Contributions – Revenue Recognition and Related Matters

Revised project proposal

The AcSB discussed and approved a revised project proposal to develop a new exposure draft that will continue to allow an accounting policy choice for the recognition of restricted contributions and propose improvements to the two existing methods. This new exposure draft will also incorporate relevant proposals and feedback from the first Exposure Draft , “Contributions – Revenue Recognition and Related Matters,” published in 2023.

The AcSB decided not to issue a consultation paper before developing the new exposure draft. Instead, the Board will seek input from interested and affected parties through surveys, outreach activities, and field testing while developing the new exposure draft.

The AcSB will continue discussing the proposals to be included in the new exposure draft at its June 2024 meeting.

Contributed materials and services, and pledges

The AcSB continued deliberating the feedback on relevant proposals in its 2023 Exposure Draft. The Board also discussed input from its Not-for-Profit Advisory Committee. The Board’s discussion focused on recognition of contributed materials and services, and pledges.

In response to the feedback received, the Board tentatively decided to retain the proposals from the previous Exposure Draft to require recognition of receivables when the recognition criteria are met for each individual pledge or bequest. The Board also considered whether to provide illustrative examples for bequests and contributions received through an intermediary. The Board will continue its discussions of illustrative examples at a future meeting.

The AcSB also discussed the proposed recognition criteria for contributed materials and services, as well as the feedback received on these criteria. The Board directed staff to conduct additional research to determine if the proposed recognition criteria would meet the needs of the not-for-profit sector.

The AcSB will seek feedback from its Not-for-Profit Advisory Committee at its July 2024 meeting.

The Not-for-Profit Advisory Committee continued its discussions on the Contributions project. These discussions reflected the AcSB’s decision in March 2024 to develop a new exposure draft proposing to continue allowing an accounting policy choice for recognizing contributions and propose improvements to both methods. Read the Board’s Feedback Statement for more information on this decision.

The Committee provided input on:

• feedback on the proposals in the previous Exposure Draft, “Contributions – Revenue Recognition and Related Matters,” regarding the definitions of “restricted contributions” and “endowment contributions”;
• the project proposal for the future direction of this project, including the scope, risks, and timeline; and
• issues in practice with the current restricted fund method for contribution recognition and potential solutions to address the issues.

Definition of “restricted contribution” and “endowment contribution”

The Committee discussed the significant areas of feedback on the definition of “restricted contributions”. Committee members thought it would be helpful for the AcSB to include some examples and/or additional guidance to address specific aspects of the definition, such as determining when a restriction is “explicitly communicated” or for a “designated purpose”. The Committee also recommended that the definition of a “restricted contribution” be expanded to explicitly include contributions from related parties, and restrictions imposed by third parties (including restrictions imposed by laws and regulations), and not just restrictions imposed by the contributor.

The Committee discussed concerns respondents raised about contributions related to a “designated period of time” that are for general operations. Committee members thought one approach could be to provide an exception under the restricted fund method that would require deferral of contributions with restrictions related to future periods, instead of immediate recognition in a restricted fund.

The Committee also discussed significant feedback received on the definition of an “endowment contribution”. Most Committee members supported a narrower definition of “endowment contributions”, whereby only contributions that must be maintained permanently would be considered an endowment. The Committee recommended the Board consider whether organizations would account for contributions that are similar to endowments but do not meet the definition, such as those with long-term restrictions, as general restricted contributions or whether specific guidance is needed.

Project proposal

The Committee provided input on the proposed plan direction of the project. The Committee recommended that the AcSB take its time to work closely with the sector to understand the existing issues in practice and develop relevant proposals.

Problems with the restricted fund method, and potential solutions

The Committee discussed issues with the current restricted fund method and potential solutions to address these issues.

The Committee discussed the current requirement that restricted contributions are recognized in the general fund in accordance with the deferral method when no corresponding restricted fund exists. The Committee indicated that the current requirement results in diversity as organizations have discretion over the restricted funds presented. However, the Committee indicated that in some cases deferring restricted contributions under the restricted fund method may provide more useful information, such as for contributions restricted to a future period or with a measurable performance obligation.

The Committee discussed whether providing clear guidance on the funds to be presented when applying the restricted fund method would result in financial statements that are less complex and more useful. The Committee indicated that allowing discretion in determining what funds to report allows NFPOs to present financial statements in a way that is useful and understandable to their financial statement users. The Committee also noted that endowment contributions should be presented in a separate fund on the face of the statement of operations when applying the restricted fund method, given they cannot be spent like other restricted contributions.

The Committee encouraged the AcSB to perform additional research with financial statement users and preparers to identify potential areas for improvement in the restricted fund method. The Board will consider the Committee’s input on these topics, as well as input from additional research, in future meetings.

The AcSB discussed preliminary feedback from outreach activities on the Exposure Draft, “Contributions – Revenue Recognition and Related Matters,” which closed for comment on September 30, 2023. The Board will redeliberate a complete analysis of all feedback on the Exposure Draft starting at its November 2023 meeting. As part of this redeliberation, the Board will consider the next steps and timeline for this project.

The AcSB discussed and approved an outreach and communications plan for the exposure draft on recognition of contributions and related matters. The Board plans to issue the exposure draft at the end of March 2023.

The Not-for-Profit Advisory Committee received an update on the AcSB’s recent decisions in response to feedback received from the Committee’s fatal flaw review of exposure draft proposals. The Committee recommended wording clarifications to the proposed requirement to disclose information about the availability of an organization’s financial and other assets to meet its requirements related to restricted contributions.

The Committee also provided input on the communications and outreach plan for the exposure draft. The AcSB will consider the Committee’s feedback on the communications and outreach plan at its meeting on February 15, 2023. The Board plans to issue the Contributions exposure draft in March 2023.

The AcSB discussed the results of a fatal flaw review of the exposure draft completed by members of its Not-for-Profit Advisory Committee and provided feedback on a revised draft. The Board discussed some wording changes to clarify:

• that an external restriction must be explicitly communicated between the contributor and the organization before or at the time the contribution is made;
• that the recognition guidance should be applied to each individual pledge for the recognition of pledges; and
• the proposed disclosure requirement related to availability of financial assets to meet an organization’s requirements related to restricted contributions.

The AcSB gave permission to begin the balloting process. The Board will discuss an outreach and communications plan for the exposure draft at its meeting in February 2023 and plans to issue the exposure draft in March 2023.

The AcSB discussed the results of field-testing draft proposals relating to the recognition of revenue from contributions. Generally, respondents reached the conclusions that the Board expected when developing the field-testing scenarios. However, the Board discussed some changes to clarify the proposed guidance based on the results. The Board also discussed illustrative examples to be included in the exposure draft, taking into consideration comments received from field-testing participants.

The AcSB discussed a revised draft of the exposure draft, including the basis for conclusions and proposals related to:

• presentation and disclosure of contribution revenue;
• definition, presentation, and disclosure of net investment income;
• definition and disclosure of endowments;
• presentation of net assets; and
• disclosure of restricted cash.

The AcSB will discuss the revised draft of the exposure draft at its January 2023 meeting. The Board will also consider the results of a fatal flaw review of the exposure draft to be completed by its Not-for-Profit Advisory Committee. The Board plans to issue the exposure draft in March 2023.  

The AcSB continued discussing exposure draft proposals and considered feedback from the Not-for-Profit Advisory Committee related to:

• recognition of revenue from restricted contributions and capital asset contributions;
• disclosure of endowments;
• recognition of contributed materials and services;
• transition; and
• the effective date.

The AcSB discussed the revised proposed criteria for determining whether a contribution is externally restricted. The Board tentatively decided that for a contribution to be externally restricted, the restriction must:

• be explicitly communicated between the organization and the contributor; and
• require the resources be used for a designated purpose and/or used within a designated period of time.

The AcSB reaffirmed its tentative decision that capital asset contributions should be accounted for differently than other types of contributions. To address stakeholder concerns related to volatility in the statement of operations, the Board tentatively decided that capital asset contributions related to amortizable capital assets would be deferred and recognized as revenue on the same basis as the related amortization expense. Capital asset contributions related to assets that will not be amortized would be recognized as direct increases in net assets.

The AcSB discussed the proposed disclosure requirements relating to endowments. To add transparency to the financial statements, the Board tentatively decided that an organization should disclose:

• qualitative information about how the organization monitors the value of its endowments and compliance with the related endowment agreements; and
• information that allows users to understand, on an aggregate basis, the extent of endowments where the fair market value is less than the amount required to be maintained permanently.

The AcSB discussed the recognition of contributed materials and services. The Board tentatively decided that when an organization elects to recognize contributed materials and services if the recognition criteria are met, the policy should be applied consistently to all types of contributed materials and services.

The AcSB tentatively decided that the new standard should be applied retrospectively, with transition relief provided for capital asset contributions that were fully recognized in revenue prior to the beginning of the earliest period presented in the financial statements.

The AcSB also discussed the effective date of the new standard and recognized that stakeholders will require adequate time to adopt the new standard. Based on the current timeline, the Board tentatively decided that the proposed effective date of the new standard would be January 1, 2026, with earlier application permitted.

The AcSB will continue discussing the exposure draft proposals at its November meeting. The Board plans to issue an exposure draft in the first quarter of 2023.

The AcSB continued discussing the exposure draft proposals related to the recognition of revenue for restricted contributions, capital asset contributions, endowments, and contributed materials and services.

The AcSB discussed the criteria for determining whether a contribution is externally restricted. The Board reached the preliminary view that a contribution is externally restricted when the resources are designated for a specific purpose or period and this is explicitly communicated between the organization and the contributor.

The AcSB also discussed the recognition of capital contributions and whether they should be accounted for differently than other types of restricted contributions. To address stakeholder concerns related to volatility in the statement of operations, the Board considered whether deferring and amortizing capital contributions into income over the useful life of the asset would result in decision-useful information for financial statement users.

The AcSB reaffirmed its tentative decision that endowment contributions should be recognized as direct increases in net assets in the period in which an organization is entitled to the contribution. For contributions with external restrictions requiring that the resources be maintained for a specific period, the Board reached the tentative decision that they should be accounted for like other restricted contributions. This is because the organization is not required to hold these contributions permanently and typically, they can be used once the term lapses. The Board also discussed disclosure requirements for endowments.

The AcSB discussed the criteria to be met for organizations that choose to recognize contributed materials and services. The Board reaffirmed that an organization may choose to recognize contributed materials and services when the fair value can be reasonably estimated, they are used in the normal course of the organization’s operations, and they would have otherwise been purchased to fulfil the organization’s mandate.

When the Not-for-Profit Advisory Committee meets in October 2022, it will discuss and provide input on these topics and the draft proposals. When the AcSB meets in October 2022, it will consider the Committee’s input and continue discussing the exposure draft proposals. The Board plans to issue an exposure draft in the first quarter of 2023.

The Not-for-Profit Advisory Committee received an update on the AcSB’s recent tentative decisions related to the development of an exposure draft on the recognition of contributions and related topics. Specifically, the Committee discussed draft proposals relating to endowments, contributed materials and services, pledges and bequests. 

The Committee agreed that endowment contributions should be recognized as direct increases to net assets in the period in which the organization is entitled to the contribution. For contributions with externally-imposed requirements specifying that the initial contribution amount must be maintained and invested for a fixed term, the Committee advised that they should be accounted for like other types of restricted contributions and not like endowment contributions.

The Committee agreed that organizations should continue to have the option to recognize contributed materials and services when specific criteria are met. The Committee also commented on the draft criteria and disclosure proposals.

The Committee agreed that pledges should not be recognized until the contributed assets are received. With regards to bequests, they advised that in some scenarios, an organization could become entitled to the contribution before it is received.

The Committee also discussed fund accounting presentation, presentation of net assets, and disclosure of restricted cash. The Committee advised that additional guidance on the application of fund accounting presentation would be helpful. However, it should provide some flexibility to allow organizations to present information in a way that is useful to financial statement users. The Committee also provided input on draft presentation and disclosure proposals.

The AcSB will consider the Committee’s feedback at its meeting on September 14-15, 2022.

The AcSB discussed exposure draft proposals relating to endowments; contributed materials and services; pledges; and bequests and reached the following preliminary views:

• Permanent endowment contributions should be recognized as direct increases in net assets in the period in which the organization is entitled to the contribution as they represent resources that the organization will never be able to access or use for their own benefit.
• Organizations should continue to have the option to recognize contributed materials and services when specific criteria are met.
• Pledges and bequests should not be recognized until the contributed assets are received since an organization cannot control access to the benefit of these contributions until that point.

These preliminary views are subject to discussion with the Not-for-Profit Advisory Committee and further consideration by the AcSB as other aspects of an exposure draft are developed.

The AcSB also discussed fund accounting, presentation of net assets, and disclosure of restricted cash. The Board considered how presentation and disclosure requirements can complement the proposed approach for accounting for contributions and improve the relevance of financial statements prepared in accordance with Part III of the CPA Canada Handbook – Accounting.

The Not-for-Profit Advisory Committee will discuss and provide input on these proposals at its July 2022 meeting. The AcSB will continue discussing exposure draft proposals at its July 2022 meeting. The Board plans to issue an exposure draft in the first quarter of 2023. 

The AcSB discussed the exposure draft proposals and considered input from its Not-for-Profit Advisory Committee relating to the scope of a new standard; definitions of key terms; and revenue recognition for unrestricted contributions, restricted contributions, and capital asset contributions.

Considering the Committee’s feedback, the AcSB discussed the specific factors to include in the guidance for determining whether a contribution is externally restricted and when to recognize revenue from restricted contributions. The Board considered the current definition of a liability in Section 1001, Financial Statement Concepts for Not-for-Profit Organizations, and how it interacts with the draft proposals.

With regard to capital asset contributions, the AcSB discussed options for determining when to recognize revenue, and tentatively decided that they should be accounted for consistently with other types of restricted contributions.

The AcSB will continue discussing the exposure draft proposals at its June 2022 meeting. The Board plans to issue an exposure draft in the first quarter of 2023. 

The Not-for-Profit Advisory Committee was provided with an update on the AcSB’s decision to develop an exposure draft to improve the guidance on accounting for contributions and related topics. The Committee also discussed draft proposals for:

• the scope of the new standard;
• definitions of key terms; and
• recognition of revenue from unrestricted contributions, restricted contributions, and capital asset contributions.

The Committee commented on the proposed definitions of key terms and the proposals for recognizing revenue from contributions. The Committee discussed which types (time or purpose) of requirements associated with a restricted contribution would be viewed as substantive and, therefore, should be considered when determining when to recognize revenue. The Committee advised that refundability may not be a relevant consideration for all types of contributions as charitable donations cannot be refunded in Canada. The Committee agreed that administrative requirements, such as an audit requirement, would not be considered substantive for determining when to recognize revenue.

With regard to capital asset contributions, some Committee members preferred an approach that allows deferral of the contribution over the useful life of the asset. Other Committee members preferred an approach that recognizes capital asset contributions in a manner that is consistent with accounting for other types of restricted contributions.

The AcSB will consider the Committee’s feedback at its meeting on May 18, 2022.

The Not-for-Profit Advisory Committee discussed the stakeholder feedback received on the Consultation Paper, “Contributions – Revenue Recognition and Related Matters,” about special types of contributions, including contributed materials and services, contributed capital assets, endowments, and bequests.

With regards to contributed materials and services, the Committee advised the AcSB that NFPOs should continue to be given a choice whether to recognize these items when the recognition criteria are met. With respect to the criteria, the Committee observed that the criterion related to whether the contributed materials and services would have otherwise been purchased can be subjective. The Committee advised the Board to reconsider this criterion. 

The Committee supported capital assets contributions with similar characteristics being accounted for the same. However, the Committee had mixed feedback on what recognition method provided the most useful information.

With regard to endowments and bequests, the Committee noted that the current guidance on the definition of endowments is clear. However, there is diversity in practice regarding how this guidance is applied. The Committee thought additional application guidance such as illustrative examples could help to address this diversity. Similarly, the Committee thought that the guidance on how to recognize endowment income is clear. However, the Committee advised the AcSB that providing illustrative examples or other application guidance on endowment income would be challenging given the complexity and diversity in the terms of the underlying endowment agreements.

The AcSB will consider the Committee’s comments at the Board meeting on December 6-7, 2021.

The AcSB continued to discuss stakeholders’ feedback received on the Consultation Paper, “Contributions – Revenue Recognition and Related Matters.” The Board considered feedback from comment letters and roundtables on the topic of special types of contributions, including capital asset contributions, endowments and contributed materials and services.

The Not-for-Profit Advisory Committee will discuss the topic of special types of contributions at its meeting in October 2021, and the Board will consider this feedback at its meeting in November 2021.

The AcSB continued to discuss stakeholders’ feedback received on the Consultation Paper, “Contributions – Revenue Recognition and Related Matters.” The Board considered feedback from comment letters, roundtables, and the Not-for-Profit Advisory Committee on the topics of recognition of revenue from contributions, presentation, and disclosure.

The AcSB plans to discuss the topic of special types of contributions at its meeting in September 2021. The Not-for-Profit Advisory Committee will discuss this topic at its meeting in October 2021 and the Board will consider this feedback at its meeting in November 2021.

The AcSB discussed the comment period and the outreach plan for the Consultation Paper, “Contributions – Revenue Recognition and Related Matters.”

The AcSB decided to issue the Consultation Paper with an extended comment-period deadline of December 15, 2020, to allow stakeholders more time to respond in light of the COVID-19 pandemic. The Consultation Paper was issued on May 19, 2020.

The AcSB also discussed the outreach activities planned for obtaining feedback on the Consultation Paper and directed staff to revisit the timing of these outreach events. The Board decided that all outreach activities will be done virtually because of the COVID-19 pandemic.

The AcSB will proceed with issuing its Consultation Paper in May 2020. To give stakeholders more time to respond, the Board decided to extend the comment period . The Board will assess the comment period at its May meeting, reflecting on the importance of stakeholders’ ability to provide their feedback and moving the project forward.

Contributions

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.

The AcSB continued its discussion on the consultation paper, including the nature of illustrative examples to be included related to the recognition of restricted contributions. The Board also discussed how financial statement concepts are used by not-for-profit organizations when accounting for contributions, including the input to be sought in the consultation paper regarding financial statement concepts.