In December 2010, the Canadian Accounting Standards Board issued new accounting standards for not-for-profit organizations (NPOs) and changes for government not-for-profit organizations (GNPOs). Under the previous approach, both GNPOs and non-government NPOs were directed to follow the Canadian Institute of Chartered Accountants’ (CICA) Handbook, which includes standards developed to deal with the unique circumstances of many NPOs — the 4400 series. The new accounting framework will now be dependent on your organization’s classification as either an NPO or GNPO.
So as a director, what do you need to know? Firstly, it is important to understand the options available to your organization. The following table summarizes the new framework:
|Definition||Existing Canadian Generally Accepted Accounting Principles (GAAP)||New Canadian Generally Accepted Accounting Principles|
|Non-government not-for profit organizations
Organizations that are not controlled by the government and that are organized and operated exclusively for social, educational, professional, religious, charitable or any other NPO purposes. Its members, contributors and other resource providers do not, in such capacity, receive any financial return directly from the organization.
|Former CICA Handbook, including CICA 4400 Series (standards that apply only to NPOs)||Choice between:
a. Part I of the CICA Handbook — International Financial Reporting Standards (IFRS)
b. Part III of the CICA Handbook — Accounting Standards for Not-For-Profit Organizations (based largely upon Part II of the CICA Handbook -Accounting Standards for Private Entities plus CICA 4400 Series)
|Government not-for profit organizations
Organizations controlled by the government that have counterparts outside the public sector and that are organized and operated exclusively for social, educational, professional, religious, charitable or any other NPO purposes. Its members, contributors and other resource providers do not, in such capacity, receive any financial return directly from the organization. Under the current definition, schools, hospitals, colleges and universities typically fall under this category.
|Former CICA Handbook, including CICA 4400 Series||Choice between:
a. Public Sector Accounting (PSA) Handbook
b.PSA Handbook supplemented by CICA 4400 series for NPOs which have been incorporated into the PSA Handbook as PS4200
Once you have determined the framework applicable to your organization, it is important to understand the accounting and reporting implications of the options available.
It is expected that the majority of non-government NPOs in Canada will adopt Part III of the CICA Handbook. While for many organizations, this will not result in any significant accounting or disclosure changes, for others the implications may be more significant. The potential differences for NPOs that elect to adopt Part III of the Handbook include:
The option to adopt International Financial Reporting Standards (IFRS) is available to all non-government NPOs but will likely initially only be considered by those organizations that:
IFRS was originally developed for use in the for-profit world and does not contain specific guidance for NPOs. In addition, there is currently no intention to modify IFRS for NPOs; these organizations will be subject to the same standards and requirements as publicly accountable entities. Some of the most significant accounting and reporting implications of adopting IFRS include:
The status quo will no longer be an option for GNPOs as the PSA Handbook guidance differs from the CICA Handbook. Some of the more significant differences include:
Organizations converting to the PSA Handbook 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.
Organizations are required to transition to the appropriate standards by the fiscal year beginning on or after January 1, 2012, although early adoption is permitted. Now is the time to discuss with management the options available to your organization and to start to think about the appropriate implementation date of the new standards.