Canadian Association of University Business Officers
Financial Reporting Information Note–Contributions
February 2012
Purpose
Canadian colleges and universities hereinafter referred to as higher education Institutions (“Institutions”)
will be adopting a new basis of accounting for fiscal years beginning on or after January 1, 2012.
Depending on their provincial jurisdiction and control structure, Institutions will be preparing their financial
statements using (1) Part III of the CICA Handbook – Accounting Standards for Not for Profit
Organizations, (2) Public Sector Accounting Standards with the Section 4200 series, or (3) Public Sector
Accounting Standards without the Section 4200 series.
Institutions who are government not-for-profit organizations (GNPO) will be reporting under the Public
Sector Accounting standards either with or without the 4200 series.
The Public Sector Accounting standards alone (i.e. without the 4200 series) do not have a Section which
specifically addresses accounting for contributions other than those received from governments. Section
PS 3100, Restricted Assets and Revenues, establishes standards on how to account for and report
restricted assets and revenues in an Institution’s financial statements. Section PS3410, Government
Transfers, establishes standards on how to account for and report government transfers to Institutions.
Within the 4200 series, section PS4210, Contributions – Revenue Recognition establishes standards for
the recognition, measurement, presentation and disclosure of contributions.
Part III of the CICA Handbook – Accounting Standards for Not for Profit Organizations includes section
4410, Contributions – Revenue Recognition on contributions received by not for profit organizations.
The recognition, measurement, presentation and disclosure requirements with respect to contributions
are identical under PS4210, and section 4410, and consistent with an Institution’s current existing
standards in accounting for contributions.
This financial reporting information note assesses the impact of adoption of each basis of accounting on
the accounting for contributions by Canadian Institutions.
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Key Topics
This financial reporting information note will address the following key areas with respect to
contributions:
Purpose ____________________________________________________________________________ 1
Key Topics __________________________________________________________________________ 2
Contributions Received By Canadian Institutions____________________________________________ 3
Current Accounting for Contributions __________________________________________________ 3
Summary of Key Elements in the PSA Standards and Part III of the Handbook _____________________ 3
Analysis of Accounting Treatment under PSA and Part III _____________________________________ 4
Accounting Treatment Under PSA + 4200 and Part III ______________________________________ 4
Accounting Treatment under PSA (Without the 4200 Series) ________________________________ 9
Transitional Provisions _______________________________________________________________ 12
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Contributions Received By Canadian Institutions
Canadian Institutions typically receive contributions such as grants, and pledges and donations from
external parties including individuals, foundations, corporations and governments. Certain of these
contributions are restricted in use by the external contributor, such as grants and donations for research
or capital purposes.
Institutions also receive restricted contributions which must be retained in perpetuity, such as
endowments. Endowment contributions are addressed in a separate financial reporting information note,
and are therefore excluded from the scope of this financial reporting information note.
Section 4410, Contributions – Revenue Recognition defines a contribution as “…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.”
Current Accounting for Contributions
Prior to the requirement for adoption of a new basis of accounting for all entities for fiscal years beginning
on or after January 1, 2012, an Institution’s accounting for contributions has been based upon the
accounting standards issued by the Accounting Standards Board of the Canadian Institute of Chartered
Accountants (hereinafter referred to as “preexisting GAAP”) contained in Section 4410, Contributions –
Revenue Recognition with respect to the recognition, measurement, presentation and disclosure of
contributions received by not-for-profit organizations.
The accounting for certain contributions requires significant professional judgment to be exercised by
Institutions with respect to the interpretation of the nature and characteristics of restrictions placed by the
external party on the use of the contributed funds. In certain instances, government funding for example
may be considered to be restricted based upon the nature of an Institution’s approved operating budget
supporting the requested funding, as well as requirements to report back to the donor.
Donors may also place restrictions on contributions with respect to the conduct of research by an
Institution, the payment of scholarships and other student awards, the purchase of capital assets, or the
construction and renovation of facilities. In each instance, Institutions must apply professional judgment to
ensure that the accounting for the contributions at the time of receipt as well as the use of the funds over
time is consistent with the imposed restriction. This information note does not endeavour to describe
specific, potential scenarios of restrictions on contributions received or restrictions on related investment
income.
For those Institutions who have historically accounted for contributions under Section 4410 of the former
Handbook, the accounting treatment of individual contributions should not change as a result of the
transition to Part III of the Handbook, or to PSA + 4200.
Summary of Key Elements in the PSA Standards and Part III of the
Handbook
The key elements of relevant sections of the PSA standards, and Part III of the Handbook are referenced
throughout the analysis presented in this financial reporting information note.
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Analysis of Accounting Treatment under PSA and Part III
Accounting Treatment Under PSA + 4200 and Part III
Since the recognition, measurement, presentation and disclosure requirements with respect to
contributions are identical under PSA Section PS4210, and Section 4410 of Part III of the CICA
Handbook, the accounting for contributions under both Part III– Accounting Standards for Not for Profit
Organizations, and the Public Sector Accounting Standards with the Section 4200 series are considered
together in this financial reporting information note.
Contributions
The recognition, measurement, presentation and disclosure of contributions, and related investment
income under each of PS4210 and Section 4410 are exactly the same with an Institution’s present
treatment of contributions under preexisting GAAP with the 4400 series of standards for not-for-profit
organizations.
Consequently, for those Institutions who have historically accounted for contributions under Section 4410
of the former Handbook, the accounting treatment of contributions should not change as a result of the
transition to Part III of the Handbook or to PSA + 4200.
An Institution’s accounting for contributions is dependent upon whether the Institution follows the deferral
method or the restricted fund method of accounting for contributions.
Institutions applying the deferral method of accounting for contributions recognize unrestricted
contributions as revenue when received or receivable if the amount to be received can be reasonably
estimated and collection is reasonably assured. Contributions which are externally restricted for purposes
other than endowments and capital assets are deferred and recognized as revenue in the year in which
related expenses are recognized.
Institutions must apply professional judgment in determining whether external restrictions have been
placed upon certain contributions received. With respect to contributions received from governments,
Sections 4410 and PS4210 both note that “…The assessment of whether government funding in a
particular situation represents a restricted or an unrestricted contribution depends on the characteristics
of the contribution. Restrictions on government funding may be indicated by the fact that the funding is
provided based on the organization's approved operating budget. Another indication that funding is
restricted may be a requirement to report to the funder as to how the resources were actually used.”
Contributions which are externally restricted for the purchase of capital assets are deferred and
recognized as revenue on the same basis as the related capital asset’s amortization. Contributions which
are externally restricted for the purchase of capital assets that will not be amortized (such as land) should
be recognized as a direct increase in net assets.
Institutions applying the restricted fund method of accounting for contributions recognize unrestricted
contributions as revenue of the general fund in the year received or receivable, if the amount to be
received can be reasonably estimated and collection is reasonably assured. Restricted contributions for
which a corresponding restricted fund is present are recognized as revenue of that fund in the year
received or receivable. Sections 4410 and PS4210 define a restricted fund as “…a self-balancing set of
accounts the elements of which are restricted or relate to the use of restricted resources. Only restricted
contributions, other than endowment contributions, and other externally restricted revenue would be
reported as revenue in a restricted fund. Allocations of resources that result from the imposition of internal
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restrictions are recorded as interfund transfers to the restricted fund.” Contributions which are externally
restricted for the purchase of capital assets may be recognized as revenue in a capital asset fund, if one
exists. Where no corresponding restricted capital asset fund is presented, the restricted contributions
would be recognized in the general fund in accordance with the deferral method.
Net Investment Income
An Institution’s accounting for investment income is significantly influenced by whether the Institution
adopts Part III of the CICA Handbook – Accounting Standards for Not for Profit Organizations, or the
Public Sector Accounting Standards with the Section 4200 series.
For institutions reporting under the PSA standards, unrealized net investment income would only be
recognized in the Statement of Remeasurement Gains and Losses, as discussed in the following section.
For institutions reporting under Part III of the Handbook, net investment income is defined to include
revenue, and gains or losses on investments regardless of whether they are realized or unrealized. Both
remeasurement gains and losses and realized gains and losses without external restrictions are
recognized in net income through the Statement of Operations.
Whether an Institution follows the deferral or restricted fund method of accounting also has a significant
influence on how investment income is accounted for.
These accounting considerations related to investment income are highlighted in the following table:
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Deferral Method
Externally restricted net
investment income related
to a contribution for the
purchase of capital assets
that will not be amortized.
(such as land)
Restricted Fund Method
PSA + 4200
Series
Part III Not-ForProfit Standards
PSA + 4200
Series
Part III Not-ForProfit
Standards
Net investment
income initially
recorded as a
deferred
contribution on
the Statement of
Financial
Position. Once
the contribution
plus any
accumulated net
investment
income is applied
for the purchase
of the capital
asset that will not
be amortized, the
aggregate
amount of the
contribution and
accumulated net
investment
income would be
recorded in net
assets.
Net investment
income, including
both realized and
unrealized gains
or losses on
investments
accounted for as
direct increases,
or decreases, in
net assets.
Net investment
income
recognized as
revenue of the
capital asset
fund, or if there
is no applicable
fund in the
general fund as
a deferred
amount.
Net investment
income,
including both
realized and
unrealized
gains or losses
on investments
recognized as
revenue of the
capital asset
fund, or if there
is no applicable
fund in the
general fund as
a deferred.
The change in
unrealized
externally
restricted net
investment
income related to
a contribution for
the purchase of
capital assets
which will not be
amortized would
be recorded in
the Statement of
Remeasurement
Gains and
Losses, and flow
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The change in
the unrealized
externally
restricted net
investment
income related
to a contribution
for the purchase
of capital assets
which will not be
amortized would
be recorded in
the Statement of
Remeasurement
Gains and
Losses, and flow
through the
Statement of
Operations once
the gain or loss
is realized.
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Deferral Method
Restricted Fund Method
through the
Statement of
Operations once
the gain or loss is
realized.
Restriction is placed on the
use of net investment
income earned on a
contribution for a specific
purpose
Net investment
income is
recorded as a
deferred
contribution on
the Statement of
Financial
Position, and
recognized in
income on the
Statement of
Operations as the
net investment
income is used
for that specific
purpose (in a
manner
consistent with
the nature of the
external
restriction
imposed on the
original
contributed
funds.)
The change in
the unrealized
externally
restricted net
investment
income for a
specific purpose
would be
recorded in the
Statement of
Remeasurement
Gains and
Losses, and flow
through the
Statement of
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Net investment
income, including
both realized and
unrealized gains
or losses on
investments
recorded as a
deferred
contribution on
the Statement of
Financial
Position, and
recognized in
income on the
Statement of
Operations as the
net investment
income is used
for that specific
purpose (in a
manner
consistent with
the nature of the
external
restriction
imposed on the
original
contributed
funds.)
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Net investment
income
recognized as
revenue of the
most applicable
fund, or if there
is no applicable
fund in the
general fund as
a deferred
amount.
The change in
the unrealized
externally
restricted net
investment
income for a
specific purpose
would be
recorded in the
Statement of
Remeasurement
Gains and
Losses, and flow
through the
Statement of
Operations once
the gain or loss
is realized.
Net investment
income,
including both
realized and
unrealized
gains or losses
on investments
recognized as
revenue of the
most applicable
fund, or if there
is no applicable
fund in the
general fund as
a deferred
amount.
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Deferral Method
Restricted Fund Method
Operations once
the gain or loss is
realized.
No external restriction
placed on the net
investment income
Net investment
income
(excluding any
unrealized fair
value gains and
losses)
recognized in the
Statement of
Operations in the
period earned.
Net investment
income (including
both realized and
unrealized fair
value gains and
losses)
recognized in the
Statement of
Operations in the
period earned.
The change in
unrestricted net
investment
income which
has not yet been
realized would be
recorded in the
Statement of
Remeasurement
Gains and
Losses, and flow
through the
Statement of
Operations once
the gain or loss is
realized.
Net investment
income
(excluding any
unrealized fair
value gains and
losses)
recognized as
revenue of the
general fund.
Net investment
income
(including both
realized and
unrealized fair
value gains and
losses)
recognized as
revenue of the
general fund.
The change in
unrestricted net
investment
income which
has not yet been
realized would
be recorded in
the Statement of
Remeasurement
Gains and
Losses, and flow
through the
Statement of
Operations once
the gain or loss
is realized.
Disclosure
With respect to disclosure requirements, PS4210 and Section 4410 each indicate that Institutions must
disclose the following with respect to contributions:
(a) the policy followed in accounting for restricted contributions; and
(b) the Institution’s contributions by major source (restricted and non-restricted).
Institutions must also disclose the policy followed in accounting for contributed materials and services,
and the nature and amount of any contributed materials and services recognized in the financial
statements.
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Institutions following the deferral method of accounting for contributions must disclose the nature and
amount of changes in deferred contributions balances for the period.
Institutions following the restricted fund method of accounting for contributions must disclose the nature
and amount of changes in deferred contributions balances for the period, if restricted contributions were
recognized in the general fund.
Accounting Treatment under PSA (Without the 4200 Series)
As noted above, PSA (without the 4200 series) does not have specific guidance with respect to the
accounting of contributions other than contributions received from governments.
Currently, there is significant debate as to the appropriate accounting treatment for contributions under
public sector accounting standards. A definitive consensus has not been developed by practitioners
across the country at this time. While Sections PS 3100, Restricted Assets and Revenues, and PS3410,
Government Transfers provide guidance which can be considered when accounting for contributions,
these sections do not specifically address the unique nature of contributions received by Institutions.
In this section, a description of the available accounting treatments using these existing PSA standards is
provided.
Section PS 3100, Restricted Assets and Revenues, and Section PS3410, Government Transfers each
provide ways to account for contributions under PSA depending on the nature of the contribution.
Discussion on each of these methods of accounting is provided below.
Contributions from non-government entities
Section PS3100 establishes standards on how to account for and report restricted revenues such as
contributions received from individuals, foundations or corporations in an Institution’s financial statements.
Contributions which are not restricted would be recognized by Institutions as revenue in the Statement of
Operations in the period received.
PS3100 defines external restrictions as “…stipulations imposed by an agreement with an external party,
or through legislation of another government, that specify the purpose or purposes for which resources
are to be used. “ Externally restricted contributions would be recognized by Institutions as revenue in the
Statement of Operations in the period that the resources are used for the purpose or purposes specified.
Prior to recognition as revenue, the contribution would be reported as a liability by the Institution.
Contributions from governments
Section PS3410, Government Transfers, which applies to fiscal periods beginning on or after April 1,
2012 specifies the accounting for Institutions for the transfer of monetary assets or tangible capital assets
from a government for which the government making the transfer does not receive anything in return,
expect to be repaid, or expect a return. Grants received by Institutions from governments for general
operations, or restricted purposes such as research would be included within the definition of a
Government Transfer for purposes of application of PS3410.
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PS3410 establishes recognition criteria to be applied by Institutions based upon the terms of the transfer,
with specific consideration given to the authorization of the transfer by the transferor government, and
eligibility criteria and stipulations attached to the transfer. PS3410.08 distinguishes between these two
terms: “Eligibility criteria describe who a recipient must be or what it must do in order to be able to get a
government transfer. Stipulations describe how a recipient must use transferred resources or the actions
it must perform in order to keep the transfer.”
Irrespective of whether a transfer is for operating or capital purposes, revenue would be recognized in the
period the transfer is authorized and eligibility criteria, if any, have been met by an Institution, except
when and to the extent that the transfer is considered to give rise to a liability through transferor-imposed
stipulations. Institutions must carefully examine the nature of any restrictions placed on contributions
received through government transfers, to fully assess the economic substance of the transfer.
Institutions must apply significant professional judgment in assessing whether the stipulations associated
with a transfer, taken together with their actions and communications before the financial statement date,
create a liability.
Transfers which are deferred by Institutions under PS3410 must be demonstrated to give rise to a liability
through transferor-imposed stipulations. PSAB is not prescriptive in PS3410 in specifying when a liability
would arise for a recipient so the liability definition in PS3200 should be used. By including in PS3410 the
consideration of the recipient’s actions and communications in evaluating whether there is evidence that
an obligation exists, PSAB is allowing the application of professional judgment in applying PS3200.
Essentially, the new standard acknowledges that in certain circumstances, stipulations set out in transfer
agreements may not be explicit enough on their own to create a liability and hence recipient actions and
communications need to be considered in determining whether a liability exists.
PS3200, Liabilities, defines the essential characteristics of a liability as follows in PS3200.05:
“Liabilities are present obligations of a government to others arising from past transactions or events, the
settlement of which is expected to result in the future sacrifice of economic benefits. Liabilities have three
essential characteristics:
(a)
they embody a duty or responsibility to others, leaving a government little or no discretion to avoid
settlement of the obligation;
(b)
the duty or responsibility to others entails settlement by future transfer or use of assets, provision
of goods or services, or other form of economic settlement at a specified or determinable date, on
occurrence of a specified event, or on demand; and
(c)
the transactions or events obligating the government have already occurred.”
Where a liability is determined to exist, revenue is recognized when, and in proportion to how, the liability
is settled by the Institution through the use of the funds.
While PS3200 does provide additional guidance on an entity’s loss of discretion (characteristic (a) above),
it does not specifically address how the nature and type of stipulations inherent in government transfer
agreements may impact revenue recognition and also when a stipulation would give rise to an obligation
that meets the definition of a liability. Therefore, professional judgment is required to interpret the
standards and it is encouraged that all Institutions discuss treatment of government contributions with
their auditors for their individual circumstances.
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Investment income
For Institutions adopting the Public Sector Accounting standards alone without the 4200 series, the Public
Sector Accounting standards must be adopted in their entirety as an Institution’s basis of accounting.
Institutions adopting the Public Sector Accounting standards alone may not adhere to select standards
within the 4200 series. Consequently, under PSA without 4200, fund accounting for contributions as
under PS4210 is not allowed. However, Section PS 3100, Restricted Assets and Revenues deals with
external restrictions or stipulations imposed by an agreement with an external party. This section would
be applicable when analyzing the accounting treatment for investment income on restricted contributions.
If no external restrictions are placed on the net investment income (defined to include revenue, and
realized gains or losses on investments), the net investment income would be recognized in the
Statement of Operations in the period earned.
If external restrictions are placed on the net investment income such as in circumstances where they
have been restricted to be spent by the Institution only on certain activities, these realized net investment
income amounts would be recorded as a restricted asset on the Statement of Financial Position.
In both cases above, all unrealized net investment income earned on the contributions, such as fair value
changes on investments, would be recorded in the Statement of Remeasurement Gains and Losses until
such time that the related investments are disposed of, or a write-down for permanent impairment is
required.
PS3410, Government Transfers, does not specifically address accounting for net investment income on
transfers received. These agreements may put stipulations on the use of the net investment income
earned on a transfer (e.g. for the funded project) while other agreements may not put any stipulations on
the use of the net investment income. Where agreements do put stipulations on the use of the net
investment income, Institutions would be required to account for net investment income on a consistent
basis with the imposed stipulations. Where agreements do not put stipulations on the use of the net
investment income, it would be recognized as revenue as earned.
Disclosures
PS3100, Restricted Assets and Revenues, requires an Institution to disclose in the notes or schedules to
their financial statements:
(a)
a general description of the nature and source of any external restrictions;
(b)
the amounts of externally restricted inflows by major source;
(c)
the amount of, and changes in, the deferred revenue balance attributable to each major
category of external restrictions; and
(d)
any externally restricted assets that are segregated, including an explanation of the
relationship of those assets to the related liability.
PS3410, Government Transfers requires an Institution to disclose all major kinds of government transfers
recognized in the accounting period. An Institution’s financial statements should also disclose information
about the nature and terms of liabilities, if any, arising from government transfers received.
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Transitional Provisions
PS4210 and Section 4410
For Institutions who are government not-for-profit organizations (GNPO) and reporting under the Public
Sector Accounting standards with the 4200 series, and for Institutions following Part III of the CICA
Handbook – Accounting Standards for Not for Profit Organizations, no transitional provisions need to be
considered as PS4210 and Section 4410 in Part III are both identical to the accounting standards
currently followed by Institutions using preexisting GAAP.
PSA Standards
For Institutions adopting the Canadian Public Sector Accounting standards without the 4200 series, the
transitional provisions will depend largely on the conclusions reached on the treatment of accounting for
contributions discussed above.
Institutions have the option of applying PS3410, Government Transfers, on a retroactive or prospective
basis upon transition for the fiscal year beginning on or after April 1, 2012. If an Institution chooses to
apply PS3410 on a retroactive basis, it would be required to review any government transfers deferred at
the date of transition, and verify if the deferred amounts represent liabilities based upon transferor
imposed stipulations considering the characteristics specified in PS3200, Liabilities. If the deferred
amount is determined to not represent a liability, it would be reversed by the Institution, and adjusted
through the opening accumulated surplus or deficit of the Institution upon transition.
If an Institution chooses to apply PS3410 on a prospective basis, it would still be required to review any
government transfer agreements effective at the date of transition, which are to remain in place going
forward as the Institution reports under the PSA standards. As with retroactive application, the Institution
would need to verify if any deferred amounts in relation to these agreements represent liabilities based
upon transferor imposed stipulations considering the characteristics specified in PS3200, Liabilities. If the
deferred amount is determined to not represent a liability, it would be reversed by the Institution, and
adjusted through the opening accumulated surplus or deficit of the Institution upon transition.
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