24 May Significant Update on NPO Accounting for Revenue

The Accounting Standards Board (the “Board”) is the entity that sets accounting standards in Canada, and it has made a pivotal decision regarding the future of accounting for contributions revenue for not-for-profit organizations (NPOs).  Contributions revenue includes items such as donations, grants, and government funding.

Based on feedback from various outreach sessions and responses to their proposed changes to NPO accounting for contributions revenue, the Board has decided not to move forward with the significant changes they initially proposed. Instead, they will continue to allow NPOs to choose an accounting policy. This is positive news for a sector where resources are often limited, and internal operations and budgeting have been established around one of the two existing options: the deferral method or the restricted fund method.

Why This Decision Matters

For many NPOs, the ability to choose between the deferral method and the restricted fund method has been crucial for their financial management and reporting. The flexibility provided by these options allows organizations to align their accounting practices with their operational needs and donor expectations. Changing these well-established methods could have led to significant disruptions, requiring NPOs to overhaul their accounting systems and possibly incurring additional costs.

Feedback and Future Improvements

The Board‘s decision reflects thoughtful consideration of the feedback received from accountants and members of the NPO sector. While the initial proposed changes will not proceed, the Board recognizes the need for enhancements within the existing frameworks. They will incorporate the valuable feedback to improve the current standards, focusing on clarifying existing issues around recognition criteria and enhancing disclosures. These improvements aim to make the standards more effective. They will be easier to implement than the initially proposed one-size-fits-all approach, ensuring transparency and consistency in financial reporting.

Next Steps: New Exposure Draft

The Board will develop and issue a new accounting proposal, called an exposure draft, for improvements to the deferral and restricted funds methods. This draft will be open for consultation, allowing stakeholders to review and provide input on the proposed changes. The ongoing dialogue between the Board, accountants, and the NPO community at large will be crucial in refining these standards to better meet the sector’s needs.

Monitoring the Developments

As these developments unfold, NPOs must stay informed about the proposed changes and participate in the consultation process. By engaging with these updates, organizations can prepare for any required adjustments and ensure that their financial reporting meets the highest standards of transparency and accountability.

We will monitor the situation closely and provide updates as new information becomes available. Stay tuned for more insights and analysis on this important topic. For more detailed information, visit the AcSB Contributions—Revenue Recognition and Related Matters project on the Financial Reporting and Assurance Standards Canada website.