capital asset contributions. And we had a lot of discussions on capital asset contributions. I think most of you who have joined this, you probably have very strong views on capital asset contributions. And probably some of you that think that it should be recognized up front, or when the capital asset is purchased or built. There are some of you that may be saying, “I have an obligation to use that asset; therefore, it should be deferred.” There are some that would say, “Well, maybe it meets the definition of a liability.” And others that would say, “Well, no, it doesn’t meet the definition of a liability once it’s spent.”

There are very, very strong views when it comes to capital asset contributions, and as a result, as a Board, we had many, many discussions on this. We discussed this in depth with our not-for-profit advisory committee. So, just to give you a little background on this topic. As we know, this is a very sensitive topic. If we look at just what the definition of a capital asset contribution is, it’s a contribution of cash or other assets subject to external restriction requiring it to be used to acquire, develop or construct a capital asset. And it would also include contributions of capital assets directly, so I don't think that's a change for anyone.

For the recognition, the proposals are for contributions related to amortizable assets to defer and recognize the revenue on the same basis as the amortization of the related assets. For contributions not subject to amortization, for those to be direct increases in an asset. As you can imagine, as I said, this was an area where we had a lot of discussion. We knew whatever we proposed, there will be people with differing views. This will likely not be a change for organizations using the deferral method.

This is a big change for those using restricted funds. Danielle will talk about the transitional provisions later on today, but we very much acknowledge that and have made some relief for transition for those using restricted funds.

And, at the end of the day, we considered a number of options, we went through the pros and cons of all the options, and what ultimately guided our decision was limiting volatility. And this approach limits volatility in that the revenue is recognized on the same basis. Yeah, asset, whereas if you were recognizing it up front, you have revenue, a big chunk of revenue recognized up front. And then you have amortization expense without related revenue in the future, which just creates a significant amount of volatility, and what we heard from a lot of people is that they didn't want to see that volatility.

So that's how we ended up where we did the exposure draft, the basis for conclusions, and the exploded draft goes into a significant amount of detail outlining how we came to this decision. So I highly recommend reading what we have in the basis to give you some insights into how, beyond what I've already said, and how we came to that decision.

In addition to the recognition, we also are proposing some presentation disclosure items related to capital asset contributions. One, that the amortization of the deferred capital contribution would be shown separately from other contribution revenue on the statement of operations because when we talk to individuals, they say, "Well, that's different than a contribution received during the year – the deferred capital, the amortization of the deferred capital contributions." We want to see that separately. And then also from a disclosure standpoint, we're proposing that the changes in the deferred capital contribution balance be presented separately from other deferred contributions, and the nature of any restrictions on how those capital assets being used be disclosed. And I think that first one on distinguishing it from other deferred contributions is really important because I think it's that distinguishing between something – "Well, if I've already spent the money, I've built the asset, and now it's just kind of coming into income." That's different than a deferred contribution where I actually have to spend the money in the future because I have to still meet the restriction. So we wanted some disclosure around that, and that's why that's in the proposals.

So, let's do a polling question. Threw a lot at you really quickly.

When you look at these proposals, which proposals do you expect to have the biggest impact on either your organization, your clients' organizations, not-for-profits in general – the changes to restricted contributions, the definition and how it's accounted for, the clarifications and proposals related to endowment contributions, or capital asset contributions?

So, answer away. Danielle, I assume you'll share everything as it starts coming in.

Okay, interesting. So the treatment of restricted contributions, a lot of people think that's going to have a big impact. I'm assuming maybe we have a lot of people online that use the restricted fund method because that's where the change will be the most significant.

Thank you for answering the poll. Let's keep on going and talk about some other specific types of contributions, talk about contributed materials and services.

This was another area that we received interesting feedback on. Although we received feedback that many entities do not recognize contributed materials and services, we also heard that some wanted to, but the requirements wouldn't allow them to. What we are proposing is to maintain the policy choice to not recognize them at all or recognize them, but only recognize them if they meet the following criteria:

  • fair value can be reasonably estimated,
  • they’re using the normal course of the organization’s operations, and
  • they would otherwise have to be purchased to fulfill the organization's mandate.

And it’s that last bullet point that is a key one because – and I am not going to remember what the original words were related to it, but, I think, the original words were that – they would be normally purchased. And I think it's key that what otherwise would have to be purchased to fulfill the organization's mandate. And I think a great example is a food bank because in many cases food banks don't go out and buy their own food and just supplement that with contributions. All of the food comes from contributions. So many food banks under the current requirements, not the proposed requirements, say, "Well, I don't meet the criteria to recognize the contributions." But saying they would otherwise have to be purchased to fulfill the mandate makes it clear that they could recognize that as revenue. So that’s the other change. The other thing that is really important is even though you’re choosing to recognize – if you make a policy choice to recognize them – you're only recognizing if the criteria is met. So what that means is that if you choose the policy to recognize only if the criteria is met, you will have some contributed materials and services that meet the criteria and therefore they will be recognized, but you will have others that don’t meet the criteria that won't be recognized. It’s not an all or nothing. Just because you don’t meet the criteria for some doesn’t mean you can’t recognize them for other if the criteria is met if you make that policy choice.

So, again, in addition to recognition and measurement, we do have some presentation and disclosure proposals related to contributed materials and services. The first one is that the revenue from contributing materials and services will be shown separately on the statement of operation, again, distinguishing that from kind of cash-type contributions. We would also disclose information on the nature of contributing materials and services not recognized. So whether you choose not to recognize them because of your policy choice or you have a policy choice to recognize but some don’t meet the criteria, you would give qualitative information on that. And any dependence on contributing materials and services to achieve future objectives would also be required to be disclosed.

Okay, the next special type, or maybe not so special type, now under the proposals is pledges and bequests. Basically, what we're proposing is that, in general, pledges and bequests should not be recognized. And the reason we're saying they should not be recognized is because the organization does not control whether they receive the pledge or bequest. That being said, we are aware that there are some contributions that might be called pledges that an organization does control, and the contributor does have an obligation to fulfill that pledge. I’m using air quotes as I say, pledge. So, therefore, basically what we’re saying is you would only recognize a pledge or bequest if the criteria is met to recognize them. And what is important is we say it is met for each individual pledge or bequest. I think that unit of account, that each individual pledge, is really important. What we're saying here is that you have to meet the criteria at the individual level, not at the campaign level. So, I think a lot would have said, "Well, I do meet the requirement because I am reasonably assured to receive some because I'm looking at it as a campaign as a whole." We've clarified that the unit of account is the individual contributions, not the campaign. We are not proposing any disclosure requirements related to pledges not recognized. However, if that information is available, it's encouraged but not required.

So, that's pledges and bequests. Those are proposals at a very high level related to recognition or measurement or the proposals that are in the new proposed Standard 4411.

I'm now going to turn it over to Danielle to go over some of the proposals that we are making to 4400.

Danielle MacLeod

Alright, thanks, Armand. So, we'll talk about some other presentation and disclosure topics.

The proposals for contributions would continue to require organizations to disclose contributions by major source. We think this will continue to allow financial statement users to be able to understand an organization's relationship with other parties and also help users predict whether those contributions would be likely to recur in the future.

There is a couple of new disclosure requirements that we wanted to cover here on this slide. So, the first is related to economic dependence. The proposals include new disclosure requirements when an organization depends on significant contributions from another party. These requirements are similar to the current requirements in the economic dependent standard in part 2 of the Handbook, but they've been modified for contributions received by not-for-profit organizations. The amendments to section 4400 also include a proposal to disclose information about requirements related to restricted contributions and the assets that the organization determines to be available to meet those requirements. We think that an organization will have to use judgment in determining which assets are available. And typically, this would include financial assets like cash or investments. But in some cases, it could require inventory or capital assets as well to meet restriction.

The disclosure should also include qualitative information just to help users understand any additional information as well as the judgment and process that was undertaken when preparing the note disclosure. We think that there could be various ways that an organization could approach this disclosure, depending on their scenario, and to help demonstrate the proposals, the exposure draft includes two new illustrative examples in section 4400 that show two different ways of approaching this note disclosure.

Next, we'll move on to fund accounting presentation.

So the Board decided that this would continue to be available as an optional presentation choice.

When we talk about this, we're not referring to the restricted fund method of recognizing revenue, but more just the fund accounting presentation. The Board decided that they would continue to allow the presentation choice, and the proposals will continue to allow flexibility in determining the funds that are presented.

However, the proposals also introduce some new requirements, so an organization would be required to present comparative information on the face of the statements or disclose the comparative information in either a note or a supporting schedule to the financial statements. In addition, the proposals require an organization to disclose the factors that were considered when determining the funds that are presented.

So if we move on now to transition and effective date, it's proposed that the new section 4411 and the amendments to section 4400 should be applied retrospectively. We think this is important because of the current accounting policy choice that not-for-profits have for recognizing restricted contributions. By applying these proposals retrospectively, it will ensure comparability across not-for-profit financial statements regardless of which approach they were starting with. And it will also allow an organization to have comparability in its year-over-year financial statements in the year of application.

As Armand mentioned, the Board is also proposing some optional transition relief for capital asset contributions, given this will be a significant change for those that are using the restricted fund method. This relief would allow organizations not to make retrospective adjustments for capital asset contributions that were recognized in revenue in full prior to the beginning of the earliest comparative period. So we'll take a look at exactly what that means with an example.

If an organization has a March 31 year-end and presents one year of comparative financial information when they first apply the section 4411 for its March 31, 2027, year-end, they will not have to adjust their financial statements for any capital contributions that were recognized in revenue in full before April 1, 2025. However, if they received a capital contribution in this comparative period from April 1, 2025, to March 31, 2026, they would have to do a restatement adjustment for those.

In terms of effective date, both the new proposed standard section 4411 and the proposed amendments to section 4400 would be effective January 1, 2026. The proposals would also allow for earlier application but as long as the new section 4411 and the proposed amendments to 4400 are applied at the same time. So you can't early adopt one and not the other.

Okay, so now that we've gone through the proposals, we want to provide some more information about how you can share your views on these proposals.

So, there are a couple of different ways you can do this.

The first would be to submit a comment letter, and when doing so, you're not required to respond to all questions in the exposure draft. There are a lot of topics and questions included in there, so you can just comment on the ones that are relevant to you or your organization.

You can also attend a roundtable discussion. We're planning in-person roundtable discussions at a few cities across Canada, and we're also going to be hosting a number of virtual roundtable discussions. These sessions will be available in English and in French, and registration details will be available for those on our website. They should be up later this week, so look out for those.

And then lastly, you can complete a survey as they become available throughout the comment period. We'll be launching them for various topics, so you can watch out for those as well. And all this information will be available from our project webpage.

And as Armand mentioned, the comment period deadline is September 30, so be sure to get your comments in by this date.

We've included a couple of links to resources here. Following the webinar, the slides are going to be available for download on our website, so you will be able to access these links. There’s a link to the full exposure draft, including the basis for conclusions that provides additional context on some of the Board’s discussions, and also our in-brief documents that provide a high-level overview of the proposals.

This just includes a link to our website, where you can find more information.

And then also we've also included a link to our e-newsletter, where things like roundtables will be highlighted in those newsletters as well, and then links to our social media pages.

On this slide, we've included a link to the post-webinar quiz. So I'll just leave this up for a minute, but again, you'll be able to access it from the slides as well.

So this brings us near the end of our webinar, and we'll move to the Q&A portion. Just a reminder, if you haven't already, to get your questions in the Q&A box. And we'll take a look at those.

Armand Capisciolto

Yeah, Danielle, looks like quite a few questions have come in. We might not even have to use our planted questions. What do you want? To take them in order? Any ones that you picked out that you wanted to talk to?

Danielle MacLeod

Yeah, I was taking a look through them earlier. Can you clarify how a contribution that has been internally restricted by a Board would be accounted for under the proposals?

Armand Capisciolto

I'll take a first shot at that.

So, I think there are two aspects to the proposals. The 4411 proposals, which are recognition and measurement, and the presentation and disclosure. From a recognition and measurement perspective, if it wasn't restricted externally, it's an unrestricted contribution, so it would be recognized when received. If then the Board decides to internally restrict it, then that is something that would be accounted for within a trend – if they are using fund accounting, which they can still use fund accounting for presentation purposes, show a transfer for maybe general operations to a specific fund, or if they're not using fund accounting, it might be something that’s shown as a transaction in the statement of changes in net assets as a move from unrestricted to restricted.

And, Danielle, I really hope I got that right. I assume you'll correct me if I get anything wrong.

So, really it’s those internal restrictions that will be taken care of more by the amendments to 4400 than anything in 4411.

Danielle MacLeod

Yup, that's right. I saw a question here, I think – oh, just moved on my screen – about the capital asset recognition exemption if there's any proposed changes there. This was a topic that we did include in our consultation paper. If you want to speak to that one, Armand.

Armand Capisciolto

Yes, great question. It allows me to plug another project that we're working on. We have another discussion paper out. Just did a webcast a few weeks ago on that one as well related to scalability. And what that scalability project is, is exploring on whether or not we should consider different things, different options within standards or new frameworks – whatever it is – to ensure that the standards are useful for organizations of all sizes. So that is more of something that is going to be addressed in the scalability project. And we actually use the $500,000 exemption as an example of scalability that currently exists within our standard. So, in these proposals, we are not touching it, but we are looking at scalability in general. And again, highly recommend, everybody, take a look at that document, watch the webcast available on demand because we are looking for other things. Are there other areas where we should be putting similar options? That's one of the questions that we ask in that scalability document. So, thank you for asking that question because it allows us to plug another project that is a critically important project for us as a Board.

Danielle MacLeod

Great. Another good question here: Should the restriction be in writing for it to be treated as a restricted contribution, or is there room for interpretation?

Armand Capisciolto

Uh-huh. This is a tough one. I think even for those of us when we talk about a contract. People talk about, does a contract have to be in writing, or is an oral contract a contract? And technically an oral contract is a contract. I'm sure the auditors who are on today are saying it's really hard to audit that.

And then I saw a question somewhat related to this, Danielle, about someone asking about advertising. So if I advertise an event that's going to be used for a specific purpose, is that caught by the restricted ones? And I thought maybe what I would do is throw that one to you to answer, and it kind of relates to the question you threw to me.

Danielle MacLeod

Yeah, for sure. So in terms of writing, the basis provides a little bit more background on this. But it doesn't have to be explicitly in writing. We think there is room for interpretation here. Sometimes, there might not be an agreement, but it could be very clear that the monies are for a certain purpose – if you think about a fundraising gala or an event like that where somebody's purchasing a ticket or something, and you know exactly what the money's going for. The gala's for a specific purpose. So I think there is some room for interpretation there. But that being said, if an organization just sort of has a blanket statement on their website saying, "We're going to use this contribution broadly for this, this, and this," it might not necessarily be restricted. So I think some judgment will be needed there when looking at whether it is explicitly communicated.

Armand Capisciolto

Thanks, Danielle.

Danielle MacLeod

Okay, another question coming through. When will an organization have to apply the proposals?

Armand Capisciolto

So the proposals are effective, again all subject to your comments and how the re-deliberations on those comments go. But the effective date in this is January 1, 2026. So the first year-end impacted would be December 31, 2026. We are aware that a lot of not-for-profit organizations have a March year-end. So for those, it would be April 1, 2026, and March 31, 2027, being the first year-end impacted.

Danielle MacLeod

Okay. Sorry, just taking a look through the remaining questions here. Some of them are a bit long.

Armand Capisciolto

Yeah, and some of these are just scanning through. We're going to note all of them. Because I know some are questions worded as questions but maybe not agreeing with some of the proposals. So we're noting those things. We're not ignoring them.

And I saw one that I'm just more interested in hearing and talking about because I think someone asked about contributions of cryptocurrencies, and, as you know, that's an area where we're doing some research and some thought leadership on cryptocurrencies. And we, there is no specific, we're not proposing anything specific related to that. Cryptocurrencies are an accounting issue unto themselves. What are they, and how are they accounted for? I think this is one of these things. If organizations are getting a lot of donations of cryptocurrencies and holding those cryptocurrencies, that's information that, again, maybe not specifically related to these proposals, but we would love to know because we would love to know how prevalent the use of cryptocurrencies is in organizations applying the accounting standards we set. So just, I just wanted to put a plug for the research we're doing on cryptos. And I saw that question.

Danielle MacLeod

Okay. And there is a couple of questions on endowments that kind of touch on a couple of things you talked about. So you had talked about those endowments that, say, have to be held for a term as opposed to indefinitely. Someone had asked, how would you recognize revenue for when it's held for 10 years and then can be used for other purposes?

Armand Capisciolto

Yeah. It's a great question. It's something we had a lot of conversation about. But at the end of the day, it was determined it's not an endowment contribution. So not caught by that accounting. So, therefore, it is caught by the general proposals related to restricted contributions. So that donation that needs to be maintained for 10 years would be recognized as deferred revenue for that 10-year period. And once the restriction is lifted, and you can do what you want with it, it would be revenue at that point in time.

Danielle MacLeod

Okay, and then there's a question here that talks about endowment contributions and a clause in the agreement that says they could be adjusted by the contributor and the receiver. So, I know this is a question that we did talk about before, Armand, with the Board just in terms of some endowments have… I'm not sure if this is the same term this person is referring to, but a lot of contributor endowment contribution agreements have a term that says, if for whatever reason the purpose they initially contributed it for isn't, they can no longer fulfill that, they would use it, sort of, for the next best similar thing. Can you talk about how that would impact the recognition or the classification?

Armand Capisciolto

And I'm going a little bit from memory on this one, Danielle, but I believe our conclusions at the Board, I believe, we might have outlined this in the basis. Was that it? It's still an endowment. Restriction is still there in the proceeds. The investment income generated from that endowment are still – they're going to be used for a specific purpose. So you still can't use the endowment funds for anything else. In that case, I believe we would, again going a little bit from memory on what's exactly in the proposals, that would be something we'd still consider an endowment.

Danielle MacLeod

Great. Yup. I think it would depend on the nature of the clause and that type of thing. But we have heard feedback that those types of clauses are fairly common, and best practice language now being built into agreements. Okay.

Armand Capisciolto

There was a question I saw, Danielle, that may be just something to clarify.

Danielle MacLeod


Armand Capisciolto

I think someone asked a question on why are we making a distinguishment between capital asset contributions for cash versus an asset being contributed? And I just wanted... I think this might be something that maybe wasn't clear.

We're not. If a capital asset is contributed, it is still subject to the same requirements to defer over the life. I'm assuming the person asked that question because they thought, "Well, is this getting caught by the contributed materials and services requirements?" And it's not. The contributed materials and services relate to materials that would not be considered a capital asset.

Danielle MacLeod

Okay. Great. Thank you.

Armand Capisciolto

I see a question here as well about the deferral message: "Why continue align restricted fund approach post-2026?"

We are not allowing the restricted … I think this is again one of the areas of confusion, and sometimes with the standards right now. Restricted fund accounting and fund accounting are two different things. One impacts recognition and measurements right now; one is presentation. And Danielle spoke about fund accounting still being an acceptable presentation choice. And I think one of the things we clarified in the proposals is that we don't just call it fund accounting; we call it actually fund accounting presentation to make it clear. It is a presentation issue and not a recognition and measurement issue.

Danielle MacLeod

And then there's a question here just about the recording of the webinar.

So yes, this is being recorded, and it's going to be made available to watch on demand on our website. So it'll likely just take a day or two to get uploaded onto the website, but it will be there along with the slides to download so that you can refer back to anything that we discussed.

So we have a number of questions here. Some of them are a bit longer, so unfortunately, we didn't get to all of them, but we are going to save the questions so that we can go through them and refer back to them. If there are specific questions that you have, the staff's contact information, myself, is included in the slide deck at the end here, so you'll see it when you download the slides.

So I'd like to thank everyone for taking the time to join us today and participating. We really appreciate all the questions raised as well. I'd like to thank you, Armand, for your time today, and thanks so much for participating, and I hope everyone has a great afternoon.

Armand Capisciolto

Thanks, everyone.


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