Chapter 11
Not-For-Profit Accounting
NPO Organizations Defined

Not-for-profit organizations
normally do not have a
transferable ownership
interest.
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NPO Organizations Defined

Not-for-profit organizations
are operated exclusively for
social, educational,
professional, religious,
health, charitable, or other
not-for-profit purposes.
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NPO Organizations Defined

The resource providers, be
they members or
contributors, do not stand
to benefit because of their
status as resource
providers.
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NPO GAAP

General Approach
› Some Handbook Sections
are applicable
(e.g., Section 1506 which
deals with accounting
changes)
› Some Sections are not
(e.g., Section 3465 on
income taxes)
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NPO Handbook Sections

Section 4400 – Financial Statement Presentation

Section 4410 – Revenue Recognition

Section 4420 – Contributions Receivable

Section 4430 – Capital Assets

Section 4440 – Collections Held

Section 4450 – Controlled and Related Entities

Section 4460 – Related Party Transactions

Section 4470 – Allocated Expenses
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Fund Accounting Defined

Paragraph 4400.02(c)
Fund accounting
comprises the collective accounting procedures
resulting in a self-balancing set of accounts for each
fund established by legal, contractual or voluntary
actions of an organization.
Elements of a fund can include assets, liabilities, net
assets, revenues and expenses (and gains and losses,
where appropriate). Fund accounting involves an
accounting segregation, although not necessarily a
physical segregation, of resources.
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Problems With Fund
Accounting

Fund Definition
Individual organizations can define
the funds that they will use in a totally arbitrary fashion. This
means that similar organizations can be made to appear
very different through the use of a different group of funds.
Further, the use of arbitrarily defined funds can be used to
obscure the overall performance of the organization.
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Problems With Fund
Accounting

Interfund Transfers
Until Section 4400 was
added to the CICA Handbook, there were no rules
governing the reporting of interfund transfers. Such
transfers could be made at the discretion of the
organization and could be reported in a manner
that suggested more activity than the organization
was actually experiencing.
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CICA Handbook Solutions
Fund Definitions
Paragraph 4400.06 An organization that
uses fund accounting in its financial statements
should provide a brief description of the purpose
of each fund reported. (April, 1997)
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CICA Handbook Solutions
Fund Definitions

Paragraph 4400.12

Paragraph 4400.13

Paragraph 4400.14
Interfund transfers should be
presented in the statement of changes in net assets.
(April, 1997)
The amount and purpose of
interfund transfers during the reporting period should be
disclosed. (April, 1997)
The amounts, terms and
conditions of interfund loans outstanding at the
reporting date should be disclosed. (April, 1997)
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Recognition Alternatives

Paragraph 4410.10 An organization should
recognize contributions in accordance with either:
› (a) the deferral method; or
› (b) the restricted fund method. (April, 1997)
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The Deferral Method

Paragraph 4410.02(d) Under the deferral method of
accounting for contributions, restricted contributions
related to expenses of future periods are deferred and
recognized as revenue in the period in which the
related expenses are incurred. Endowment
contributions are reported as direct increases in net
assets.
All other contributions are reported as revenue of the
current period. Organizations that use fund accounting
in their financial statements without following the
restricted fund method would account for contributions
under the deferral method.
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The Restricted Fund Method

Paragraph 4410.02(e) The restricted fund method of
accounting for contributions is a specialized type of
fund accounting which involves the reporting of details
of financial statement elements by fund in such a way
that the organization reports total general funds, one or
more restricted funds, and an endowment fund, if
applicable.
Reporting of financial statement elements segregated
on a basis other than that of use restrictions (e.g., by
program or geographic location) does not constitute
the restricted fund method.
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Contributions

A contribution is a non-reciprocal
transfer to a not-for-profit
organization of cash or other assets
or a non-reciprocal settlement or
cancellation of its liabilities.
Government funding provided to a
not-for-profit organization is
considered to be a contribution.
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Types Of Contributions

A restricted contribution is a
contribution subject to externally
imposed stipulations that specify
the purpose for which the
contributed asset is to be used.
A contribution restricted for the
purchase of a capital asset or a
contribution of the capital asset
itself is a type of restricted
contribution.
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Types Of Contributions

An endowment contribution is a
type of restricted contribution
subject to externally imposed
stipulations specifying that the
resources contributed be
maintained permanently, although
the constituent assets may change
from time to time.
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Types Of Contributions

An unrestricted contribution is a
contribution that is neither a
restricted contribution nor an
endowment contribution.
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Application Of The Deferral
Method

Unrestricted Contributions These
contributions can be recognized in the
period in which they are received or
become receivable.
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Application Of The Deferral
Method

Restricted Contributions The basic idea here is
that the recognition of restricted contributions
must be deferred until the restriction is fulfilled.
The actual implementation of this will depend
on the type of restriction that is involved:
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Application of the Deferral Method
– Restricted Contributions

Expenses Of Current Period If the restriction is for
current period expenses, the contributions should
be recognized in the current period.

Expenses Of Future Periods In this case, the
contributions should be recognized in the same
period or periods in which the related expenses are
made.
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Application of the Deferral Method
– Restricted Contributions

Purchase Of Capital Assets If the restriction is
based on acquiring capital assets that will be
amortized, the contributions should be recognized
on the same basis that the amortization expense is
recorded.
Alternatively, if the contributions are restricted to
the acquisition of non-amortizable assets, they
should be recorded as direct increases in net
assets, without being disclosed as a revenue in the
Statement Of Operations.
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Application of the Deferral Method
– Restricted Contributions

Repayment Of Debt The recognition pattern here
will depend on the purpose for which the debt was
incurred:
› If the debt was for expenses of one or more periods,
the repayment contributions should be recognized
when the related expenses are recognized.
› If the debt was for the acquisition of non-amortizable
capital assets, the repayment contributions should
be added directly to net assets without being
recorded as revenues in the Statement Of
Operations.
› If the debt was for any other purpose, the repayment
contributions should be recognized as revenue in the
current period.
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Application of the Deferral
Method

Endowment Contributions These contributions
should be recorded as direct increases in net
assets during the current period. They should not
be included in the revenues disclosed in the
Statement Of Operations.
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Application of the Deferral
Method

Investment Income As was the case with
contributions restricted to the repayment of debt,
the treatment of investment income amounts is
dependent on their nature:
› If the investment income is not subject to external
restrictions, it should be recognized as a revenue
during the current period.
› …...
› …...
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Application of the Deferral
Method

Investment Income As was the case with
contributions restricted to the repayment of debt,
the treatment of investment income amounts is
dependent on their nature:
› …...
› If the investment income must be added to the
principal amount of resources held for endowment,
the net investment income should be recorded as a
direct increase or decrease in net assets, not as a
revenue in the Statement Of Operations.
› …...
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Application of the Deferral
Method

Investment Income As was the case with
contributions restricted to the repayment of debt,
the treatment of investment income amounts is
dependent on their nature:
› …...
› …...
› If the investment income is subject to other types of
restrictions, it should be allocated to income on the
same basis as was used for restricted contributions
(e.g., if it is restricted to purchases of amortizable
capital assets, it should be recognized as a revenue
on the same basis as the amortization expense is
recorded).
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Application of the
Restricted Fund Method

Unrestricted Contributions
These contributions can be recognized
in the period in which they are received
or become receivable. They should be
disclosed in the general fund.
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Application of the
Restricted Fund Method

Restricted Contributions The treatment here will depend
on whether a restricted fund is being used for the
particular type of restriction that is involved. For example,
if an organization receives contributions that are restricted
to providing food for the homeless, the treatment of these
contributions will depend on whether a separate restricted
fund has been established for this type of activity.
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Application of the Restricted Fund
Method – Restricted Contributions

Contributions With A Corresponding Restricted Fund
In this case, the restricted contributions should be
recognized as a revenue of the related fund in the
period in which they are received or become
receivable.
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Application of the Restricted Fund
Method – Restricted Contributions

Contributions With No Corresponding Restricted
Fund These contributions should be recognized on the
same basis as they would be under the deferral method
(e.g., if they are restricted to purchases of amortizable
capital assets, they should be recognized as a revenue
on the same basis as the amortization expense is
recorded).
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Application of the
Restricted Fund Method

Endowment Contributions These contributions should
be recognized as a revenue of the endowment fund in
the period in which they are received or become
receivable. Note the difference here from the
treatment of these amounts under the deferral method.
Under the deferral method, endowment contributions
are not recorded as revenues, but as direct increases in
the endowment fund assets.
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Application of the
Restricted Fund Method

Investment Income As was the case under
the deferral method, the treatment of
investment income amounts is dependent
on their nature:
› If the investment income is not subject to external
restrictions, it should be recognized as a revenue
during the current period. It would be included in
the general fund.
› …..
› …..
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Application of the
Restricted Fund Method

Investment Income As was the case under
the deferral method, the treatment of
investment income amounts is dependent on
their nature:
› …..
› If the investment income must be added to the
principal amount of resources held for endowment,
the net investment income should be recorded as a
revenue in the Statement Of Operations of the
endowment fund in the period in which it becomes
received or receivable.
› …..
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Application of the
Restricted Fund Method

Investment Income As was the case under
the deferral method, the treatment of
investment income amounts is dependent
on their nature:
› …..
› …..
› If the investment income is subject to a restriction for
which there is a corresponding restricted fund, it
should be included as a revenue in the Statement Of
Operations of that fund in the period in which it
becomes received or receivable. If no
corresponding restricted fund exists, it should be
recognized on the same basis as under the deferral
method.
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Section 4420 –
Contributions Receivable

Paragraph 4420.03
A contribution receivable should be
recognized as an asset when it
meets the following criteria:
› the amount to be received can
be reasonably estimated; and
› ultimate collection is reasonably
assured.
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Section 4420 – Contributions
Receivable - Disclosure

Paragraph 4420.08
When a not-for-profit organization
has recognized outstanding
pledges and bequests in its
financial statements, the following
should be disclosed:
› (a) the amount recognized as assets
at the reporting date; and
› (b) the amount recognized as
revenue in the period.
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Non-Monetary Contributions

Criteria For Recognition
› Their value must be subject to
reasonable estimation. While this is
not explicitly stated, it is likely that
many items would not be recognized
because the cost of estimation
would likely exceed any benefits to
be achieved through this process.
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Non-Monetary Contributions

Criteria For Recognition
› Contributed goods and services
would only be recognized if they
would have otherwise been
purchased. This is likely to eliminate
the recognition of a significant
portion of the voluntary services
received.
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Disclosure - Contributions

Paragraph 4410.21 An organization should
disclose:
› (a) the policy followed in accounting for endowment
contributions; and
› (b) the policies followed in accounting for restricted
contributions.

Paragraph 4410.22 An organization should disclose
its contributions by major source.
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Disclosure - Contributions

Paragraph 4410.23 An organization should disclose
the policy followed in accounting for contributed
materials and services.

Paragraph 4410.24 An organization should disclose
the nature and amount of contributed materials
and services recognized in the financial
statements.
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Revenue Disclosure –
Deferral Method


Paragraph 4410.52 Deferred contributions
balances should be presented in the statement of
financial position outside net assets.
Paragraph 4410.53 An organization should disclose
the nature and amount of changes in deferred
contributions balances for the period.
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Revenue Disclosure –
Deferral Method

Paragraph 4410.55 An organization should disclose
the following related to net investment income
earned on resources held for endowment:
› (a) the amounts recognized in the statement of
operations in the period;
› (b) the amounts deferred in the period;
› (c) the amounts recognized as direct increases or
decreases in net assets in the period; and
› (d) the total earned in the period.
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Revenue Disclosure –
Restricted Fund Method

Paragraph 4410.73 When restricted contributions
are recognized in the general fund in accordance
with paragraph 4410.65, any deferred contributions
balances should be presented in the statement of
financial position outside net assets.

Paragraph 4410.74 When restricted contributions
are recognized in the general fund in accordance
with paragraph 4410.65, the nature and amount of
changes in deferred contributions balances for the
period should be disclosed.
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Revenue Disclosure –
Restricted Fund Method

Paragraph 4410.76 An organization should
disclose the following related to net investment
income earned on resources held for endowment:
› (a) the amounts recognized in the general fund in
›
›
›
›
the period;
(b) the amounts recognized in each restricted fund
in the period;
(c) the amounts recognized in the endowment fund
in the period;
(d) any amounts deferred in the period; and
(e) the total earned in the period.
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Section 4400 – Financial
Statement Presentation

Required Statements
› Financial Position
› Operations
› Changes In Net Assets
› Cash flows
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Financial Position –
General Recommendations

Paragraph 4400.18 For each financial statement
item, the statement of financial position should
present a total that includes all funds reported.
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Financial Position –
General Recommendations

Paragraph 4400.19 The statement of financial
position should present the following:
› (a) deleted
› (b) net assets subject to restrictions requiring that they be
maintained permanently as endowments;
› (c) other restricted net assets;
› (d) unrestricted net assets; and
› (e) total net assets.
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Financial Position –
External Restrictions

Paragraph 4400.26 The following should be
disclosed:
› (a) the amounts of deferred contributions attributable to
each major category of external restrictions with a
description of the restrictions; and
› (b) the amount of net assets subject to external
restrictions requiring that they be maintained permanently
as endowments.
› (c) the amount of net assets subject to internal restrictions
and, separately, external restrictions other that those in
(b) above.
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Financial Position –
External Restrictions

Paragraph 4400.28 The following should be
disclosed:
› (a) the amount of net assets (fund balances) subject to
external restrictions requiring that they be maintained
permanently as endowments;
› (b) the amounts of net assets (fund balances)
attributable to each major category of other external
restrictions with a description of the restrictions; and
› (c) the amounts of deferred contributions attributable to
each major category of external restrictions with a
description of the restrictions.
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Statement Of Operations
General Recommendations

Paragraph 4400.37 Revenues and expenses
should be disclosed at their gross amounts.
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Statement Of Operations
Deferral Method

Paragraph 4400.33 The statement of
operations should present
› a) for each financial statement item, a total that includes
all funds reported; and
› (b) total excess or deficiency of revenues and gains over
expenses and losses for the period.
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Statement Of Operations
Restricted Fund Method

Paragraph 4400.35 The statement of operations
should present the following for the period:
› (a) the total for each financial statement item
recognized in the general fund;
› (b) the total for each financial statement item
recognized in the restricted funds, other than the
endowment fund;
› (c) the total for each financial statement item
recognized in the endowment fund; and
› (d) excess or deficiency of revenues and gains over
expenses and losses for each of the general fund,
restricted funds other than the endowment fund and the
endowment fund.
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Statement Of Changes
In Net Assets

Paragraph 4400.41 The statement of changes in
net assets should present changes in the following
for the period:
› (a) net assets invested in capital assets;
› (b) net assets subject to restrictions requiring that they be
maintained permanently as endowments;
› (c) other restricted net assets;
› (d) unrestricted net assets; and
› (e) total net assets.
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Statement Of Cash Flows

Paragraph 4400.46
The statement of cash
flows should be
prepared in
accordance with
Section 1540, “Cash
Flow Statements”.
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Section 4430 and 4440
Capital Assets
Traditional practice
excluded from financial
statements
 Section 4430 requires
the usual capitalization
and amortization rules
 Two important
exceptions

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Exception 1 – Small
Organizations

Paragraph 4430.03 Organizations may limit
the application of this Section to the
Recommendation in paragraph 4430.40 if
the average of annual revenues
recognized in the statement of operations
for the current and preceding period of
the organization and any entities it controls
is less than $500,000.
When an organization reports some of its
revenues net of related expenses, gross
revenues would be used for purposes of
this calculation.
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Exception 1 – Small
Organizations - Disclosure

Paragraph 4430.40 Organizations meeting the
criterion in paragraph 4430.03 and not following
the other Recommendations of this Section should
disclose the following:
› (a) the policy followed in accounting for capital assets;
› (b) information about major categories of capital assets
not recorded in the statement of financial position,
including a description of the assets; and
› (c) if capital assets are expensed when acquired, the
amount expensed in the current period.
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Exception 2 - Collections

Collections
› held for public exhibition, education or research;
› protected, cared for and preserved; and
› subject to an organizational policy that requires any
proceeds from their sale to be used to acquire other
items to be added to the collection or for the direct
care of the existing collection.
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Capital Assets – Recognition

Paragraph 4430.06 A capital asset should be
recorded on the statement of financial position at
cost. For a contributed capital asset, cost is
considered to be fair value at the date of
contribution. In unusual circumstances when fair
value cannot be reasonably determined, the
capital asset should be recorded at nominal value.
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Capital Assets - Amortization


Paragraph 4430.16 The cost, less any residual
value, of a capital asset with a limited life should
be amortized over its useful life in a rational and
systematic manner appropriate to its nature and
use by the organization. Amortization should be
recognized as an expense in the organization’s
statement of operations.
Paragraph 4430.23 The amortization method and
the estimate of the useful life of a capital asset
should be reviewed on a regular basis.
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Capital Assets – Asset
Retirement Obligations

Paragraph 4430.25 Obligations
associated with the retirement of
property, plant and equipment
are accounted for in accordance
with “Asset Retirement
Obligations”, Section 3110.
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Capital Assets – Write-Downs

Paragraph 4430.28 When a
capital asset no longer has any
long-term service potential to
the organization, the excess of
its net carrying amount over
any residual value should be
recognized as an expense in
the statement of operations. A
write-down should not be
reversed.
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Capital Assets –
Presentation And Disclosure

Paragraph 4430.31
For each major category
of capital assets there should be disclosure of:
› (a) cost;
› (b) accumulated amortization, including the amount of
any write downs; and
› (c) the amortization method used, including the
amortization period or rate.
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Capital Assets –
Presentation And Disclosure

Paragraph 4430.32 The net carrying amounts of
major categories of capital assets not being
amortized should be disclosed.

Paragraph 4430.33 The amount of amortization of
capital assets recognized as an expense for the
period should be disclosed.

Paragraph 4430.34 The amount of any write downs
of capital assets should be disclosed in the
financial statements for the period in which the
write downs are made.
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Contributed Capital Assets

Paragraph 4430.37 The nature and amount of
contributed capital assets received in the period
and recognized in the financial statements should
be disclosed.

Paragraph 4430.38 Information should be
disclosed about contributed capital assets
recognized at nominal value.
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Section 4450 – Controlled and
Related Entities

Definitions
› Control of an entity is the continuing power to determine
its strategic operating, investing and financing policies
without the co-operation of others.
› Joint control of an economic activity is the contractually
agreed sharing of the continuing power to determine its
strategic operating, investing and financing policies.
› A joint venture is an economic activity resulting from a
contractual arrangement whereby two or more venturers
jointly control the economic activity.
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Section 4450 – Controlled and
Related Entities

Definitions (Continued)
› Significant influence over an entity is the ability to affect
the strategic operating, investing and financing policies of
the entity.
› An economic interest in another not-for-profit organization
exists if:
 (i) the other organization holds resources that must be
used to produce revenue or provide services for the
reporting organization; or
 (ii) the reporting organization is responsible for the
liabilities of the other organization.
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Controlled Not-For-Profit
Organizations

Paragraph 4450.14 An organization should
report each controlled not-for-profit
organization in one of the following ways:
› (a) by consolidating the controlled organization in its
financial statements;
› (b) by providing the disclosure set out in paragraph
4450.22; or
› (c) if the controlled organization is one of a large number
of individually immaterial organizations, by providing the
disclosure set out in paragraph 4450.26.
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Controlled Not-For-Profit
Organizations

Paragraph 4450.22 For each controlled not-for-profit
organization or group of similar controlled organizations
not consolidated in the reporting organization’s financial
statements, the following should be disclosed, unless the
group of controlled organizations is comprised of a large
number of individually immaterial organizations (see
paragraph 4450.26):
› (a) total assets, liabilities and net assets at the reporting
date;
› (b) revenues (including gains), expenses (including losses)
and cash flows from operating, financing and investing
activities reported in the period;
› (c) details of any restrictions, by major category, on the
resources of the controlled organizations; and
› (d) significant differences in accounting policies from
those followed by the reporting organization.
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Controlled Not-For-Profit
Organizations

Paragraph 4450.26 An organization may
exclude a group of controlled organizations
from both consolidation and the disclosure
set out in paragraph 4450.22, provided that
› (a) the group of organizations is comprised of a
large number of organizations that are
individually immaterial; and
› (b) the reporting organization discloses the
reasons why the controlled organizations have
been neither consolidated nor included in the
disclosure set out in paragraph 4450.22.
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Controlled Profit Oriented
Organizations

Alternatives
› Can consolidate
› Can use equity method
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Controlled Profit Oriented
Organizations

Paragraph 4450.31
For a
controlled profit oriented
enterprise, regardless of whether
it is consolidated or accounted
for using the equity method, the
following should be disclosed:
› (a) the policy followed in reporting
the controlled enterprise; and
› (b) a description of the relationship
with the controlled enterprise.
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Controlled Profit Oriented
Organizations

Paragraph 4450.32 For each
controlled profit oriented
enterprise or group of similar
controlled enterprises accounted
for using the equity method, the
following should be disclosed:
› (a) total assets, liabilities and
shareholders’ equity at the reporting
date; and
› (b) revenues (including gains),
expenses (including losses), net
income and cash flows from
operating, financing and investing
activities reported in the period.
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Joint Ventures

Alternatives
› Can use proportionate
consolidation
› Can use the equity
method
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Joint Ventures

Paragraph 4450.37 For an
interest in a joint venture,
regardless of whether it is
reported using the proportionate
consolidation or the equity
method, the following should be
disclosed:
› (a) the policy followed in reporting
the interest; and
› (b) a description of the relationship
with the joint venture.
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Joint Ventures

Paragraph 4450.38 For each interest in a joint
venture, or group of similar interests, accounted
for using the equity method, the following should
be disclosed:

(a) the reporting organization’s share of the joint venture’s
total assets, liabilities and net assets, or shareholders’
equity, at the reporting date;

(b) the reporting organization’s share of the joint venture’s
revenues (including gains), expenses (including losses), and
cash flows from operating, financing and investing
activities reported in the period; and

(c) significant differences in accounting policies from
those followed by the reporting organization.
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Significantly Influenced NPOs

Paragraph 4450.40 When the reporting
organization has significant influence in another
not-for-profit organization, the following should be
disclosed:
› (a) a description of the relationship with the significantly
influenced organization;
› (b) a clear and concise description of the significantly
influenced organization’s purpose, its intended community
of service, its status under income tax legislation and its
legal form; and
› (c) the nature and extent of any economic interest that
the reporting organization has in the significantly
influenced organization.
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Significantly Influenced Profit
Oriented Enterprises

Paragraph 4450.43 When the
reporting organization has
significant influence over a
profit oriented enterprise, the
investment should be
accounted for using the equity
method in accordance with
“Investments”, Section 3051.
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Section 4460 – Related Party
Transactions - Definitions
Related parties exist when one party has the ability
to exercise, directly or indirectly, control, joint control or
significant influence over the other. Two or more
parties are related when they are subject to common
control, joint control or common significant influence.
Two not-for-profit organizations are related parties if
one has an economic interest in the other. Related
parties also include management and immediate family
members.
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Section 4460 – Related Party
Transactions - Definitions
A related party transaction is a transfer of
economic resources or obligations between related
parties, or the provision of services by one party to a
related party, regardless of whether any consideration
is exchanged.
The parties to the transaction are related prior to the
transaction. When the relationship arises as a result of
the transaction, the transaction is not one between
related parties.
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Examples Of Related Parties

An entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under
common control with, the reporting organization.

Management: any person(s) having authority and
responsibility for planning, directing and controlling the
activities of the reporting organization. (Management
would include the directors, officers and other persons
fulfilling a senior management function.)

An individual that has either significant influence or joint
control over the reporting organization.

An individual who directly, or indirectly through one or
more intermediaries, controls the reporting organization.
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Related Party Disclosure

Paragraph 4460.07 An organization should disclose
the following information about its transactions with
related parties:
› (a) a description of the relationship between the
›
›
›
›
transacting parties;
(b) a description of the transaction(s), including those for
which no amount has been recorded;
(c) the recorded amount of the transactions classified by
financial statement category;
(d) the measurement basis used for recognizing the
transaction in the financial statements;
…………
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Related Party Disclosure

Paragraph 4460.07 An organization should
disclose the following information about its
transactions with related parties:
› ……..
› (e) amounts due to or from related parties and the terms
and conditions relating thereto;
› (f) contractual obligations with related parties, separate
from other contractual obligations;
› (g) contingencies involving related parties, separate from
other contingencies.
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International Convergence

The IASB does not deal with
NPOs

The CICA has not indicated
what will happen to Section
4400 through 4470 at the
changeover date. There is
currently an Invitation to
Comment out which discusses
the various options.
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