2010-11-03 New GAAP Requirements for Government Not-for-Profit Organizations

This newsletter discusses the impact of changes to accounting standards for government not-for-profit organizations recently approved by the Public Sector Accounting Board.

Changes to accounting standards applicable to Government not-for-profit organizations (GNFPOs) have been approved by the Public Sector Accounting Board. These changes significantly impact the accounting by NFPOs that are controlled by governments. Schools, hospitals, colleges and universities may qualify as GNFPOs.

GNFPOs will be given a choice to apply either:

• a. the Public Sector (PS) 4200 series of standards plus the Public Sector Accounting (PSA) Handbook; or
• b. the PSA Handbook without the PS 4200 series of standards.

Previously, GNFPOs reported using the CICA Handbook supplemented by the 4400 series of the CICA Handbook (applicable only to NFPOs).

As a transitional strategy, the CICA Handbook 4400 series of standards will be incorporated in the PSA Handbook around December 2010 and will be renumbered as the PS 4200 series of standards therein. GNFPOs will no longer refer to the CICA Handbook as a primary source of GAAP. For those transactions not specifically addressed by the PS 4200 series of standards, GFNPOs will be required to apply the relevant PSA Handbook standards.

Who is impacted?

Not-for-profit organizations controlled by government that currently report using the CICA Handbook will be required to convert to the PSA Handbook for fiscal periods beginning on or after January 1, 2012. These organizations may include schools, hospitals, colleges and universities.

Impact

The status quo will not be an option for GNFPOs. PSA Handbook guidance differs from the CICA Handbook and some of the more significant differences are listed below:

• Pension plans — neither the corridor approach nor full recognition of actuarial gains and losses are allowed.
• Other employee future benefits — leave benefits (e.g. sick pay) are accrued under PSA Handbook regardless of vesting provisions.
• Intangibles — other than software, intangibles are not recognized as assets. Goodwill is rarely capitalized and is instead expensed in the period of acquisition.

Organizations converting to PSAH will need to identify the differences in the standards that impact them and quantify these differences. In addition, the PSA Handbook contains specific exemptions and exceptions applicable to the first time adoption of PSA Standards by government organizations (PS 2125).

Effective date

These changes are effective for fiscal periods beginning on or after January 1, 2012.

Next steps

NFPOs should first determine if they are controlled by a government. PS 1300 provides guidance on the interpretation and application of control by a government. In some instances it may not be readily apparent whether an NFPO is in fact controlled by government if they receive government funding indirectly or from a number of governments. A careful understanding of a NFPOs particular facts and circumstances will be required.

GNFPOs should develop a conversion plan including an initial diagnostic followed by a detailed evaluation of their financial statement components and consideration of exemptions and exceptions applicable to the first time adoption of the PSA Handbook.