Exposure Draft
Accounting Standards Board
Proposed Accounting Standards for
Not-for-Profit Organizations
Accounting Standards Improvements
for Not-for-Profit Organizations
February 2017
COMMENTS TO THE AcSB MUST BE RECEIVED BY
MAY 31, 2017
Respondents are asked to email their comment letters (in a Word file) to: [email protected]
Please address your comments to:
Rebecca Villmann, CPA, CA,
CPA (Illinois)
Director, Accounting Standards
Accounting Standards Board
277 Wellington Street West
Toronto, Ontario M5V 3H2
This Exposure Draft reflects proposals made by the Accounting Standards Board (AcSB).
Individuals and organizations are invited to send written comments on the Exposure Draft proposals.
Comments are requested from those who agree with the Exposure Draft as well as from those who do not.
Comments are most helpful if they are related to a specific paragraph or group of paragraphs. Any comments
that express disagreement with the proposals in the Exposure Draft should clearly explain the problem and
include a suggested alternative, supported by specific reasoning. All comments received by the AcSB will be
available on the website shortly after the comment deadline, unless confidentiality is requested. The request
for confidentiality must be stated explicitly within the response.
Highlights
The Accounting Standards Board (AcSB) proposes, subject to comments received
following exposure, to replace:

TANGIBLE CAPITAL ASSETS HELD BY NOT-FOR-PROFIT ORGANIZATIONS,
Section 4431 with Section 4433;

INTANGIBLE ASSETS HELD BY NOT-FOR-PROFIT ORGANIZATIONS, Section 4432
with Section 4434; and

COLLECTIONS HELD BY NOT-FOR-PROFIT ORGANIZATIONS, Section 4440 with
Section 4441
in Part III of the CPA Canada Handbook – Accounting as part of its program of major
improvements to accounting standards for not-for-profit organizations (NFPOs).
The AcSB proposes that new Sections 4433, 4434 and 4441 be based on existing
Sections 4431, 4432 and 4440 with proposed revisions resulting from its accounting
standards improvements program.
Tables of Concordance summarize the proposed changes from each of existing
Sections 4431, 4432 and 4440.
For an analysis of the effects of these proposals, see the “Basis for Conclusions.”
Main features of the proposals
The following summarizes the key features of the proposals:
Tangible capital assets and intangible assets

NFPOs would be directed to follow PROPERTY, PLANT AND EQUIPMENT,
Section 3061, GOODWILL AND INTANGIBLE ASSETS, Section 3064, and ASSET
RETIREMENT OBLIGATIONS, Section 3110 in Part II of the Handbook for tangible
capital assets and intangible assets held by NFPOs, except for the guidance
included in Sections 4433 and 4434 related to items such as contributed assets and
write-downs of assets. Applying Section 3061 would include considering the
guidance on componentization (see paragraph 3061.18).

A tangible capital asset or intangible asset would be written down to its fair value or
replacement cost to reflect a partial impairment of the asset when conditions
indicate that the asset no longer contributes to an organization’s ability to provide
goods and services, or that the value of future economic benefits or service
potential associated with the asset is less than its net carrying amount.

A list of indicators would provide examples of conditions that may be present to
indicate impairment of tangible capital assets or intangible assets.
Accounting Standards Improvements for Not-for-Profit Organizations | i

NFPOs would be directed to follow the disclosure requirements in IMPAIRMENT OF
LONG LIVED ASSETS, Section 3063 in Part II for impairments of tangible capital
assets and intangible assets.
Works of art, historical treasures and similar items not part of a collection

NFPOs would continue to account for works of art, historical treasures and similar
items not part of a collection as tangible capital assets, intangible assets,
investments or as inventory type items depending on their intended use (i.e., in
accordance with INVENTORIES HELD BY NOT-FOR-PROFIT ORGANIZATIONS,
Section 3032, and INVESTMENTS, Section 3051 in Part II, and Sections 4433
or 4434).
Collections

Collections would be recorded on the statement of financial position.

An NFPO would make an accounting policy choice to record collections at cost or at
nominal value and that choice would be applied to all of its collections.

Guidance on determining cost would be added. A collection recorded at cost would
be written down to its fair value or replacement cost to reflect partial impairment of
the collection whenever events or changes in circumstances indicate that its net
carrying value may exceed fair value.

A list of indicators would provide examples of conditions that may be present to
indicate impairment of a collection.

Guidance on disposing of items in a collection would be added. For disposal of
items contributed to a collection that are subject to external restrictions, the gain or
loss would be accounted for in accordance with CONTRIBUTIONS — REVENUE
RECOGNITION, Section 4410. However, for items in a collection that do not have
external restrictions and are disposed of, the gain or loss would be recognized in
the statement of operations.

An NFPO would disclose whether the write-down of a collection is measured at the
collection’s fair value or replacement cost.
Transition

Prospective application of Sections 4433 and 4434 would be required in accordance
with ACCOUNTING CHANGES, paragraph 1506.05(g) in Part II, except as permitted
by the transition provisions. The transition provisions would provide relief for an
NFPO to:
o
allocate the costs of tangible capital assets to their component parts based on
their relative cost or fair value at the date the assets were acquired, or at fair
value or replacement cost at the date the Section is first applied; and
ii | Exposure Draft – February 2017
o
recognize an adjustment to opening net assets for partial impairments of
tangible capital assets and intangible assets existing at the date the Section is
first applied.

Retrospective application of Section 4441 would be required in accordance with
ACCOUNTING CHANGES, Section 1506 in Part II, except as permitted by the
transition provisions. The transition provisions would provide relief for an NFPO
that chooses to record its collection at cost to:
o
capitalize items in a collection acquired in previous periods at cost or fair value
at the date of acquisition, or at fair value or replacement cost at the date the
Section is first applied;
o
measure items in a collection at nominal value when the cost cannot be
reasonably determined; and
o
recognize as an adjustment to opening net assets for partial impairments of
collections existing at the date the Section is first applied.
Consequential amendments
Minor consequential amendments would be made, as required, to other standards in
Part III of the Handbook.
Plans for finalizing the proposals
The AcSB will redeliberate the proposals in light of comments received. Part of the
redeliberation process includes consultations with the AcSB’s Not-for-Profit Advisory
Committee. The Committee assists the AcSB in retaining and improving accounting
standards for not-for-profit organizations in Part III. The AcSB will provide updates about
its redeliberations in its decision summaries and on its Accounting Standards
Improvements for Not-for-Profit Organizations project page.
The AcSB expects to issue the new Sections 4433, 4434 and 4441 in the second
quarter of 2018, if no significant changes are required to the proposals after deliberating
the comments received. In that case, the proposed effect date of the amendments
would be for fiscal years beginning on or after January 1, 2019.
Comments requested
Comments are most helpful if they are related to a specific paragraph or group of
paragraphs. Any comments that express disagreement with the proposals in the
Exposure Draft should clearly explain the problem and include a suggested alternative,
supported by specific reasoning.
Accounting Standards Improvements for Not-for-Profit Organizations | iii
While the AcSB welcomes comments on all changes proposed in this Exposure Draft, it
particularly welcomes comments on the questions listed below.
1. Do you agree that NFPOs should be directed to follow PROPERTY, PLANT AND
EQUIPMENT, Section 3061, IMPAIRMENT OF LONG LIVED ASSETS, Section 3063,
GOODWILL AND INTANGIBLE ASSETS, Section 3064, and ASSET RETIREMENT
OBLIGATIONS, Section 3110 in Part II of the Handbook for tangible capital assets
and intangible assets held by NFPOs, except for the guidance included in
Sections 4433 and 4434 (see paragraphs 4433.01 and 4434.01)? If not, why not?
2. Tangible capital assets, intangible assets and collections would be written down to
their fair value or replacement cost to reflect partial impairments. Do you agree with
the following:
(a) Tangible capital assets, intangible assets and collections should be written
down to reflect partial impairments (see paragraphs 4433.16, 4434.06 and
4441.10). If not, why not?
(b) Tangible capital assets, intangible assets and collections should be written
down to their fair value or replacement cost (see paragraphs 4433.16, 4434.06
and 4441.10). If not, what value?
(c) The list of indicators, which provide examples of conditions that may indicate
impairment, would be helpful (see paragraphs 4433.18, 4434.08 and 4441.11).
If not, why not?
3. Do you foresee issues specific to NFPOs being required to consider the guidance in
PROPERTY, PLANT AND EQUIPMENT, paragraph 3061.18 in Part II on
componentization for tangible capital assets? If so, what are they?
4. Do you agree that collections should be recorded on the statement of financial
position at cost or nominal value (see paragraph 4441.06)? If not, why not?
5. Do you think the proposals in Section 4441 would result in NFPOs reporting multiple
collections? If so, what would be the rationale for reporting multiple collections?
6. Do you think that NFPOs with multiple collections should be permitted to value each
collection differently (see paragraph 4441.06)? Why or why not?
7. In accordance with the definition of a collection in Section 4441, the proceeds on
disposal of items in a collection must be used to acquire more items in the collection
or maintain the existing collection.
(a) Do you agree that on disposal of one or more items in a collection, whether by
sale, destruction, loss or expropriation, the difference between the net proceeds
on disposal and the net carrying amount should be recognized:
iv | Exposure Draft – February 2017
(i) in accordance with CONTRIBUTIONS — REVENUE RECOGNITION,
Section 4410 for items contributed to a collection that are subject to
external restrictions (see paragraph 4441.12); or
(ii) in the statement of operations for items in a collection that are not subject to
external restrictions (see paragraph 4441.12)? If not, how should it be
recognized?
(b) How do you report cash received on disposal of items in a collection prior to
acquiring more items or maintaining the existing collection (i.e., is the restricted
cash separately identified on the statement of financial position or disclosed in
the notes)?
(c) CASH FLOW STATEMENT, paragraph 1540.44 in Part II, requires disclosure of
the amount of cash and cash equivalents for which the use is restricted. Are
the disclosure requirements in paragraphs 1540.44 and 4441.14(e) adequate to
inform users when the proceeds on disposal of items in a collection are
internally restricted (i.e., must be used to acquire more items or maintain the
existing collection) or externally restricted (i.e., donor stipulations on contributed
items?) If not, what additional requirements are needed?
8. It is proposed that Sections 4433 and 4434 be applied prospectively in accordance
with ACCOUNTING CHANGES, Section 1506 in Part II and with special transitional
provisions. Do you agree with the following:
(a) Sections 4433 and 4434 should be applied prospectively (see paragraphs 4433.26 and
4434.15). If not, why not?
(b) NFPOs should be permitted to recognize an adjustment to opening net assets at the
date Sections 4433 and 4434 are first applied, to reflect partial impairments of tangible
capital assets and intangible assets existing at that date (see paragraphs 4433.29 and
4434.17). If not, why not?
(c) NFPOs should be permitted to allocate the costs of tangible capital assets to their
component parts based on: cost or fair value at the date of acquisition, or fair value or
replacement cost at the date the Section is first applied (see paragraph 4433.28). If not,
why not?
9. It is proposed that Section 4441 be applied retrospectively in accordance with
ACCOUNTING CHANGES, Section 1506 in Part II and with special transitional
provisions.
(a) Do you agree that Section 4441 should be applied retrospectively (see
paragraph 4441.19)? If not, why not?
(b) Do you agree with the proposed transition relief for measuring collections at
cost (see paragraphs 4441.21-.22)? If not, why not?
Accounting Standards Improvements for Not-for-Profit Organizations | v
(c) Do you think the proposed transition relief for measuring collections at cost will
encourage more NFPOs to use the cost method? If not, what would make a
transition to the cost method easier?
10. Do you agree with the proposed effective date (i.e., fiscal years beginning on or
after January 1, 2019) (see paragraphs 4433.26, 4434.15, and 4441.19)? If not,
why not?
11. Given that many NFPOs have March 31st fiscal year ends, would an effective date
of April 1st be preferable for these and future proposals? Why or why not?
12. Do NFPOs need more than one year to implement the proposed changes in
Section 4433, 4434 and 4441? If so, how long and why?
The deadline for providing your comment letter to the AcSB is May 31, 2017. You may
email your comments (in a Word file) to: [email protected].
vi | Exposure Draft – February 2017
Table of Concordance — Tangible Capital
Assets Held by Not-for-Profit Organizations
The following table indicates the correspondence between the proposed new
Section 4433 and the existing Section 4431. Comments have been included to describe
substantive changes (i.e., changes in current practice). Minor changes include removing
guidance that duplicates guidance contained in Part II, updating section reference
numbers and editorial changes.
Paragraph(s)
in proposed
Section 4433
Paragraph(s)
in existing
Section 4431
No
change
Changes
Minor
.01
.01
.02
.02
.03-.04
.03-.04
.05
.05
.06
Comments
Substantive
X
Adds guidance to
direct NFPOs to
Part II
.06
X
Adds definition of
“replacement cost”.
.07
.07
X
Clarifies what is
included in the cost of
a contributed tangible
capital asset.
.08
.08
.09
.09
X
Explains what is
included in the cost of
a contributed tangible
capital asset.
.10
.10
.11
.11
—
.12-.13
X
.12
.14
X
—
.15-.20
X
.13
.21
X
.14
.22
—
.23-.24
X
.01
.25
X
X
X
X
X
X
X
X
Accounting Standards Improvements for Not-for-Profit Organizations | vii
Paragraph(s)
in proposed
Section 4433
Paragraph(s)
in existing
Section 4431
No
change
Changes
Minor
Comments
Substantive
.16
.26
X
Removes guidance
that required full
impairment and adds
guidance that requires
partial impairment
.17
—
X
Provides guidance on
the concepts “future
economic benefits”
and “service potential”
.18
—
X
Adds examples of
indicators of
impairment
.19
.27
X
Removes guidance
related to full
impairment
.20
.28
—
.29-.33
.21
—
X
Adds a disclosure
requirement for partial
impairment
measurement basis
.15
.34
.22-.24
.35-.37
.25
.38
.26
.39
X
Identifies effective
date
.27-.29
—
X
Provides transition
guidance
viii | Exposure Draft – February 2017
X
X
X
X
X
Table of Concordance — Intangible Assets
Held by Not-for-Profit Organizations
The following table indicates the correspondence between the proposed new
Section 4434 and the existing Section 4432. Comments have been included to describe
substantive changes (i.e., changes in current practice). Minor changes include removing
guidance that duplicates guidance contained in Part II, updating section reference
numbers and editorial changes.
Paragraph(s)
in proposed
Section 4434
Paragraph(s)
in existing
Section 4432
No
change
Changes
Minor
.01
.01
.02-.03
.02-.03
.04
.04
.05
.05
—
Comments
Substantive
X
Adds guidance to
direct NFPOs to
Part II
.06
X
Removes guidance
that directed NFPOs
to Part II for writedowns
.06
.07
X
Removes guidance
that required full
impairment and adds
guidance that requires
partial impairment
.07
—
X
Provides guidance on
the concepts “future
economic benefits”
and “service potential”
.08
—
X
Adds examples of
indicators of
impairment
.09
.08
X
Removes guidance
that required full
impairment
.11
—
X
Adds a disclosure
requirement for partial
impairment
measurement basis
.10
.09
X
.11-.14
.10-.12
X
X
X
X
Accounting Standards Improvements for Not-for-Profit Organizations | ix
Paragraph(s)
in proposed
Section 4434
Paragraph(s)
in existing
Section 4432
No
change
Changes
Minor
Comments
Substantive
.15
.13
X
Identifies effective
date
.16-.17
—
X
Provides transition
guidance
x | Exposure Draft – February 2017
Table of Concordance — Collections Held by
Not-for-Profit Organizations
The following table indicates the correspondence between the proposed new
Section 4441 and the existing Section 4440. Comments have been included to describe
substantive changes (i.e., changes in current practice). Minor changes include removing
guidance that duplicates guidance contained in Part II, updating section reference
numbers and editorial changes.
Paragraph(s)
in proposed
Section 4441
Paragraph(s)
in existing
Section 4440
No
change
Changes
Minor
.01
.01
.02
.02
.03
.03
.04
.04
.05
.05
—
Comments
Substantive
X
Expands scope to
include measurement
and disclosure of
collections
X
Adds definitions of
“cost” and “fair value”
.06
X
Deleted as a result of
requiring collections
be recognized
.06
—
X
Adds guidance to
require collections be
recognized at cost or
nominal value
.07-.08
—
X
Adds guidance for
determining cost
.09
—
X
Adds amortization
guidance
.10
—
X
Adds guidance
requiring partial
impairment
.11
—
X
Adds examples of
indicators of
impairment
.12
—
X
Adds guidance for
disposal of items in a
collection
X
X
X
Accounting Standards Improvements for Not-for-Profit Organizations | xi
Paragraph(s)
in proposed
Section 4441
Paragraph(s)
in existing
Section 4440
No
change
Changes
Minor
Comments
Substantive
.13
—
X
Adds presentation
requirement for
collections recognized
.14
.07
X
Adds disclosure
requirements for
partial impairments
.15
.08
.16
.09
.17
.10
.18
.11
.19
.12
X
Identifies effective
date
.20-.22
—
X
Provides transition
guidance
xii | Exposure Draft – February 2017
X
X
X
X
Tangible Capital Assets Held by
Not-for-Profit Organizations, Section 4433
TABLE OF CONTENTS
Paragraph
Purpose and scope .........................................................................
.01-.05
Definitions ........................................................................................
.06
Recognition and measurement ......................................................
.07-.20
Cost ...........................................................................................
.07-.13
Amortization ...............................................................................
.14-.15
Write-downs ...............................................................................
.16-.19
Disposal .....................................................................................
.20
Presentation and disclosure ..........................................................
.21-.24
Contributed tangible capital assets ...........................................
.22-.24
Tangible capital assets held by small organizations ..................
.25
Effective date ...................................................................................
.26-.29
PURPOSE AND SCOPE
.01
This Section deals with accounting for tangible capital assets held by not-forprofit organizations. Except as otherwise provided in this Section:
(a) tangible capital assets are accounted for in accordance with PROPERTY,
PLANT AND EQUIPMENT, Section 3061 in Part II of the Handbook;
(b) disclosures for impairments of tangible capital assets are accounted for in
accordance with IMPAIRMENT OF LONG-LIVED ASSETS, Section 3063 in
Part II;
(c) obligations associated with the retirement of capital assets are accounted
for in accordance with ASSET RETIREMENT OBLIGATIONS, Section 3110 in
Part II;
(d) intangible assets acquired or developed by not-for-profit organizations are
accounted for in accordance with INTANGIBLE ASSETS HELD BY NOT-FORPROFIT ORGANIZATIONS, Section 4434; and
(e) items held as part of a collection are accounted for in accordance with
COLLECTIONS HELD BY NOT-FOR-PROFIT ORGANIZATIONS, Section 4441.
.02
This Section applies to tangible capital assets recognized under LEASES,
Section 3065 in Part II of the Handbook.
Accounting Standards Improvements for Not-for-profit-Organizations | 1
.03
Organizations may limit the application of this Section to the requirements in
paragraph 4433.25 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.
.04
The Accounting Standards Board encourages even those organizations
meeting the criterion in paragraph 4433.03 to follow all of the requirements of
this Section. However, the Accounting Standards Board recognizes that there
are numerous small not-for-profit organizations for which this would be difficult
and costly. Those organizations that meet the criterion in paragraph 4433.03
and for which the cost of following all of the requirements of this Section may
exceed the benefits, may choose to provide only the disclosure required by
paragraph 4433.25. Once an organization fails to meet the criterion in
paragraph 4433.03, it is expected that it would continue to follow all the
requirements of this Section, even if average revenues subsequently fall below
$500,000.
.05
Organizations that capitalize their tangible capital assets follow all other
relevant provisions of this Section and other relevant Handbook Sections and
thus capitalize all classes of tangible capital assets, amortize and write down
those assets in accordance with this and other relevant Handbook Sections.
DEFINITIONS
.06
The following terms are used in this Section with the meanings specified.
(a) Not-for-profit organizations are entities, normally without transferable
ownership interests, organized and operated exclusively for social,
educational, professional, religious, health, charitable or any other not-forprofit purpose. A not-for-profit organization's members, contributors and
other resource providers do not, in such capacity, receive any financial
return directly from the organization.
(b) Tangible capital assets are identifiable tangible assets that meet all of the
following criteria:
(i)
are held for use in the provision of services, for administrative
purposes, for production of goods or for the maintenance, repair,
development or construction of other tangible capital assets;
2 | Exposure Draft – February 2017
(ii)
have been acquired, constructed or developed with the intention of
being used on a continuing basis;
(iii)
are not intended for sale in the ordinary course of operations; and
(iv)
are not held as part of a collection (see COLLECTIONS HELD BY NOTFOR-PROFIT ORGANIZATIONS, Section 4441).
Examples of tangible capital assets include land, buildings and equipment.
(c) Cost for a contributed tangible capital asset is deemed to be fair value at
the date of contribution plus all costs directly attributable to the acquisition
including installing it at the location and in the condition necessary for its
intended use.
(d) Fair value is the amount of the consideration that would be agreed upon in
an arm's length transaction between knowledgeable, willing parties who are
under no compulsion to act.
(e) Replacement cost is the amount that would be needed currently to acquire
an equivalent asset.
(f) Useful life is the estimate of the period over which a tangible capital asset
is expected to be used by an organization or the number of production or
similar units that can be obtained from the capital asset by the organization.
The life of a tangible capital asset may extend beyond its useful life to an
organization. The life of a tangible capital asset is normally the shortest of
the physical, technological and legal life.
RECOGNITION AND MEASUREMENT
Cost
.07
For a contributed tangible capital asset, cost is deemed to be fair value at the
date of contribution plus all costs directly attributable to the acquisition of the
tangible capital asset. Fair value may be estimated using market or appraisal
values. In unusual circumstances when fair value cannot be reasonably
determined, the tangible capital asset and the related contribution shall be
recorded at nominal value.
.08
Contributed tangible capital assets represent significant economic resources for
many not-for-profit organizations. Without contributed tangible capital assets,
many organizations would not be able to provide the same level of service
without incurring other expenses, such as rent. Therefore, recognizing
contributed tangible capital assets on the organization's statement of financial
position provides financial statement users with information that is important for
assessing the organization's ability to continue to achieve its service objectives.
.09
The cost of a contributed tangible capital asset includes its fair value plus all
other costs directly attributable to the acquisition, such as installation costs,
design and engineering fees, legal fees, survey costs, site preparation costs,
freight charges, transportation costs and duties.
Accounting Standards Improvements for Not-for-profit-Organizations | 3
.10
Organizations may receive substantial contributions of tangible capital assets.
Recognition of contributions of tangible capital assets helps provide an
understanding of the resources available to the organization and enables users
of the financial statements to make comparisons with other organizations.
.11
A tangible capital asset purchased by a not-for-profit organization at
substantially below fair value would also be recognized at its fair value with the
difference between the consideration paid for the tangible capital asset and fair
value reported as a contribution (see CONTRIBUTIONS – REVENUE
RECOGNITION, Section 4410).
Construction or development over time
.12
The cost of a tangible capital asset that is developed or constructed by an
organization might include contributed materials or labour, which would be
recognized at fair value at the date of contribution.
Certain works of art and historical treasures
.13
Certain works of art and historical treasures may have lives that are so long as
to be virtually unlimited. Works of art and historical treasures in this category
are those that have cultural, aesthetic, or historical value that is worth
preserving perpetually. In addition, the organization must have the technological
and financial ability to continue to protect and preserve them. Works of art and
historical treasures of this type would not be amortized.
Amortization
.14
When a fund accounting basis of reporting is used, the choice of the fund or
funds to which amortization expense would be charged would be based on
providing the most meaningful presentation (see FINANCIAL STATEMENT
PRESENTATION BY NOT-FOR-PROFIT ORGANIZATIONS, Section 4400). Some
organizations may wish to show amortization as an expense of the operating
fund. This presentation emphasizes that amortization is part of the cost of
service delivery. Other organizations may prefer to show amortization as an
expense of the tangible capital asset or plant fund. This presentation shows all
revenues and expenses associated with tangible capital assets in a single fund.
.15
Tangible capital assets not being amortized would include works of art and
historical treasures discussed in paragraph 4433.13, or tangible capital assets
under construction or development. They may also include capital assets
removed from service for an extended period of time.
4 | Exposure Draft – February 2017
Write-downs
.16
When conditions indicate that a tangible capital asset no longer contributes to
an organization’s ability to provide goods and services, or that the value of
future economic benefits or service potential associated with the tangible capital
asset is less than its net carrying amount, the net carrying amount of the
tangible capital asset shall be written down to the asset’s fair value or
replacement cost. The write-downs of tangible capital assets shall be accounted
for as expenses in the statement of operations. A write-down shall not be
reversed.
.17
A not-for-profit organization may hold tangible capital assets whose future
economic benefits or service potential are not directly related to their ability to
generate net cash flows. In these cases, the future economic benefits or service
potential of the tangible capital assets for financial reporting purposes is
represented by the amount the organization would need to pay to acquire the
economic benefits or service potential if this was necessary to achieve the
objectives of the organization.
.18
Examples of conditions that may indicate that the future economic benefits or
service potential associated with a tangible capital asset have been reduced
and a write-down is appropriate include, but are not restricted to:
(a) a significant decrease in, or cessation of, the need for the services provided
by the tangible capital asset;
(b) a significant adverse change in the extent or manner in which it is being
used or in its physical condition;
(c) a significant adverse change in legal factors or in the operating environment
that could affect its value, including an adverse action or assessment by a
regulator;
(d) an accumulation of costs significantly in excess of the amount originally
expected for its acquisition or construction;
(e) a current expectation that, more likely than not, it will be sold or otherwise
disposed of significantly before the end of its previously estimated useful life
("more likely than not" means a level of likelihood that is more than 50
percent); and
(f) a significant decrease in its market price.
There may also be other indications that the future economic benefits or service
potential associated with a tangible capital asset may have been reduced.
Accounting Standards Improvements for Not-for-profit-Organizations | 5
.19
When a tangible capital asset's carrying amount is written down, a
corresponding amount of any unamortized deferred contributions related to the
capital asset would be recognized as revenue, provided that all restrictions
have been complied with (see CONTRIBUTIONS — REVENUE RECOGNITION,
Section 4410).
Disposal
.20
On disposal of a tangible capital asset, whether by sale, destruction, loss,
abandonment or expropriation, the difference between the net proceeds on
disposal and the net carrying amount is recognized in the statement of
operations. Any unamortized deferred contributions related to the tangible
capital asset disposed of would be recognized as revenue in the period of the
disposal, provided that all restrictions have been complied with (see
CONTRIBUTIONS — REVENUE RECOGNITION, Section 4410).
PRESENTATION AND DISCLOSURE
.21
An organization shall disclose whether the write down recognized in
accordance with paragraph 4433.16 is measured at the asset’s fair value or
replacement cost.
Contributed tangible capital assets
.22
The nature and amount of contributed tangible capital assets received in the
period and recognized in the financial statements shall be disclosed.
.23
Information shall be disclosed about contributed tangible capital assets
recognized at nominal value.
.24
A contributed tangible capital asset is recognized at nominal value in the
financial statements of a not-for-profit organization when its fair value at the
date of contribution cannot be reasonably determined. Information about such
tangible capital assets helps provide an understanding of the organization's
economic resources. This information would likely include any details about the
assets that would affect their usefulness to the organization: their ages,
locations, present or potential uses and estimated remaining useful lives.
TANGIBLE CAPITAL ASSETS HELD BY SMALL ORGANIZATIONS
.25
Organizations meeting the criterion in paragraph 4433.03 and not following the
other requirements of this Section shall disclose the following:
(a) the policy followed in accounting for tangible capital assets;
(b) information about major categories of tangible capital assets not recorded in
the statement of financial position, including a description of the assets; and
6 | Exposure Draft – February 2017
(c) if tangible capital assets are expensed when acquired, the amount
expensed in the current period.
EFFECTIVE DATE AND TRANSITION
.26
This Section applies to annual financial statements relating to fiscal years
beginning on or after January 1, 2019. A not-for-profit organization applies this
Section prospectively, as defined in ACCOUNTING CHANGES,
paragraph 1506.05(g) in Part II of the Handbook, except as specified in
paragraphs 4433.28-.29. Earlier application is permitted.
.27
A not-for-profit organization can only apply paragraphs 4433.28-.29 when
preparing its annual financial statements relating to the first fiscal year in which
this Section is effective.
.28
A not-for-profit organization that applies this Section for the first time is
permitted to apply the requirements for componentization in PROPERTY, PLANT
AND EQUIPMENT, paragraph 3061.18, to tangible capital assets held at the date
this Section is first applied by allocating the costs of tangible capital assets and
related amortization to their component parts based on their relative:
(a) cost or fair value at the date the assets were acquired; or
(b) fair value or replacement cost at the date this Section is first applied.
A not-for-profit organization can use whichever value is deemed most practical.
.29
In accordance with paragraph 4433.16, a not-for-profit organization that applies
this Section for the first time is permitted to recognize an adjustment to opening
net assets at the date this Section is first applied to reflect partial impairments of
tangible capital assets existing at that date.
Accounting Standards Improvements for Not-for-profit-Organizations | 7
Intangible Assets Held by
Not-for-Profit Organizations, Section 4434
TABLE OF CONTENTS
Paragraph
Purpose and scope .........................................................................
.01-.04
Definitions ........................................................................................
.05
Recognition and measurement ......................................................
.06-.10
Write-downs ...............................................................................
.06-.09
Contributed intangible assets ....................................................
.10
Presentation and disclosure ..........................................................
.11-.14
Contributed intangible assets ....................................................
.12-.14
Effective date ...................................................................................
.15-.17
PURPOSE AND SCOPE
.01
This Section deals with accounting for intangible assets acquired or developed
by a not-for-profit organization. Except as otherwise provided in this Section, a
not-for-profit organization applies GOODWILL AND INTANGIBLE ASSETS, Section
3064 and the disclosure requirements in IMPAIRMENT OF LONG-LIVED ASSETS,
Section 3063 in Part II of the Handbook, to such assets.
.02
Organizations may limit the application of this Section to the requirements in
TANGIBLE CAPITAL ASSETS HELD BY NOT-FOR-PROFIT ORGANIZATIONS,
paragraph 4433.25, when 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.
.03
The Accounting Standards Board encourages even those organizations
meeting the criterion in paragraph 4434.02 to follow all of the requirements of
this Section. However, the Accounting Standards Board recognizes that there
are numerous small not-for-profit organizations for which this would be difficult
and costly. Those organizations that meet the criterion in paragraph 4434.02
and for which the cost of following all of the requirements of this Section may
exceed the benefits, may choose to provide only the disclosure required by
TANGIBLE CAPITAL ASSETS HELD BY NOT-FOR-PROFIT ORGANIZATIONS,
paragraph 4433.25. Once an organization fails to meet the criterion in
paragraph 4434.02, it is expected that it would continue to follow all the
requirements of this Section, even if average revenues subsequently fall below
$500,000.
.04
Organizations that capitalize their intangible assets follow all other relevant
provisions of this Section and other relevant Handbook Sections and thus
8 | Exposure Draft – February 2017
capitalize all classes of intangible assets, amortize and write down those assets
in accordance with this and other relevant Handbook Sections.
DEFINITIONS
.05
The following terms are used in this Section with the meanings specified:
(a) an intangible asset is defined as an identifiable non-monetary asset
without physical substance; and
(b) the terms defined in TANGIBLE CAPITAL ASSETS HELD BY NOT-FOR-PROFIT
ORGANIZATIONS, Section 4433.06, are used in this Section with the
meanings specified in Section 4433.
RECOGNITION AND MEASUREMENT
Write-downs
.06
When conditions indicate that an intangible asset no longer contributes to an
organization’s ability to provide goods and services, or that the value of future
economic benefits or service potential associated with the intangible asset is
less than its net carrying amount, the net carrying amount of the intangible
asset shall be written down to the asset’s fair value or replacement cost. The
write-downs of intangible assets shall be accounted for as expenses in the
statement of operations. A write-down shall not be reversed.
.07
A not-for-profit organization may hold intangible assets whose future economic
benefits or service potential are not directly related to their ability to generate
net cash flows. In these cases, the future economic benefits or service potential
of the intangible assets for financial reporting purposes is reflected by the
amount the organization would need to pay to acquire the economic benefits or
service potential if this was necessary to achieve the objectives of the
organization.
.08
Examples of conditions that may indicate that the future economic benefits
associated with an intangible asset have been reduced and a write-down is
appropriate include, but are not restricted to:
(a) a significant decrease in, or cessation of, the need for the services provided
by the intangible asset;
(b) a significant adverse change in the extent or manner in which it is being
used;
(c) a significant adverse change in legal factors or in the operating environment
that could affect its value, including an adverse action or assessment by a
regulator;
Accounting Standards Improvements for Not-for-profit-Organizations | 9
(d) an accumulation of costs significantly in excess of the amount originally
expected for its acquisition or development;
(e) a current expectation that, more likely than not, it will be sold or otherwise
disposed of significantly before the end of its previously estimated useful life
("more likely than not" means a level of likelihood that is more than 50
percent); and
(f) a significant decrease in its market price.
There may also be other indications that the future economic benefits or service
potential associated with an intangible asset may have been reduced.
.09
When an intangible asset's carrying amount is written down, a corresponding
amount of any unamortized deferred contributions related to the intangible
asset is recognized as revenue, provided that all restrictions have been
complied with (see CONTRIBUTIONS — REVENUE RECOGNITION, Section 4410).
Contributed intangible assets
.10
Organizations may receive contributions of intangible assets. Recognition of
contributions of intangible assets helps provide an understanding of the
resources available to the organization and enables users of the financial
statements to make comparisons with other organizations. A contributed
intangible asset would be recognized at its fair value at the date of contribution.
Fair value of a contributed intangible asset may be estimated using market or
appraisal values. When an estimate of fair value cannot reasonably be made,
both the intangible asset and the related contribution would be recognized at
nominal value.
PRESENTATION AND DISCLOSURE
.11
An organization shall disclose whether the write-down recognized in
accordance with paragraph 4434.06 is measured at the asset’s fair value or
replacement cost.
Contributed intangible assets
.12
The nature and amount of contributed intangible assets received in the period
and recognized in the financial statements shall be disclosed.
.13
10 | Exposure Draft – February 2017
Information shall be disclosed about contributed intangible assets recognized at
nominal value.
.14
A contributed intangible asset is recognized at nominal value in the financial
statements of a not-for-profit organization when its fair value at the date of
contribution cannot be reasonably determined. Information about such
intangible assets helps provide an understanding of the organization's
economic resources. This information would likely include any details about the
assets that would affect their usefulness to the organization: their ages, present
or potential uses and estimated remaining useful lives.
EFFECTIVE DATE AND TRANSITION
.15
This Section applies to annual financial statements relating to fiscal years
beginning on or after January 1, 2019. A not-for-profit organization applies this
Section prospectively, as defined in ACCOUNTING CHANGES,
paragraph 1506.05(g) in Part II of the Handbook, except as specified in
paragraph 4434.17. Earlier application is permitted.
.16
A not-for-profit organization can only apply paragraph 4434.17 when preparing
its annual financial statements relating to the first fiscal year in which this
Section is effective.
.17
In accordance with paragraph 4434.06, a not-for-profit organization that applies
this Section for the first time is permitted to recognize an adjustment to opening
net assets at the date this Section is first applied to reflect partial impairments of
intangible assets existing at that date.
Accounting Standards Improvements for Not-for-profit-Organizations | 11
Collections Held by
Not-for-Profit Organizations, Section 4441
TABLE OF CONTENTS
Paragraph
Purpose and scope .........................................................................
.01-.02
Definitions ........................................................................................
.03
Nature of collections .......................................................................
.04-.05
Recognition and measurement ......................................................
.06-.11
Cost or nominal value ................................................................
.06-.08
Amortization ...............................................................................
.09
Write-downs ...............................................................................
.10-.11
Disposal............................................................................................
.12
Presentation and disclosure ..........................................................
.13-.18
Effective date and transition ..........................................................
.19-.22
PURPOSE AND SCOPE
.01
This Section deals with accounting for collections held by not-for-profit
organizations.
.02
Works of art, historical treasures and similar items that are not part of a
collection are dealt with in INVENTORIES HELD BY NOT-FOR-PROFIT
ORGANIZATIONS, Section 3032, INVESTMENTS, Section 3051 in Part II of the
Handbook, TANGIBLE CAPITAL ASSETS HELD BY NOT-FOR-PROFIT
ORGANIZATIONS, Section 4433, or INTANGIBLE ASSETS HELD BY NOT-FORPROFIT ORGANIZATIONS, Section 4434, based on their intended use.
DEFINITIONS
.03
The following terms are used in this Section with the meanings specified:
(a) Not-for-profit organizations are entities, normally without transferable
ownership interests, organized and operated exclusively for social,
educational, professional, religious, health, charitable or any other not-forprofit purpose. A not-for-profit organization's members, contributors and
other resource providers do not, in such capacity, receive any financial
return directly from the organization.
(b) Collections are works of art, historical treasures or similar assets that are:
(i) held for public exhibition, education or research;
(ii) protected, cared for and preserved; and
12 | Exposure Draft – February 2017
(iii) 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.
(c) Cost is the amount of consideration given up to acquire items making up
the collection and includes all costs directly attributable to the acquisition of
the collection. For contributed items, cost is deemed to be fair value at the
date of contribution plus all costs directly attributable to the acquisition of
items in the collection.
(d) Fair value is the amount of the consideration that would be agreed upon in
an arm's length transaction between knowledgeable, willing parties who are
under no compulsion to act.
NATURE OF COLLECTIONS
.04
Although items meeting the definition of a collection exhibit the characteristics
of assets set out in FINANCIAL STATEMENT CONCEPTS FOR NOT-FOR-PROFIT
ORGANIZATIONS, Section 1001, they are excluded from the definition of capital
assets. Collections are made up of items that are often rare and unique. They
have cultural and historical significance. Although collections are usually held
by museums or galleries, other organizations may also have items that meet
the definition of a collection. For example, an organization's library may include
rare books that may be considered to be a collection for purposes of this
Section. The regular library materials, however, would not usually meet the
definition of a collection.
.05
Organizations holding collections act as custodians for the public interest. They
undertake to protect and preserve the collection for public exhibition, education
or research. The existence of a policy requiring that any proceeds on the sale of
collection items be used to acquire additional items or for the direct care of the
collection provides evidence of the organization's commitment to act as
custodian of the collection.
RECOGNITION AND MEASUREMENT
Cost or nominal value
.06
A collection shall be recorded on the statement of financial position at either
cost or nominal value. For items contributed to a collection, cost is deemed to
be fair value at the date of contribution plus all costs directly attributable to the
acquisition of the items in the collection. Fair value may be estimated using
market or appraisal values. When fair value cannot be reasonably determined,
the items contributed to a collection shall be recorded at nominal value. A notfor-profit organization shall account for all collections using the same method.
.07
The cost of a collection is made up of:
Accounting Standards Improvements for Not-for-profit-Organizations | 13
(a) the purchase price of acquired items;
(b) the fair value of contributed items; plus
(c) all other costs directly attributable to the acquisition of the items making up
the collection such as installation costs, design and engineering fees, legal
fees, survey costs, site preparation costs, freight charges, transportation
costs and duties.
The cost incurred in protecting and preserving items in a collection is a repair or
maintenance and should be expensed.
.08
An item of a collection purchased by a not-for-profit organization at substantially
below fair value would be recognized at its fair value with the difference
between the consideration paid for the item and fair value reported as a
contribution.
Amortization
.09
A collection is not subject to amortization due to the nature of collections, which
requires an organization to preserve these assets in perpetuity.
Write-downs
.10
The value of a collection that is recorded on the statement of financial position
at cost shall be written down whenever events or changes in circumstances
indicate that its net carrying amount may exceed its fair value. The net carrying
amount of the collection shall be written down to its fair value or replacement
cost. The write-down shall be recognized as an expense in the statement of
operations. A write-down shall not be reversed.
.11
Examples of events or changes in circumstances that may indicate that the net
carrying amount of a collection may exceed its fair value and a write-down is
appropriate include, but are not restricted to:
(a) a significant adverse change in the extent or manner in which it is being
used or in its physical condition;
(b) a significant adverse change in legal factors or in the operating environment
that could affect its value;
(c) an accumulation of costs significantly in excess of the amount originally
expected for its acquisition or construction; and
(d) a significant decrease in its market price when readily determinable.
There may also be other indications that the net carrying amount of a collection
may exceed its fair value.
14 | Exposure Draft – February 2017
DISPOSAL
.12
On disposal of items contributed to a collection that are subject to external
restrictions, the difference between the net proceeds on disposal and the net
carrying amount is recognized in accordance with CONTRIBUTIONS — REVENUE
RECOGNITION, Section 4410. For items in a collection that are not subject to
external restrictions and are disposed of, whether by sale, destruction, loss or
expropriation, the difference between the net proceeds on disposal and the net
carrying amount is recognized in the statement of operations.
PRESENTATION AND DISCLOSURE
.13
The amount recognized as a collection shall be presented on a separate line in
the statement of financial position.
.14
A not-for-profit organization shall disclose the following:
(a) a description of its collection;
(b) the accounting policies followed with respect to the measurement of its
collection;
(c) details of any significant changes to the collection in the period;
(d) the amount of expenditures on collection items in the period;
(e) proceeds of any disposals of collection items in the period and how the
proceeds were used; and
(f) in the period in which a write-down is recognized:
(i) a description of the facts and circumstances leading to the write-down;
(ii) whether the write-down is measured at the asset’s fair value or
replacement cost; and
(iii) if not separately presented in the statement of operations, the amount
of the impairment loss from the write-down and the caption in the
statement of operations that includes that loss.
.15
A description of the organization's collection may include the number and
nature of items held or on display, including their relative significance. For large,
diverse collections, such disclosure may take the form of a description by major
categories, rather than by individual items.
.16
Accounting policies related to the measurement of collections may vary from
organization to organization. Disclosure of the organization's accounting
policies with respect to collections would include whether the collection is
recognized in the statement of financial position at cost or at nominal value.
Accounting Standards Improvements for Not-for-profit-Organizations | 15
This disclosure would also state how contributed and purchased collection
items are accounted for.
.17
Changes in the collection resulting from acquisitions and disposals would also
be disclosed. The disclosure would include a description of significant items
acquired during the period and, where known, the fair values of contributed
items. Also, the disclosure would include a description of significant items sold,
given away, damaged, destroyed, lost or otherwise disposed of during the
period. For larger collections with many changes to report, the disclosure may
be provided by major category, rather than by individual item.
.18
According to the definition of collections, proceeds from the sale of collection
items would be used either to acquire new items for the collection or for the
direct care of the collection. In accordance with paragraph 4441.14, the
organization would disclose how any proceeds on the sale of collection items
were used. If not all of the proceeds on sales have been used either to acquire
new items for the collection or for the direct care of the collection by the
reporting date, the organization would disclose how it plans to use the
proceeds.
EFFECTIVE DATE AND TRANSITION
.19
This Section applies to annual financial statements relating to fiscal years
beginning on or after January 1, 2019. A not-for-profit organization applies this
Section retrospectively, in accordance with ACCOUNTING CHANGES,
Section 1506 in Part II of the Handbook, except as specified in
paragraphs 4441.21-.22. Earlier application is permitted.
.20
A not-for-profit organization can only apply paragraphs 4441.21-.22 when
preparing its annual financial statements relating to the first fiscal year in which
this Section is effective.
.21
When a not-for-profit organization applies the accounting policy choice to
account for its collections at cost as set out in paragraph 4441.06 and applies
this Section for the first time, a not-for-profit organization is permitted to
capitalize retrospectively the items in a collection acquired in previous periods
and held at the date this Section is applied at their:
(a) cost or fair value at the date of acquisition; or
(b) fair value or replacement cost at the date this Section is first applied.
A not-for-profit organization uses whichever value is deemed most practical.
When the cost of one or more items in a collection cannot be reasonably
determined, the item(s) are recorded at nominal value, which does not preclude
the remaining items in the collection from being recorded at cost.
16 | Exposure Draft – February 2017
.22
In accordance with paragraph 4441.10, a not-for-profit organization that applies
this Section for the first time is permitted to recognize an adjustment to opening
net assets at the date this Section is first applied to reflect partial impairments of
collections existing at that date.
Accounting Standards Improvements for Not-for-profit-Organizations | 17
Basis for Conclusions
INTRODUCTION
1
In accordance with the AcSB’s strategy to retain and improve accounting standards
for not-for-profit organizations (NFPOs) in Part III of the CPA Canada Handbook –
Accounting, the AcSB is proposing amendments relating to assets held by NFPOs.
In developing these proposals, the AcSB has considered the feedback from private
sector stakeholders to its April 2013 joint AcSB/Public Sector Accounting Board
(PSAB) Statement of Principles, “Improvements to Not-for-Profit Standards,” as well
as input from the AcSB’s Not-for-Profit Advisory Committee.
2
Since the issuance of the Statement of Principles, the AcSB carried out extensive
consultations to reach its stakeholders, including several cross-county roundtable
meetings as well as various private meetings with interested groups. The AcSB met
independently and jointly with PSAB to discuss the responses received on the
Statement of Principles. Since that time, the AcSB also developed its 2016-2021
Strategic Plan, which outlines the AcSB’s vision, how it intends to operate and the
broad policy objectives that will guide its standard-setting activities. The strategies
provide a basis for, and promote, stakeholder confidence in the information reported
by publicly accountable enterprises, private enterprises, NFPOs and pension plans.
As part of the strategic planning process relating to Part III of the Handbook, the
AcSB has reaffirmed its commitment to continue to:
(a) maintain a separate set of standards for private sector NFPOs that addresses
transactions and circumstances unique to such organizations;
(b) review the standards in Part III and update the standards as necessary; and
(c) work with PSAB, with the objective of achieving consistency between private
and public sector standards for NFPOs when appropriate.
3
In response to the feedback from private sector stakeholders to the April 2013
AcSB/PSAB Joint Statement of Principles, “Improvements to Not-for-Profit
Standards,” and as part of its commitment to improve the standards in Part III, the
AcSB has divided the principles among three projects:
(a) accounting standards improvements;
(b) reporting controlled and related entities by NFPOs;
(c) contributions – revenue recognition and related matters.
4
To assist the AcSB in achieving its mandate, the AcSB established a new
permanent committee for NFPOs. The Not-for-Profit Advisory Committee provides
expertise and input to the AcSB on issues relating to accounting standards for
private sector NFPOs, including the proposals in this Exposure Draft. The Advisory
18 | Basis for Conclusions – February 2017
Committee includes auditors, preparers and users of financial statements, including
grantors, with a range of backgrounds and experience from across Canada.
Members include representatives from organizations of differing sizes and in a
variety of industries; some organizations provide benefit to individuals and society
and others serve the public.
5
The AcSB has also considered the consequences of applying these proposals
relative to the objective of financial statements and the benefit versus cost
constraint. As described in FINANCIAL STATEMENT CONCEPTS FOR NOT-FORPROFIT ORGANIZATIONS, Section 1001, the purpose of financial reporting is to
“communicate information that is useful to members, contributors, creditors and
other users in making their resource allocation decisions and/or assessing
management stewardship.” Also as described in Section 1001, the AcSB considers
the benefit versus cost constraint, which states: “In developing accounting
standards, the Board weighs the anticipated costs and benefits of its proposals in
general terms to assess whether they are justified on cost/benefit grounds.”
EFFECTS ANALYSIS
6
The AcSB is committed to updating accounting standards for not-for-profit
organizations, as necessary, to ensure these standards continue to meet the needs
of users of private sector NFPO financial statements. Part of this process is to
understand the differing needs of these users. Based on that understanding, the
AcSB decides, on a case-by-case basis, the extent to which a standard that is being
improved should align with or differ from the corresponding public sector NFPO
standard (issued in the CPA Canada Public Sector Accounting (PSA) Handbook).
Paragraphs 7-15 highlight the effects of the proposed amendments.
Tangible capital assets and intangible assets
7
The AcSB recognizes that, since NFPOs with revenues less than $500,000 are
permitted to limit the application of TANGIBLE CAPITAL ASSETS HELD BY NOT-FORPROFIT ORGANIZATIONS, Section 4431, and INTANGIBLE ASSETS HELD BY NOTFOR-PROFIT ORGANIZATIONS, Section 4432, the effects of the proposals would be
minimal for smaller organizations. However, the AcSB notes that in the future it will
be re-examining this exemption.
8
A primary effect of the proposals is to improve comparability in financial reporting by
eliminating redundancies between Parts II and III of the Handbook by removing
duplicative guidance for tangible capital assets and intangible assets in Part III.
During its strategic plan consultations, the AcSB was informed by stakeholders that
having common guidance in Parts II and III that results in common reporting
improves understandability of the information, especially for those stakeholders who
deal with both Parts II and III. Also, the proposals to require the recognition of partial
impairments of tangible capital assets and intangible assets, as well as the
proposals to separate a tangible capital asset into its component parts, would result
Accounting Standards Improvements for Not-for-Profit Organizations | 19
in improved comparability in financial reporting between NFPOs in the private
sector, NFPOs in other jurisdictions and other private sector enterprises. The
proposals would also provide more timely and useful information for users of NFPO
financial statements. In particular, componentization would result in users being
alerted sooner to potential maintenance issues (for example, a roof that needs to be
replaced). The AcSB also recognizes the costs to preparers and auditors of
assessing and calculating partial impairments and applying the guidance related to
componentization, including the costs of getting this information audited. However,
the AcSB received feedback that partial impairments would be infrequent and would
usually result from redundancies or damage to assets. The AcSB was also informed
by the Advisory Committee that the need to componentize would be rare or possibly
not material. The AcSB notes that componentization is an existing requirement for
private enterprises in Part II of the Handbook and was carried forward from the prechangeover standards in Part V of the Handbook.
9
As a result of applying the proposals in Section 4433, the requirements for the
capitalization, amortization, write-down and disposal of tangible capital assets for
NFPOs would not differ substantially between NFPOs in the private sector and
NFPOs in the public sector that do not use Sections PS 4200 to PS 4270 (the
PS 4200 series) in the PSA Handbook. However, for the proposals related to
intangible assets in Section 4434, there would continue to be a lack of comparability
between NFPOs in the private sector and NFPOs in the public sector that do not
use the PS 4200 series until PSAB considers whether it should address the
accounting for intangible assets. Currently, intangible assets are not generally
recognized as assets in the public sector.
10 Additionally, until such time as the PSAB addresses the PS 4200 series in the PSA
Handbook, the proposals to recognize partial impairments for tangible and
intangible assets and the proposals related to componentization of tangible assets
would create a difference between NFPOs in the private sector and those NFPOs in
the public sector that do follow the PS 4200 series.
Works of art, historical treasures and similar items not part of a
collection
11 The proposals retain the current requirements for works of art, historical treasures
and similar items not part of a collection. However, the proposals in Sections 4433
and 4434 to recognize partial impairments of tangible capital assets and intangible
assets means that works of art, historical treasures and similar items that are not
part of a collection would be written down to reflect partial impairments. In addition,
works of art, historical treasures and similar items that are not part of a collection
and are amortized would be subject to the requirements for componentization. The
AcSB recognizes the additional costs to preparers and auditors of applying the
guidance related to componentization, and assessing and calculating partial
impairments, including the costs of getting this information audited. However, the
20 | Basis for Conclusions – February 2017
AcSB received feedback that componentization and partial impairments would be
infrequent.
12 There would continue to be a lack of comparability between NFPOs in the private
sector and NFPOs in the public sector that do not use the PS 4200 series in the
PSA Handbook until the PSAB considers whether it should address the accounting
for works of art, historical treasures and similar items not part of a collection by all
public sector entities. Currently, these types of assets are not recognized in the
public sector for those NFPOs following the PSA Handbook without the PS 4200
series. There would also be a lack of comparability created between NFPOs in the
private sector and NFPOs in the public sector that do follow the PSA Handbook with
the PS 4200 series in regard to the proposals to componentize and recognize
partial impairments of works of art and historical treasures not part of a collection.
Collections
13 The AcSB has been informed by stakeholders that there is diversity in practice in
the accounting for collections by NFPOs. Some collections are not recorded, and
others are recorded at nominal value, cost or on another basis. A primary effect of
the proposal to require collections be recorded at cost or nominal value would be to
reduce this diversity. The AcSB was informed by stakeholders and the Advisory
Committee that this proposal would also increase consistency in the recognition of
collections since NFPOs would, at a minimum, need to record their collections at
nominal value. Consistency benefits users of NFPO financial statements because
when economically similar items are accounted for the same way by various
NFPOs, it makes the financial statements of different NFPOs more comparable.
While NFPOs can currently choose to recognize collections on their statements of
financial position, the AcSB has been informed that many NFPOs do not record
them. Therefore, recognizing collections on the face of the statement of financial
position would also bring increased awareness to the existence of collections held
by NFPOs.
14 The AcSB recognizes the costs to preparers of assessing and calculating partial
impairments of collections and the costs associated with getting this information
audited. However, the AcSB received feedback that partial impairments would be
rare and would usually result from a significant event such as a fire or flood.
15 There would continue to be a lack of comparability between NFPOs in the private
sector and NFPOs in the public sector that do not use the PS 4200 series in the
PSA Handbook until PSAB consider collections more broadly. The PSA Handbook
without the PS 4200 series does not refer to collections, only works of art and
historical treasures. For those NFPOs that follow the PSA Handbook without the PS
4200 series, works of art and historical treasures (whether or not part of a
collection) are not recognized in the financial statements because a reasonable
estimate of the future benefits associated with such property cannot be made.
Accounting Standards Improvements for Not-for-Profit Organizations | 21
Instead, the existence of such property is disclosed. Additionally, until such time as
PSAB addresses the PS 4200 series, requiring the capitalization of collections at
cost or nominal value may create a difference between NFPOs in the private sector
and those NFPOs in the public sector that do follow the PS 4200 series.
COLLECTIONS HELD BY NOT-FOR-PROFIT ORGANIZATIONS, Section PS 4240 in the
PSA Handbook only requires NFPOs to disclose their collections, although they are
not precluded from capitalizing them.
Conclusion on effects analysis
16 Having considered the effects of the proposals in Sections 4433 and 4434, as well
as COLLECTIONS HELD BY NOT-FOR-PROFIT ORGANIZATIONS, Section 4441, as
discussed above, the AcSB thinks that the proposals would result in significant
improvements to financial reporting for assets held by NFPOs.
TANGIBLE CAPITAL ASSETS AND INTANGIBLE ASSETS
Removing redundancies between Parts II and III of the Handbook
17 Part III of the Handbook is applicable only to private sector NFPOs. NFPOs
applying Part III also apply the standards in Part II of the Handbook to the extent
that the Part II standards address topics not addressed in Part III.
18 The standards in Part II of the Handbook have been developed with the needs of
the financial statement users in mind. The AcSB thinks that financial reporting would
be improved if standards in the 4400 series did not simply reproduce, interpret or
explain standards otherwise contained in Part II. The AcSB continues to support
directing NFPOs to the same financial reporting standards followed by private
enterprises when those standards apply to circumstances and transactions that are
common to all entities in the private sector. Such an approach has resulted in more
consistent financial statement reporting within the private sector, as well as those
financial statements being more readily understood by users.
19 Currently, the accounting requirements in Part III of the Handbook regarding the
capitalization, amortization, and disposal of tangible capital assets are either
identical, or substantially similar, to the standards in Part II of the Handbook.
TANGIBLE CAPITAL ASSETS HELD BY NOT-FOR-PROFIT ORGANIZATIONS,
Section 4431, corresponds closely to PROPERTY, PLANT AND EQUIPMENT,
Section 3061 in Part II. Therefore, the AcSB proposes to remove the redundancies
between Parts II and III by not including guidance in Section 4433 that is duplicative
to Section 3061 in Part II. The AcSB notes that any guidance in TANGIBLE CAPITAL
ASSETS HELD BY NOT-FOR-PROFIT ORGANIZATIONS, Section 4431, or INTANGIBLE
ASSETS HELD BY NOT-FOR-PROFIT ORGANIZATIONS, Section 4432, that is unique
to Part III (for example, material related to contributed assets) would be included in
Sections 4433 and 4434. The AcSB also proposes to add guidance to Section 4433
to clarify what is included in the cost of a contributed tangible capital asset.
22 | Basis for Conclusions – February 2017
Amortization of tangible capital assets
20 The AcSB proposes that amortization guidance be excluded from Section 4433 and,
consequently, NFPOs would apply PROPERTY, PLANT AND EQUIPMENT,
Section 3061 in Part II, for guidance on amortizing all tangible capital assets,
including contributed capital assets. However, the guidance for calculating
amortization of tangible capital assets differs between TANGIBLE CAPITAL ASSETS
HELD BY NOT-FOR-PROFIT ORGANIZATIONS, Section 4431, and Section 3061 in
Part II. Paragraph 4431.16 indicates amortization of capital assets is based on “cost
less residual value” and is provided over the asset's estimated “useful life” in a
rational and systematic manner.
21 Alternatively, PROPERTY, PLANT AND EQUIPMENT, paragraph 3061.16 in Part II,
states that amortization of capital assets is the greater of cost less residual value
over the asset's estimated useful life and cost less salvage value over the life of the
asset. Therefore, excluding the current amortization guidance in TANGIBLE CAPITAL
ASSETS HELD BY NOT-FOR-PROFIT ORGANIZATIONS, Section 4431, from
Section 4433 means that NFPOs would apply paragraph 3061.16 in Part II, instead,
which may differ from current practice.
22 The AcSB was informed by the Advisory Committee that they did not foresee any
issues with the amortization requirements in PROPERTY, PLANT AND EQUIPMENT,
Section 3061 in Part II, because salvage values are likely nominal or less than
residual value and, therefore, would not likely result in a change in practice.
Consequently, the AcSB proposes to exclude amortization guidance from
Section 4433.
Componentization
23 The AcSB recognizes that by proposing to direct NFPOs to follow PROPERTY,
PLANT AND EQUIPMENT, Section 3061 in Part II, NFPOs would need to consider the
guidance related to componentization, which is not included in TANGIBLE CAPITAL
ASSETS HELD BY NOT-FOR-PROFIT ORGANIZATIONS, Section 4431.
Paragraph 3061.18 in Part II states: "The cost of an item of property, plant and
equipment made up of significant separable component parts is allocated to the
component parts when practicable and when estimates can be made of the lives of
the separate components." The AcSB notes that componentization was also a
requirement under the pre-changeover standards in Part V of the Handbook.
Therefore, requiring NFPOs to consider componentization aligns with the existing
requirements for private enterprises in Part II. The AcSB could not identify any
unique characteristics or reasons why NFPOs should be different from other entities
and not be required to consider componentization.
24 The AcSB notes that the requirements for componentization could affect many
NFPOs. For example, NFPOs may have to separate a furnace from a building. The
AcSB acknowledges that some additional work by preparers and auditors may be
Accounting Standards Improvements for Not-for-Profit Organizations | 23
required to apply the guidance for componentization. However, the Advisory
Committee noted that some NFPOs already have the information to do
componentization and, in fact, a few already do it. Some members of the Advisory
Committee reflected on how capital maintenance of NFPO assets could be
important to some NFPOs and their users and, therefore, componentization could
be useful. For example, the roof of a building or a furnace that needs to be replaced
has a much shorter useful life than the entire building. Showing a roof or a furnace
separately from the building could highlight a potentially significant maintenance
issue.
25 After discussion, the Advisory Committee noted that NFPOs have the same
characteristics as other entities when accounting for components of tangible capital
assets. Accordingly, the AcSB proposes that NFPOs apply the guidance for
componentization in PROPERTY, PLANT AND EQUIPMENT, Section 3061 in Part II.
Recognizing partial impairments of tangible capital assets and
intangible assets
26 Currently, TANGIBLE CAPITAL ASSETS HELD BY NOT-FOR-PROFIT ORGANIZATIONS,
Section 4431, and INTANGIBLE ASSETS HELD BY NOT-FOR-PROFIT
ORGANIZATIONS, Section 4432, only require write-offs of tangible capital assets and
intangible assets when the assets are fully impaired. PROPERTY, PLANT AND
EQUIPMENT, Section 3061 in Part II, does not address impairment. Section 3061
and GOODWILL AND INTANGIBLE ASSETS, Section 3064 in Part II, require that
tangible capital assets and intangible assets be tested for impairment in accordance
with IMPAIRMENT OF LONG-LIVED ASSETS, Section 3063 in Part II. Section 3063 in
Part II requires that an impairment loss "be recognized when the carrying amount of
a long-lived asset is not recoverable and exceeds its fair value." Therefore, in Part
II, partial impairments are recognized when a tangible capital asset’s and intangible
asset's carrying amount is not recoverable and exceeds its fair value.
27 The AcSB notes that recognizing partial impairments is common among all types of
entities and did not identify any unique circumstances for NFPOs that warrant
different accounting. The Advisory Committee advised the AcSB that partial
impairments for NFPOs would likely be infrequent as they generally would apply to
buildings and usually result from redundancies or damage. For example, an
impairment of an asset may have occurred when 25 percent of a building is no
longer being used by the NFPO. The majority of respondents to the Statement of
Principles agreed with recognizing partial impairments of tangible capital assets and
intangible assets. These respondents also agreed that although an asset may no
longer be working at its full potential, it still has value to the organization.
Consequently, the AcSB proposes that NFPOs should recognize partial declines in
their tangible capital asset’s and intangible asset's values.
24 | Basis for Conclusions – February 2017
28 One option the AcSB considered for recognizing write-downs of tangible capital
assets and intangible assets would be to direct NFPOs to Part II. IMPAIRMENT OF
LONG-LIVED ASSETS, paragraph 3063.04 in Part II, states: “An impairment loss
shall be recognized when the carrying amount of a long-lived asset is not
recoverable and exceeds its fair value.” However, the Advisory Committee
expressed concerns to the AcSB that in Section 3063 recoverability of the carrying
amount of an asset relates to future cash flows expected to result from the asset's
use and disposal. Paragraph 3063.05 in Part II states: “The carrying amount of a
long-lived asset is not recoverable if the carrying amount exceeds the sum of the
undiscounted cash flows expected to result from its use and eventual disposition.”
29 The Advisory Committee informed the AcSB that NFPOs likely hold tangible capital
assets and intangible assets whose future economic benefits or service potential
are not directly related to their ability to generate cash flows. Instead, the future
economic benefits or service potential is based on the amount the organization
would need to pay to acquire the economic benefits or service potential to achieve
its objectives and not on recoverability of expected future cash flows. Therefore, the
Advisory Committee noted that because of these unique attributes, NFPOs should
not be directed to Part II of the Handbook for impairments. Consequently, the AcSB
proposes that guidance be added to Sections 4433 and 4434 for recognizing writedowns of tangible capital assets and intangible assets, instead of directing NFPOs
to Part II.
Indicators of impairment
30 IMPAIRMENT OF LONG-LIVED ASSETS, Section 3063 in Part II, includes a list of
conditions that may indicate that a write-down of tangible capital assets and
intangible assets is appropriate. The AcSB considered the need to add similar
guidance to Sections 4433 and 4434. The Advisory Committee suggested that a
decrease in service potential should also be added to the list of indicators since that
would be a common example for NFPOs as to when a write-down of an asset may
be necessary. Based on the Advisory Committee’s input, the AcSB proposes to add
a list similar to Section 3063 in Part II to Sections 4433 and 4434 to indicate when a
write-down of tangible capital assets and intangible assets may be appropriate.
31 The AcSB notes that the list of indicators is only meant to provide examples of
conditions that may be present to indicate impairment; it is not meant to be a list of
requirements for impairment. The AcSB also discussed whether the list of indicators
should be segregated into different types (for example, primary versus secondary
indicators or external factor versus internal factor indicators). However, the AcSB
did not want to add unnecessary complexity for NFPOs and, therefore, did not
segregate the list of indicators in Sections 4433 and 4434.
Accounting Standards Improvements for Not-for-Profit Organizations | 25
Works of art, historical treasures and similar items not part of a
collection
32 Occasionally, an NFPO may acquire works of art, historical treasures and similar
items to be used as tangible capital assets or for sale. For example, the
organization may acquire a work of art to be used as an office furnishing or receive
a work of art that will be sold. Currently, COLLECTIONS HELD BY NOT-FOR-PROFIT
ORGANIZATIONS, paragraph 4440.02, states: "Works of art, historical treasures and
similar items that are not part of a collection are dealt with in TANGIBLE CAPITAL
ASSETS HELD BY NOT-FOR-PROFIT ORGANIZATIONS, Section 4431, and
INTANGIBLE ASSETS HELD BY NOT-FOR-PROFIT ORGANIZATIONS, Section 4432."
33 The AcSB notes that at the time COLLECTIONS HELD BY NOT-FOR-PROFIT
ORGANIZATIONS, Section 4440, was developed, INVENTORIES HELD BY NOT-FORPROFIT ORGANIZATIONS, Section 3032, did not exist. Therefore, for completeness,
the Statement of Principles proposed to add a reference to Section 3032 in
paragraph 4440.02. The proposal was to allow works of art, historical treasures and
similar items to be accounted for according to their intended use (i.e., as capital
assets or inventory items). Respondents agreed with the proposal and did not
express any concerns.
34 However, the Advisory Committee expressed concerns to the AcSB with adding a
reference to INVENTORIES HELD BY NOT-FOR-PROFIT ORGANIZATIONS,
Section 3032, since it may signal a change in practice, which is not the intent of the
proposal. The AcSB notes that paragraph 4441.02 is not a requirement. Instead, the
paragraph identifies guidance that may be applicable to works of art, historical
treasures etc. not part of a collection. The Advisory Committee informed the AcSB
they are not aware of any NFPOs that account for works of art etc. as inventories.
Instead, they are either tangible capital assets, intangible assets or investments, so
TANGIBLE CAPITAL ASSETS HELD BY NOT-FOR-PROFIT ORGANIZATIONS,
Section 4431, INTANGIBLE ASSETS HELD BY NOT-FOR-PROFIT ORGANIZATIONS,
Section 4432, or INVESTMENTS, Section 3051 in Part II are applied. The AcSB
recognizes this is the case, although rare works of art etc. could be inventories. For
example, an NFPO that is an art gallery could sell works of art to support a specific
cause. Therefore, for completeness the AcSB proposes that these items continue to
be accounted for as tangible capital assets, intangible assets, investments or as
inventory type items depending on their intended use (i.e., in accordance with
Sections 3032, 3051, 4433 or 4434).
35 The AcSB notes that the guidance in TANGIBLE CAPITAL ASSETS HELD BY NOTFOR-PROFIT ORGANIZATIONS, Section 4431, relating to land not being amortized
would be excluded from Section 4433 because it is duplicative to the guidance in
PROPERTY, PLANT AND EQUIPMENT, Section 3061 in Part II. The AcSB also notes
that the proposals in Sections 4433 and 4434 to recognize partial impairments of
tangible capital assets and intangible assets means that works of art, historical
26 | Basis for Conclusions – February 2017
treasures and similar items that are not part of a collection would be written down to
reflect partial impairments.
Measuring partial impairments of tangible capital assets and intangible
assets
36 The AcSB and the Advisory Committee assessed various options for measuring the
impairment of tangible capital assets and intangible assets such as writing an asset
down to its fair value, value, or replacement cost. The AcSB recognizes that NFPOs
have experience determining fair value (for example, contributed capital assets are
initially measured at fair value). However, the Advisory Committee informed the
AcSB that determining fair value would be difficult and, in some cases impracticable
for many NFPOs. For many assets, NFPOs do not intend to sell them and some
assets do not have readily available market values. The Advisory Committee also
noted that determining fair value would be costly since an appraisal would be
needed and auditors would need to verify the amount. Therefore, the Advisory
Committee thought that the costs of determining fair value would exceed the
benefits. Consequently, the AcSB recognizes the importance of giving NFPOs an
alternative if fair value was required, particularly for situations when determining fair
value would be too costly or when there are no readily available market prices for
the asset.
37 The AcSB also considered whether, like the PSA Handbook, an asset should be
written down to its “value” instead. That approach would allow an NFPO to choose
the value that is the most appropriate and useful to its users (for example, fair value,
future economic benefits or service potential). However, the AcSB was concerned
that using ‘value’ is too vague and would result in diversity in practice.
38 The AcSB also considered writing an asset down from its net carrying amount to its
replacement cost since NFPOs are familiar with using replacement cost (for
example, inventories are measured at the lower of cost and current replacement
cost). The AcSB thinks that a choice of replacement cost and fair value would be
the most appropriate because it would provide clear parameters on the value to
which an asset should be written down and also provide NFPOs the flexibility to
choose the value that is readily available and at a lower cost. Therefore, the AcSB
proposes that an asset should be written down to its replacement cost or fair value.
Presentation and disclosure
39 The Advisory Committee discussed the disclosure requirements in IMPAIRMENT OF
LONG-LIVED ASSETS, Section 3063 in Part II, relating to impairment and informed
the AcSB they thought those disclosures would be useful to users of NFPO financial
statements. Consequently, the AcSB proposes that Sections 4433 and 4434 direct
NFPOs to follow the disclosure requirements in Section 3063 in Part II for
impairments of tangible capital assets and intangible assets. The AcSB also
proposes that a disclosure requirement be added to Sections 4433 and 4434 to
Accounting Standards Improvements for Not-for-Profit Organizations | 27
describe whether the impairment is measured at the asset’s replacement cost or at
fair value.
Transition
40 The AcSB discussed that in the absence of specific transitional provisions,
ACCOUNTING CHANGES, Section 1506 in Part II, requires amendments to be
applied retrospectively, except if it is impracticable. The Advisory Committee
informed the AcSB that retrospectively calculating partial impairments for all
tangible capital assets and intangible assets of an NFPO and retrospectively
separating tangible capital assets from their component parts could, in many cases,
be impracticable. Therefore, by using the impracticable exception, some members
of the Advisory Committee thought that Section 1506 in Part II would permit
prospective application.
41 The AcSB notes the challenges of using the impracticable exception in
ACCOUNTING CHANGES, Section 1506 in Part II, since the term impracticable is not
defined in the Handbook and, consequently the understanding of impracticable
varies in practice. The AcSB thinks that retrospectively separating tangible capital
assets from their component parts could be onerous and subjective. The AcSB also
thinks that calculating partial impairments retrospectively could be both difficult and
require the use of hindsight. Therefore, the AcSB proposes that Sections 4433 and
4434 be applied prospectively.
42 The AcSB also recognizes that since componentization of tangible capital assets
can provide useful information, as discussed in paragraph 24, some NFPOs may
want to apply the requirements in PROPERTY, PLANT AND EQUIPMENT,
Section 3061 in Part II, retrospectively. However, the AcSB considered the
challenges in determining the amounts to allocate to the component parts.
Therefore, the AcSB proposes to permit NFPOs on initial application of
Section 4433 to allocate the costs of tangible capital assets to their component
parts based on their cost or fair value at the date of acquisition; or their fair value or
replacement cost at the date of application of Section 4433.
43 The AcSB also recognizes that some NFPOs may have the information to calculate
the partial impairments of their assets, and these NFPOs may want to reflect the
cumulative amount of these impairments at the date Sections 4433 and 4434 are
first applied. Consequently, the AcSB proposes transitional provisions that permit an
NFPO on initial application of Sections 4433 and 4434 to reflect, as a cumulative
adjustment to opening net assets, all partial impairments existing at that date. This
prevents an NFPO from having to recognize in its statement of operations in the
current period partial impairments that occurred prior to the date of applying
Sections 4433 and 4434.
28 | Basis for Conclusions – February 2017
44 The AcSB also proposes that an NFPO can only apply the transition provisions as
described above to its annual financial statements relating to the first fiscal year in
which Sections 4433 and 4434 are effective.
COLLECTIONS
Nature of collections
45 Collections can include a vast array of items such as paintings, writings, sculptures,
artifacts, specimens, land and buildings. COLLECTIONS HELD BY NOT-FOR PROFIT
ORGANIZATIONS, paragraph 4440.04, notes that although items meeting the
definition of a collection exhibit the characteristic of assets, set out in FINANCIAL
STATEMENT CONCEPTS FOR NOT-FOR-PROFIT ORGANIZATIONS, Section 1001,
they are not considered capital assets because of their nature. An organization
must protect and preserve the collection in perpetuity and any proceeds from the
sale of collection items must be used to acquire additional items or for the direct
care of the remaining collection. Historically, it is the existence of these unique
attributes that has distinguished collections from capital assets and resulted in
unique accounting requirements for collections. One could argue that the
organization is simply a custodian of the collection items in order to protect and
preserve them for public exhibition, education or research.
46 The AcSB and the Advisory Committee are aware that in some jurisdictions 1 works
of art, historical treasures and other items that are part of a collection are called
heritage assets and are accounted for the same as other assets.2 However, they
are also aware that in the United States (US) there are specific requirements for
items that meet the definition of a collection.3 In the US, NFPOs are encouraged to
capitalize their collections. However, if collections are not capitalized, there are
additional disclosure requirements. Therefore, consistent with the US, the AcSB and
the Advisory Committee thinks that collections should be accounted for based on
their unique nature. The AcSB notes that when items do not or no longer meet the
definition of a collection, they should be accounted for in accordance with
INVENTORIES, Section 3032, INVESTMENTS, Section 3051 in Part II, Section 4433
or Section 4434. If an NFPO does not have, or no longer has, an organizational
policy that requires any proceeds from the sale of collection items to be used to
acquire additional items or for the direct care of the remaining collection,
COLLECTIONS HELD BY NOT-FOR-PROFIT ORGANIZATIONS, Section 4441, would
not apply.
1
Such as Australia, New Zealand and the United Kingdom.
2
Except when the value of an item cannot be reliably measured or too costly, in which case, only disclosure
is required.
3
The definition of a collection in the US is consistent with Canada.
Accounting Standards Improvements for Not-for-Profit Organizations | 29
Initial recognition and measurement
47 Currently, COLLECTIONS HELD BY NOT-FOR-PROFIT ORGANIZATIONS,
Section 4440, is a disclosure standard and consequently does not address the
recognition of collections held by NFPOs. As a result, practice with respect to
recognition and measurement of collections held by NFPOs varies. Some
collections are not recorded, and some are recorded at nominal value, cost or other
basis. Therefore, the objective of the proposals is to require collections be recorded
at cost or nominal value to bring more consistency and comparability to the
reporting of collections. Also, requiring an NFPO to, at a minimum, recognize its
collections at nominal value in the statement of financial position is meant to
highlight the existence of the collection. Currently, it may only be evident in the
financial statement notes.
48 As part of developing these proposals, the AcSB consulted various stakeholders
who hold different types of collections (for example, art galleries, museums and
universities). The AcSB was informed by stakeholders, as well as the Advisory
Committee, that the historical cost of a collection is not necessarily reflective of the
current market value of or the benefits to be received from, a collection. Similarly,
any attempt to ascertain current market values for many collections, comprising
thousands of unique items, may be impracticable or the costs would exceed the
benefits of doing so. However, there are other cases when the fair value is known
(for example, when donation receipts are issued or when the item is purchased).
Therefore, the AcSB agreed that if collections are required to be recognized, an
accounting policy choice with an alternative to cost would be needed. Providing this
choice would allow NFPOs to take cost/benefit considerations into account, while
still providing useful information to users by highlighting the existence of the
collection on the face of the statement of financial position.
49 The AcSB discussed various options to highlight the existence of collections to
users. One option would be note disclosure. However, the AcSB notes that there
are many situations when the existence of a collection would not be readily
apparent (for example, at a hospital or a university). In its outreach with
stakeholders, users emphasized to the AcSB the importance of highlighting the
existence of the collection on the face of the statement of financial position, rather
than disclosure in the notes. The Advisory Committee suggested another option of
including a note reference on the statement of financial position similar to a leases
commitments note (i.e., Note X Collections). A note reference on the statement of
financial position would still highlight the existence of the collection but would not
put an arbitrary nominal value in the financial statements. However, the AcSB was
informed by the stakeholders it consulted that putting a note reference on the
statement of financial position may send a message that the collection has no
value, which is not the case; the value is simply unknown.
30 | Basis for Conclusions – February 2017
50 The final option discussed was recognizing collections at nominal value to provide
an alternative to measuring collections at cost. This option would give a collection
as much prominence on the statement of financial position as other assets and
would accommodate situations when the value of a collection is unknown or difficult
to value. Although recognizing a nominal value may seem immaterial to some
NFPOs, the AcSB notes that the importance of a collection to an NFPO may have
qualitative as well as quantitative considerations that must be taken into account
when considering materiality. For example, recognizing collections would highlight
to users of an NFPO’s financial statements assets that are key to carrying out and
achieving its objectives. Consequently, the AcSB thinks that using nominal value as
an alternative to cost is most appropriate and proposes that all collections be
recorded at either cost or nominal value.
51 The AcSB also discussed whether the choice of recording the collection at cost or
nominal value should be an accounting policy choice that would be applied to all of
an NFPO’s collections, versus allowing a different policy choice for each collection.
The Advisory Committee informed the AcSB that consistency within the financial
statements of an NFPO in accounting for its collections is important and applying
the same accounting policy choice to all of an NFPO’s collections would provide
more useful information to users. However, the Advisory Committee also cautioned
the AcSB that requiring the same policy choice to be applied for all collections may
deter NFPOs from using cost. For example, if an NFPO has two collections (i.e.,
one that is recorded at cost and the other one that is not recorded because it is too
onerous to determine the cost), the NFPO would likely choose to record both
collections at nominal value. This choice could prevent the NFPO from continuing to
record one collection at cost.
52 Based on input from some stakeholders and the Advisory Committee, the AcSB is
not aware of situations when an NFPO has multiple collections that are valued
differently. For most NFPOs, all items are considered part of one collection or they
choose the same policy for all of their collections. Therefore, the AcSB proposes
that the requirement to record collections at either cost or nominal value should be
an accounting policy choice that is applied by an NFPO to all of its collections. The
AcSB notes that in accordance with ACCOUNTING CHANGES, Section 1506 in
Part II, an NFPO may change its accounting policy for collections. The AcSB is
seeking input on whether the proposals would result in NFPOs reporting multiple
collections and whether NFPOs with multiple collections should be permitted to
value each collection differently.
53 The AcSB also recognizes that COLLECTIONS HELD BY NOT-FOR-PROFIT
ORGANIZATIONS, Section 4440, does not rely on Part II of the Handbook and the
guidance for determining cost is proposed to be excluded from Section 4433 as part
of the tangible capital asset proposals. The Advisory Committee informed the AcSB
that guidance for determining cost, including a description of what is included in the
Accounting Standards Improvements for Not-for-Profit Organizations | 31
cost of a collection, would be useful to NFPOs. Therefore, the AcSB proposes to
specify in Section 4441 that the cost of a collection in addition to the purchase price
of acquired items or the fair value of contributed items, also includes all other costs
directly attributable to acquiring the items in the collection (for example, installation
costs and transportation costs). The AcSB also proposes to clarify that the cost
incurred in protecting and preserving the items in a collection is a repair or
maintenance activity and should be expensed.
54 In addition, consistent with the guidance included in Section 4433, it is proposed
that Section 4441 would specify that if an item is purchased by an NFPO at
substantially below fair value, the item would be recognized at its fair value, with the
difference between the consideration paid and the fair value reported as a
contribution.
Amortization
55 In Parts II and III of the Handbook, for assets with limited lives subsequent to initial
recognition, an organization must amortize its assets over their useful life, which is
defined as the period over which an asset is expected to be used by an
organization. However, for assets with unlimited lives, amortization is not required.
Since the nature of collections requires an organization to protect and preserve
these assets in perpetuity, the assets have an unlimited life and, therefore,
amortization is not required. This treatment is consistent with how other types of
assets are accounted for that have unlimited lives (for example, land and certain
intangible assets). Therefore, the AcSB proposes that Section 4441 should specify
that amortization is not required.
Partial impairments of collections
56 The Advisory Committee informed the AcSB that they did not see a reason why
collections would not be written down consistent with the proposals for tangible
capital assets, intangible assets and works of art, historical treasures and similar
items not part of a collection (i.e., so that the value of the assets are not overstated).
Based on input from the Advisory Committee, the AcSB thinks that write-downs of
collections would be rare (for example, when the write-downs are the result of a
significant event, such as a fire or a flood, in which case the amount and timing of
the impairment would be known). Consequently, for collections recorded at cost, the
AcSB proposes that they be written down whenever events or changes in
circumstances indicate that the net carrying amount of the collection exceeds its
replacement cost or fair value. The AcSB also proposes that, consistent with the
proposals for Sections 4433 and 4434, examples of conditions that may indicate
that a write-down is appropriate would be added to Section 4441.
32 | Basis for Conclusions – February 2017
Disposals
57 The AcSB notes that in accordance with the definition of a collection in
COLLECTIONS HELD BY NOT-FOR-PROFIT ORGANIZATIONS, Section 4440, an
NFPO is required to use all proceeds from the sale of one or more items of a
collection to purchase other items in the collection or care for existing items. Since
Section 4440 did not contain guidance on accounting for disposal of collection
items, the AcSB thinks that it would be helpful to include guidance that specifies
how to account for the gains and losses on such disposals. Therefore, the AcSB
proposes to add guidance to Section 4441, which requires the gain or loss on
disposal of contributed collection items that have external restrictions to be
accounted for in accordance with CONTRIBUTIONS — REVENUE RECOGNITION,
Section 4410. However, for items in a collection that do not have external
restrictions and are disposed of, the gain or loss is recognized in the statement of
operations.
58 The AcSB notes that COLLECTIONS HELD BY NOT-FOR-PROFIT ORGANIZATIONS,
Section 4440, contains additional disclosure requirements relating to proceeds from
the sale of collection items that are useful and are proposed to be included in
Section 4441. Paragraph 4441.14(e) states that an NFPO should disclose:
“proceeds of any disposals of collection items in the period and how the proceeds
were used.” The AcSB also notes that CASH FLOW STATEMENT, Section 1540 in
Part II requires that an NFPO should disclose the amount of cash for which the use
is restricted. Therefore, the application of paragraph 4441.14(e) and Section 1540 in
Part II would highlight that the proceeds from the sale of collection items are
restricted. The AcSB notes this could be an internal restriction (i.e., the definition of
a collection requires the sale proceeds be restricted) or an external restriction (i.e.,
a donor stipulation on a contributed collection item). The AcSB is seeking input on
whether the requirements in Sections 4441 and 1540 adequately inform users when
the proceeds on disposal of items in a collection are restricted (i.e., must be used to
acquire more items or maintain the existing collection). The AcSB is also seeking
input on how cash received on disposal of items in a collection prior to acquiring
more items or maintaining the existing collection is reported (i.e., whether the cash
is separately identified on the statement of financial position or disclosed in the
notes).
Presentation and disclosures
59 The Advisory Committee informed the AcSB that the current disclosure
requirements in COLLECTIONS HELD BY NOT-FOR-PROFIT ORGANIZATIONS,
Section 4440, are working well in practice. Consequently, the AcSB proposes to
include the current disclosures from Section 4440 in Section 4441. In addition, the
AcSB proposes to add a requirement that the amount recognized as a collection
would be presented on a separate line in the statement of financial position.
Presenting the collection on a separate line would achieve the objective of
Accounting Standards Improvements for Not-for-Profit Organizations | 33
highlighting the existence of the collection to users. The AcSB also proposes that,
consistent with IMPAIRMENT OF LONG-LIVED ASSETS, Section 3063 in Part II,
disclosure requirements for the write-down of collections should also be added to
Section 4441 since this information is also useful to users.
Transition
60 The AcSB notes that in the absence of specific transitional provisions, ACCOUNTING
CHANGES, Section 1506 in Part II, requires amendments to be applied
retrospectively, except if it is impracticable. The AcSB thinks that retrospective
application would be useful since it would provide comparable information with the
prior year. However, the AcSB recognizes the challenges in retrospectively applying
the proposals for those NFPOs that choose to record their collections at cost,
particularly with measuring items in a collection that were acquired in previous
periods.
61 The AcSB thinks it is important to make the transition to cost easier since
recognizing collections at cost results in more useful information to financial
statement users. Consequently, the AcSB proposes to provide relief that can only
be used on transition to Section 4441 by NFPOs that choose to recognize their
collections at cost. These NFPOs are permitted to capitalize retrospectively the
items in a collection acquired in previous periods using either: cost or fair value at
the date of acquisition; or fair value or replacement cost at the date of adoption of
Section 4441. The AcSB is also aware there could be situations when the cost of
one or more items in a collection cannot be reasonably determined and, therefore,
proposes that those items be recorded at nominal value. In these situations, the
AcSB notes that recording an item at nominal value does not preclude the
remaining items in the collection from being recorded at cost.
62 Consistent with the proposals for tangible capital assets and intangible assets, the
AcSB recognizes that some NFPOs would have the information to determine the
partial impairments of their collections and may want to reflect the cumulative
amount of these impairments at the date of application of Section 4441.
Consequently, on initial application of Section 4441, the AcSB proposes to permit
an NFPO to reflect, as a cumulative adjustment to opening net assets, all partial
impairments existing at that date. This prevents an NFPO from having to recognize
in its statement of operations in the current year, partial impairments that occurred
prior to the date of application of Section 4441.
63 Consistent with the proposals for tangible capital assets and intangible assets, the
AcSB proposes that an NFPO can only apply the transitional provisions as
described above to its annual financial statements relating to the first fiscal year in
which Section 4441 is effective.
34 | Basis for Conclusions – February 2017
EFFECTIVE DATE
64 Selecting an effective date for amendments is an important step in the AcSB's due
process. Taking into account the proposed transitional provisions, the AcSB thinks
that the proposed effective date (fiscal years beginning on or after January 1, 2019),
will provide NFPOs sufficient time to implement the proposals.
65 The AcSB is seeking input on whether an effective date of April 1st for these and
future proposals would be preferable given that many NFPOs have March 31st
fiscal year ends. The AcSB notes that for those NFPOs that have March 31 fiscal
year ends, using January 1, 2019 or April 1, 2019 as the effective date has the
same result (i.e., March 31, 2020 would be the first fiscal year end to which the
proposals would apply). However, for those NFPOs with December 31 year ends, a
January 1, 2019 or April 1, 2019 effective date makes a difference. In that
circumstance, a January 1, 2019 effective date would mean December 31, 2019
would be the first fiscal year end to which the proposals would apply. However, an
April 1, 2019 effective date would result in December 31, 2020 as the first fiscal
year end to which the proposals would apply.
Accounting Standards Improvements for Not-for-Profit Organizations | 35
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