NOT-FOR-PROFIT ORGANIZATIONS SECTION 4410 ... - PageOut

The CICA Official Pronouncements Collection 

NOT-FOR-PROFIT ORGANIZATIONS 

SECTION 4400 

financial statement presentation by not-for-profit organizations 

TABLE OF CONTENTS 

Purpose and scope .01 

Paragraph 

Definitions .02-.03 

General .04 

Financial statements .05 

Fund accounting .06-.17 

Interfund transfers and balances .12-.17 

Statement of financial position .18-.29 

Disclosure of external restrictions .24-.25 

Disclosure of external restrictions - deferral 

method 

Disclosure of external restrictions - restricted 

fund method 

.26-.27 

.28-.29 

Statement of operations .30-.40 

Statement of operations - deferral method .33-.34 

Statement of operations - restricted fund method .35-.36 

Disclosure of gross amounts of revenues and 

expenses 

.37-.40 

Statement of changes in net assets .41-.43 

Statement of cash flows .44-.53 

Transitional provisions .54-.56 

Sample financial statements 

Appendix A 

Purpose and Scope 

PURPOSE AND SCOPE 

.01 This Section establishes presentation and disclosure standards for financial statements of 

not-for-profit organizations. These standards supplement those in GENERAL 

STANDARDS OF FINANCIAL STATEMENT PRESENTATION, Section 1500, which 

The CICA Virtual Professional Library 2003


apply to both profit oriented enterprises and not-for-profit organizations. 

Definitions 

DEFINITIONS 

.02 The definitions that follow have been adopted for the purposes of this Section. 

Definitions for financial statement elements, such as assets and liabilities, are included in 

FINANCIAL STATEMENT CONCEPTS, Section 1000. Additional definitions of 

particular relevance to financial reporting by not-for-profit organizations are presented in 

CONTRIBUTIONS - REVENUE RECOGNITION, Section 4410, and CAPITAL 

ASSETS HELD BY NOT-FOR-PROFIT ORGANIZATIONS, Section 4430. 

(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-for-profit 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) Restrictions are stipulations imposed that specify how resources must be used. 

External restrictions are imposed from outside the organization, usually by the 

contributor of the resources. Internal restrictions are imposed in a formal manner by 

the organization itself, usually by resolution of the board of directors. Restrictions on 

contributions may only be externally imposed. Net assets or fund balances may be 

internally or externally restricted. Internally restricted net assets or fund balances are 

often referred to as reserves or appropriations. 

(c) Fund accounting comprises the collective accounting procedures resulting in a 

self-balancing set of accounts for each fund established by legal, contractual or 

voluntary actions of an organization. Elements of a fund can include assets, liabilities, 

net assets, revenues and expenses (and gains and losses, where appropriate). Fund 

accounting involves an accounting segregation, although not necessarily a physical 

segregation, of resources. 

(d) The restricted fund method of accounting for contributions is a specialized type of 

fund accounting which involves the reporting of details of financial statement 

elements by fund in such a way that the organization reports total general funds, one 

or more restricted funds, and an endowment fund, if applicable. Reporting of 

financial statement elements segregated on a basis other than that of use restrictions 

(e.g., by program or geographic location) does not constitute the restricted fund 

method. Other definitions related to the restricted fund method appear in 

CONTRIBUTIONS - REVENUE RECOGNITION, Section 4410. 

(e) Under the deferral method of accounting for contributions, restricted contributions 

related to expenses of future periods are deferred and recognized as revenue in the 

period in which the related expenses are incurred. Endowment contributions are 

reported as direct increases in net assets. All other contributions are reported as 

revenue of the current period. Organizations that use fund accounting in their 



financial statements without following the restricted fund method would account for 

contributions under the deferral method. 

.03 A not-for-profit organization would follow either the deferral method or the restricted 

fund method of accounting for contributions. (A detailed discussion of these two methods 

is presented in CONTRIBUTIONS - REVENUE RECOGNITION, Section 4410.) An 

organization's choice of method of accounting for contributions has implications for 

financial statement presentation. For example, the deferral method and the restricted fund 

method result in differences in the recognition of restricted contributions in the statement 

of operations and in the presentation of restricted resources in the statement of financial 

position. Most of the Recommendations of this Section apply to both the deferral and the 

restricted fund methods. Other Recommendations apply only to one of the deferral or the 

restricted fund method and are identified as such. 

General 

GENERAL 

.04 ♦ A clear and concise description of a not-for-profit organization's purpose, its intended 

community of service, its status under income tax legislation and its legal form should be 

included as an integral part of its financial statements. [APRIL 1997] 

Financial Statements 

FINANCIAL STATEMENTS 

.05 Financial statements for a not-for-profit organization normally include: 

Fund Accounting 

(a) a statement of financial position; 

(b) a statement of operations; 

(c) a statement of changes in net assets; and 

(d) a statement of cash flows. 

These names are used for descriptive purposes only. Organizations may use whatever 

titles are appropriate in the circumstances as long as each financial statement provides the 

information necessary to meet the Recommendations of this and other Sections in a 

manner that results in the fair presentation of the organization's financial position, results 

of operations and cash flows. The statement of changes in net assets may be combined 

with the statement of operations. Notes to financial statements and supporting schedules 

to which the financial statements are cross-referenced are an integral part of such 

statements. 

FUND ACCOUNTING 

.06 ♦ An organization that uses fund accounting in its financial statements should provide a 

brief description of the purpose of each fund reported. [APRIL 1997] 

.07 A description of the specific purpose of each fund reported provides useful information 

for understanding the organization's use of fund accounting. This description would 



include the extent to which the particular fund is used to report restricted resources and 

the types of expenses that are reported in the fund. 

.08 Each fund reported would be presented on a consistent basis from year to year. Particular 

revenues and expenses reported in a given fund would continue to be reported in that 

fund in future periods. Any change in the revenues and expenses reported in a particular 

fund would constitute a change in accounting policy, unless the change results from 

events or transactions that are clearly different from those previously occurring or from 

the recognition of events or transactions occurring for the first time. (See 

ACCOUNTING CHANGES, Section 1506.) 

.09 Financial statements that are reported using fund accounting may follow the 

multi-column format whereby resources or similar groups of resources are each assigned 

a separate column. The multi-column format presents information about fund 

components together with certain totals for the organization as a whole, in accordance 

with the Recommendations of this Section, to give a complete understanding of the total 

resources available to the organization. 

.10 Other formats may be used to report using fund accounting provided that financial 

information about the organization as a whole is presented in the organization's financial 

statements in accordance with the Recommendations of this Section. 

.11 An organization may present its financial statements using different formats for the 

individual statements, as long as it does so in a way that satisfies the Recommendations 

of this Section. For example, a statement of operations and changes in net assets 

presented in the multi-column format may be accompanied by a statement of financial 

position that presents assets, liabilities and net assets in a single column without 

presenting each financial statement item by individual fund. The formats selected for 

individual statements would be based on the particular circumstances of the organization. 

Interfund transfers and balances 

Interfund transfers and balances 

.12 ♦ Interfund transfers should be presented in the statement of changes in net assets. 

[APRIL 1997] 

.13 ♦ The amount and purpose of interfund transfers during the reporting period should be 

disclosed. [APRIL 1997] 

.14 ♦ The amounts, terms and conditions of interfund loans outstanding at the reporting date 

should be disclosed. [APRIL 1997] 

.15 Transfers between funds or between funds and reserves during a reporting period do not 

result in increases or decreases in the economic resources of the organization as a whole 

and therefore are reported in the statement of changes in net assets rather than in the 

statement of operations. Allocations of revenues and expenses between funds which are 

made when the organization first recognizes the revenue or expense are not considered to 



be transfers. Under the restricted fund method, however, unrestricted revenues would be 

recognized initially in the general fund and would only be allocated to restricted funds by 

way of interfund transfer. (See CONTRIBUTIONS - REVENUE RECOGNITION, 

Section 4410.) 

.16 Judgment would be exercised in determining the level of disclosure to provide for 

interfund transfers. For example, it may not be necessary to disclose individual transfers. 

It may be appropriate to aggregate and disclose as a single amount interfund transfers that 

are similar in nature. 

.17 When an organization presents its financial statements using a multi-column format, 

interfund loans and advances would be presented in individual funds and eliminated in 

the totals column of the statement of financial position. When using a single column 

approach, the only disclosure of interfund loans and amounts receivable would be made 

in notes to the financial statements. 

Statement of Financial Position 

STATEMENT OF FINANCIAL POSITION 

.18 ♦ For each financial statement item, the statement of financial position should present a 

total that includes all funds reported. [APRIL 1997] 

.19 ♦ The statement of financial position should present the following: 

(a) net assets invested in capital assets; 

(b) net assets subject to restrictions requiring that they be maintained permanently as 

endowments; 

(c) other restricted net assets; 

(d) unrestricted net assets; and 

(e) total net assets. [APRIL 1997] 

.20 The primary purpose of a statement of financial position is to present the organization's 

economic resources, obligations and net assets as at the reporting date. The statement of 

financial position, together with the other statements and the notes, provides useful 

information for assessing whether the organization will continue to be able to provide 

services, achieve its objectives and meet its obligations. This information is normally 

provided by grouping similar amounts not significant in themselves as financial statement 

items (e.g., cash, capital assets, accounts payable, deferred contributions) and providing 

totals for all funds related to each of these financial statement items reported. The 

statement of financial position may also be referred to as the balance sheet. 

.21 Information about the organization's liquidity is presented by classifying current assets 

separately from non-current assets and current liabilities separately from non-current 

liabilities in accordance with CURRENT ASSETS AND CURRENT LIABILITIES, 

Section 1510. Cash and other assets subject to external restrictions limiting their use to 



beyond one year from the date of the statement of financial position would be classified 

as non-current assets. 

.22 Net assets may also be referred to as fund balances or as accumulated surplus or deficit. 

Total net assets represents the organization's residual interest in its assets after deducting 

its liabilities. The net assets balance therefore provides information about the net 

resources the organization has available for carrying out its service delivery activities in 

the future. Restrictions on net assets may be externally or internally imposed. To fully 

understand the nature of the organization's net assets balance, financial statement users 

require information about the portions of net assets attributable to endowments, to capital 

assets and to other restrictions, none of which can readily be used for other purposes. 

.23 Net assets invested in capital assets represents the amount of net assets that are not 

available for other purposes because they have been invested in capital assets. Under the 

deferral method of accounting for contributions, net assets invested in capital assets 

represents the unamortized portion of capital assets purchased with unrestricted 

resources, less related debt, and the carrying amount, less related debt, of capital assets 

that will not be amortized. Under the restricted fund method, net assets (fund balances) 

invested in capital assets represents the net book value of all capital assets, less related 

debt. 

Disclosure of external restrictions 

Disclosure of external restrictions 

.24 Restrictions on resources may be external or internal. Restricted resources would be 

presented either as deferred contributions or as part of net assets, depending on the 

organization's policies for accounting for contributions. Deferred contributions balances 

only reflect externally restricted resources, while restricted net assets may be internally or 

externally restricted. Internal restrictions may be removed by the organization. Thus, 

internally restricted resources can be made available for other purposes if necessary. 

Externally restricted resources, however, are not available for use at the organization's 

discretion. The existence of external restrictions can have a significant effect on the 

organization's financial flexibility and ability to provide certain services in the future. 

Therefore, it is important that users be made aware of the amounts of resources subject to 

external restrictions and of the nature of the restrictions. 

.25 Specific requirements related to the disclosure of external restrictions for organizations 

following the deferral method of accounting for contributions appear in paragraphs 

4400.26-.27. Specific requirements for organizations following the restricted fund 

method appear in paragraphs 4400.28-.29. Organizations need not provide the disclosures 

set out below separately for each external restriction. Judgment would be exercised in 

disclosing major categories of restrictions. In determining how to categorize external 

restrictions, the organization would consider the intended use of the resources and the 

length of time that is likely to elapse before the restrictions are complied with. 

Disclosure of external restrictions - deferral method 



Disclosure of external restrictions - deferral method 

.26 ♦ The following should be disclosed: 

(a) the amounts of deferred contributions attributable to each major category of external 

restrictions with a description of the restrictions; and 

(b) the amount of net assets subject to external restrictions requiring that they be 

maintained permanently as endowments. [APRIL 1997] 

.27 Under the deferral method of accounting for contributions, endowment contributions are 

accumulated in the net assets balance. Other restricted contributions are accumulated in 

the statement of financial position as deferred contributions. 

Disclosure of external restrictions - restricted fund method 

Disclosure of external restrictions - restricted fund method 

.28 ♦ The following should be disclosed: 

(a) the amount of net assets (fund balances) subject to external restrictions requiring that 

they be maintained permanently as endowments; 

(b) the amounts of net assets (fund balances) attributable to each major category of other 

external restrictions with a description of the restrictions; and 

(c) the amounts of deferred contributions attributable to each major category of external 

restrictions with a description of the restrictions. [APRIL 1997] 

.29 Under the restricted fund method of accounting for contributions, endowment 

contributions are accumulated in the endowment fund balance. Other restricted 

contributions are accumulated in the statement of financial position as part of the 

appropriate restricted fund balance. If there is no appropriate restricted fund, restricted 

contributions are accumulated as deferred contributions in the general fund. 

Statement of Operations 

STATEMENT OF OPERATIONS 

.30 The primary purpose of a statement of operations is to communicate information about 

changes in the organization's economic resources and obligations for the period. 

Specifically, this statement provides information about the cost of the organization's 

service delivery activities for the period and the extent to which these expenses were 

financed or funded by contributions and other revenue. The information provided in the 

statement of operations is useful in evaluating the organization's performance during the 

period, including its ability to continue to provide services, and in assessing how the 

organization's management has discharged its stewardship responsibilities. The statement 

of operations may also be referred to as the statement of revenues and expenses. 

.31 Not-for-profit organizations may classify expenses in the statement of operations by 

object (e.g., salaries, rent, utilities), by function (e.g., administrative, research, ancillary 

operations) or by program. Classification of expenses by function or program may be 



desirable where the organization operates several different programs or has different 

areas of interest. Classification of expenses by object can also be useful. An organization 

would classify its expenses in the manner that results in the most meaningful presentation 

in the circumstances. Whether the organization prepares its budgets by function or object 

would be a factor to consider in deciding which method of expense classification would 

be most appropriate for the organization's financial statements. 

.32 Specific requirements related to the statement of operations for organizations following 

the deferral method of accounting for contributions appear in paragraphs 4400.33-.34. 

Specific requirements for organizations following the restricted fund method appear in 

paragraphs 4400.35-.36. 

Statement of operations - deferral method 

Statement of operations - deferral method 

.33 ♦ The statement of operations should present 

(a) for each financial statement item, a total that includes all funds reported; and 

(b) total excess or deficiency of revenues and gains over expenses and losses for the 

period. [APRIL 1997] 

.34 The statement of operations would present similar items of revenue and similar items of 

expense grouped together in meaningful categories as financial statement items. Under 

the deferral method of accounting for contributions, total excess of revenues over 

expenses for all funds reports the change in the organization's unrestricted resources in 

the period. When an organization following the deferral method reports using a method 

of fund accounting other than the restricted fund method, the total for all funds related to 

each financial statement item presented in the statement of operations would be reported 

together with the total excess of revenues over expenses for all funds. 

Statement of operations - restricted fund method 

Statement of operations - restricted fund method 

.35 ♦ The statement of operations should present the following for the period: 

(a) the total for each financial statement item recognized in the general fund; 

(b) the total for each financial statement item recognized in the restricted funds, other 

than the endowment fund; 

(c) the total for each financial statement item recognized in the endowment fund; and 

(d) excess or deficiency of revenues and gains over expenses and losses for each of the 

general fund, restricted funds other than the endowment fund and the endowment 

fund. [APRIL 1997] 

.36 The statement of operations would present similar items of revenue and similar items of 

expense grouped together in meaningful categories as financial statement items. Under 

the restricted fund method of accounting for contributions, the general fund presents all 



revenues and expenses related to unrestricted resources. The total excess of revenues 

over expenses in the general fund reports the change in the organization's unrestricted 

resources in the period. The restricted funds present revenues and expenses related to 

restricted resources. Endowment contributions are presented in the endowment fund. In 

order to understand the impact of operations for the period on the organization's financial 

position, financial statement readers require information about operations related to each 

of the general fund, the restricted funds and the endowment fund. In addition, it may be 

desirable to present totals that include all the funds reported for each financial statement 

item in the statement of operation. 

Disclosure of gross amounts of revenues and expenses 

Disclosure of gross amounts of revenues and expenses 

.37 ♦ Revenues and expenses should be disclosed at their gross amounts. [APRIL 1997] 

.38 Organizations sometimes recognize the net amount of certain revenues and related 

expenses in the statement of operations. Common examples of amounts that are 

recognized net include revenues and expenses related to fund raising events and cost 

recovery arrangements. Information about gross revenues and expenses is generally 

necessary for users to understand fully the entity's operations. Whether gross amounts are 

recognized in the financial statements or disclosed in the notes depends on what the 

organization considers to be the most informative presentation under the circumstances. 

In general, however, recognition in the statement of operations of all revenues and 

expenses related to the organization's main, ongoing service delivery activities is 

preferred. 

.39 There are cases where note disclosure of gross amounts may be appropriate. For example, 

the gross amounts related to an event ancillary to the organization's main operations may 

be so significant that recognition of gross revenues and expenses would distort the 

financial statements, despite the fact that the net proceeds may be relatively insignificant. 

.40 There are limited circumstances where the revenues and expenses associated with a fund 

raising event may not actually be revenues and expenses of the organization itself and 

therefore would neither be recognized nor disclosed in its financial statements. For 

example, the organization may be given the net proceeds from an event held on its behalf 

without having any knowledge of or control over the gross amounts involved. In such 

cases, the net proceeds would be recognized as a contribution and no disclosure of gross 

revenues and expenses would be provided. 

Statement of Changes in Net Assets 

STATEMENT OF CHANGES IN NET ASSETS 

.41 ♦ The statement of changes in net assets should present changes in the following for the 

period: 

(a) net assets invested in capital assets; 

(b) net assets subject to restrictions requiring that they be maintained permanently as 



endowments; 

(c) other restricted net assets; 

(d) unrestricted net assets; and 

(e) total net assets. [APRIL 1997] 

.42 The statement of changes in net assets may be referred to as the statement of changes in 

fund balances when the organization uses fund accounting in its financial statements. 

Total net assets represents the organization's residual interest in its assets after deducting 

its liabilities. The net assets balance therefore provides information about the net 

resources the organization has available for carrying out its service delivery activities in 

the future. To fully understand the nature of the organization's financial activities in the 

period, financial statement users require information about changes in the portions of net 

assets attributable to endowments, to capital assets and to other external and internal 

restrictions. The statement of changes in net assets provides this information and shows 

the extent to which the organization's operations have resulted in an accumulation or 

depletion of net assets. 

.43 The statement of changes in net assets may be combined with the statement of operations. 

Statement of Cash Flows 

STATEMENT OF CASH FLOWS 

.44 ♦ The statement of cash flows should report the total changes in cash and cash 

equivalents resulting from the activities of the organization during the period. The 

components of cash and cash equivalents should be disclosed. [APRIL 1997] 

.45 ♦ The statement of cash flows should distinguish at least the following: 

(a) cash from operations: the components of cash from operations should be disclosed or 

the excess of revenues over expenses should be reconciled to cash flows from 

operations; and 

(b) the components of cash flows resulting from financing and investing activities, not 

included in (a) above. [APRIL 1997] 

.46 The objective of the statement of cash flows is to provide information about the sources 

and uses of cash by the organization in carrying out its operating, financing and investing 

activities for the period. The statement of cash flows assists financial statement users in 

assessing the organization's ability to generate cash from internal and external sources in 

order to provide its services and meet its obligations. The information provided in this 

statement also helps financial statement users evaluate how management has discharged 

its stewardship responsibilities over the resources with which it has been entrusted. The 

information presented in this statement is either not provided or only indirectly provided 

in the statement of financial position and the statement of operations and changes in net 

assets. The statement of cash flows complements and presents information different from 

that provided in the other financial statements. The statement of cash flows may also be 



referred to as the statement of sources and uses of cash or the statement of changes in 

financial position. 

.47 Certain resource providers to a not-for-profit organization may be particularly interested 

in the statement of cash flows because it shows cash received in the period and how it 

was used. Resource providers may look to the statement of cash flows in determining 

whether the cash provided to the organization was used in the manner that the resource 

provider intended. This statement could form the basis for supplementary schedules or 

reports prepared to meet resource providers' needs. 

.48 An organization may prepare its statement of cash flows using the direct or the indirect 

method. Organizations may find the direct method to be more useful to resource 

providers and other financial statement users since it provides more details about the 

organization's sources and uses of cash in carrying out its service delivery activities than 

does the indirect method. Under the direct method, the major components of cash from 

operations are presented directly in the statement. The statement of cash flows prepared 

using the direct method provides information similar to that which would be presented if 

the statement of operations were prepared on a cash basis. Under the indirect method, the 

excess of revenues over expenses for the period reported in the statement of operations is 

reconciled to the change in cash from operating activities. An organization following the 

restricted fund method of accounting for contributions that presents its statement of cash 

flows using the indirect method, would reconcile the excess of revenues over expenses 

for the general fund and any restricted funds of an operating nature to cash flows from 

operations. 

.49 Cash flows from operations include all cash receipts and disbursements resulting from 

the main, ongoing service delivery activities of an organization and exclude cash flows 

from financing and investing activities. Cash receipts from operations include 

unrestricted contributions, restricted contributions that are to be used for operations and 

other revenues arising from the organization's ordinary activities, such as fees for 

services, proceeds on the sale of goods and unrestricted investment income. Cash 

disbursements for operations would comprise expenditures made by the organization in 

carrying out its service delivery activities. 

.50 Components of cash flows from financing activities would include cash contributed that 

is restricted for the purpose of acquiring capital assets and cash contributed for 

endowment. Cash receipts and disbursements related to the assumption and repayment of 

debt would also be presented as components of cash flows from financing activities. 

Components of cash flows from investing activities would include the acquisition of 

capital assets, the purchase of investments, and the proceeds on disposal of major 

categories of assets, such as capital assets and investments. 

.51 Certain financing and investing activities do not involve the receipt and use of cash. 

Examples include contributions of capital assets or of an investment portfolio to be held 

for endowment. The effect of such a transaction is similar to a cash inflow followed 



immediately by a cash outflow. A transaction of this sort would be reported in the 

statement of cash flows as both a cash inflow and a cash outflow. 

.52 Organizations may find it useful to present cash flows from financing and investing 

activities in a way that shows the relationship between financing received in support of a 

specific investing activity by grouping the receipt and use of cash together. Reporting 

cash from financing and investing activities together would demonstrate to resource 

providers that resources provided were spent in the manner intended. Netting of cash 

flows related to financing activities and cash flows related to investing activities would 

not be appropriate. 

.53 It is not necessary to prepare a statement of cash flows when such a statement would not 

provide additional useful information. For example, an organization may have simple 

operations with few or no significant financing and investing activities. In such cases, 

information about financing and investing activities and their effects on cash resources 

may be readily apparent from the other financial statements or could be adequately 

disclosed in the notes to the financial statements. 

Transitional Provisions 

TRANSITIONAL PROVISIONS 

.54 ♦ The Recommendations of this Section should be applied retroactively, except in those 

circumstances in which the necessary financial information is not reasonably 

determinable. [APRIL 1997] 

.55 Any adjustments resulting from retroactive application are treated as a retroactive 

application of a change in accounting policy. (See ACCOUNTING CHANGES, Section 

1506.) 

.56 The Recommendations of this Section are effective for fiscal years beginning on or after 

April 1, 1997. However, the Board encourages earlier adoption. 

Appendix A - Sample financial statements 

APPENDIX A 

Sample financial statements 

This decision tree is intended to point out three alternate methods of presentation of 

financial statements of not-for-profit organizations. The sample financial statements that 

follow have been prepared by the staff of the Accounting Standards Board. These sample 

financial statements are illustrative only. Other disclosures and methods of presentation 

not illustrated may also comply with the Accounting Recommendations. 



SITUATION I 

NFP A FOLLOWS THE DEFERRAL METHOD AND 

DOES NOT REPORT USING FUND ACCOUNTING 

In this example, the following transactions and circumstances are assumed. 

• NFP A follows the deferral method of accounting for contributions. 

• NFP A receives core operating funding every year from Federal government. The 

amount of the funding is based on an approved operating budget. For 19x1 and 19x2, 

this funding amounted to $100,000 and $105,000, respectively. Funding is received 

just prior to the year to which it relates. $110,000, representing the funding for 19x3, 

was received at the end of 19x2. 

• NFP A also receives funding for research every year from Federal government. This 

funding amounted to $25,000 and $30,000 for 19x1 and 19x2, respectively. This 

funding is not received until after the fiscal year being funded. 

• From time to time, NFP A receives contributions for endowment. By the end of 19x1, 

NFP A had accumulated contributions for endowment amounting to $100,000. The 

investment income on the $100,000 is subject to restrictions imposed by the 

contributor stipulating that it be spent on research activities. In 19x2, NFP A received 

an additional contribution for endowment amounting to $50,000. The income earned 

on this contribution is unrestricted. 

• NFP A has land and a building that were purchased eleven years ago using funds 

restricted for that purpose and that cost $50,000 and $140,000, respectively. The 



estimated useful life of the building is 20 years. 

• Part way through 19x2, NFP A purchased another parcel of land and a building that 

cost $100,000 and $400,000 respectively. This purchase was financed using 

unrestricted funds of $50,000 and mortgage financing of $450,000. By the end of 

19x2, $3,000 of the principal amount of the mortgage had been repaid. The estimated 

useful life of the building is 20 years. 

• Over the years, NFP A has purchased equipment. By the end of 19x1, equipment with 

an original cost of $25,000 had been purchased out of unrestricted resources. 

Equipment with a fair value of $5,000 was contributed to NFP A at the beginning of 

19x2. At the end of 19x2, equipment costing $10,000 was purchased using 

unrestricted funds. 

• During 19x2, NFP A launched a building campaign to raise $500,000 for a major 

expansion to NFP A's older building. Contributions to this campaign amounted to 

$78,000 in 19x2. Contributors to the building campaign do so with the understanding 

that resources contributed will be invested and that the accumulated investment 

income will be spent on the building expansion. Investment income earned on 

amounts contributed was $2,000 in 19x2. 

• NFP A runs seminars for which it charges fees. 

• NFP A also receives contributions from XYZ Foundation, which is not related to 

NFP A. 

Current assets 

The CICA Virtual Professional Library 2003 

NFP A 

Statement of financial position 

as at December 31, 19x2 

19X2 

19X1 

Cash and term deposits $ 122,000 $ 160,000 

Accounts receivable 20,000 10,000 

Grant receivable 30,000 25,000 

Investments (market $244,000 - 19x1 

$102,000) 

172,000 195,000 

240,000 100,000 

Capital assets, net (note 3) 627,000 135,000 

Current liabilities 

$1,039,000 $430,000 

======== ======== 

Accounts payable and accrued liabilities $ 25,000 $ 20,000 

Mortgage payable - current (note 4) 6,000 -


31,000 20,000 

Mortgage payable - long-term (note 4) 441,000 - 

Deferred contributions (note 5) 118,000 105,000 

Deferred contributions related to capital assets 

(note 6) 

Deferred building campaign contributions and 

related investment income (note 7) 

Net assets 

Net assets invested in capital assets 113,000 

1a(1) 

Net assets restricted for endowment purposes 

(note 8) 

Net assets internally restricted for research 

purposes (note 8) 

67,000 70,000 

80,000 - 

265,000 175,000 

65,000 

160,000 100,000 

25,000 

Unrestricted net assets 4,000 70,000 

302,000 235,000 

$1,039,000 $430,000 

======== ======== 

Revenues 

NFP A 

Statement of operations 

for the year ended December 31, 19x2 

19X2 

19X1 

Federal government grants - core operating $105,000 $100,000 

Federal government grants - research 30,000 25,000 

General contributions (note 9) 55,000 30,000 

Contribution from XYZ Foundation 25,000 20,000 

Seminar fees 80,000 75,000 

Investment income (note 10) 10,000 15,000 

Amortization of deferred contributions (note 

6) 

Expenses 

8,000 7,000 

313,000 272,000 



Service delivery - salaries, benefits and 

purchased materials and services 

Research - salaries, benefits and purchased 

materials and services 

223,000 195,000 

32,000 30,000 

Amortization of capital assets 23,000 12,000 

Mortgage interest (note 4) 18,000 - 

296,000 237,000 

Excess of revenues over expenses $17,000 $35,000 

====== ====== 

Net Assets 

Balance, beginning of 

year 

Excess (deficiency) of 

revenues over expenses 

Endowment 

contributions 

Investment in capital 

assets 

Internally imposed 

restriction (note 8) 

NFP A 

Statement of changes in net assets 


Invested in 

capital assets 

Restricted for 

endowment 

purposes 

Restricted for 

research 

purposes 

Unrestricted 

19x2 Total 

$65,000 $100,000 $ $70,000 $230,000 

(15,000) 2a( 

2) 

63,000 3a( 

3) 

32,000 17,000 

50,000 50,000 

(63,000) 

- 10,000 25,000 (35,000) - 

Balance, end of year $113,000 $160,000 $ 25,000 $ 4,000 $302,000 

======= ======= ======= ======= ======= 

NFP A 

Statement of cash flows 

for year ended December 31, 19x2 

Cash flows from operating activities *a(4) 

Cash received from Federal government for 

operations 

Cash received from Federal government for 

research 

19X2 19X1 

$110,000 $105,000 

25,000 20,000 



Cash received from general contributors 55,000 30,000 

Cash received from XYZ Foundation 25,000 20,000 

Cash received for seminars 70,000 70,000 

Investment income received for operating 

purposes 

18,000 15,000 

Cash paid for salaries and benefits (230,000) (225,000) 

Cash paid for materials and services (20,000) (15,000) 

Mortgage interest paid (18,000) - 

Net cash generated through operating 

activities 

Cash flows from financings and investing 

activities 

Mortgage financing 450,000 

Contributions of cash for endowment 50,000 

Cash contributions resulting from the building 

campaign 

Income received on building campaign 

investments 

35,000 20,000 

78,000 

2,000 

Contribution of equipment 5,000 

Purchase of capital assets (510,000) 

Purchase of investments (140,000) 

Contributed equipment put in service (5,000) 

Mortgage principal repayments (3,000) - 

Net cash used in financing and investing 

activities 

Net (decrease) increase in cash and term 

deposits 

(73,000) - 

(38,000) 20,000 

Cash and term deposits, beginning of year 160,000 140,000 

Cash and term deposits, end of year $122,000 $160,000 

======= ======= 

1. Purpose of the Organization 


NFP A 

Notes to financial statements 

December 31, 19x2 

NFP A is a national organization operating programs and performing research aimed at


helping those who have lost family members in automobile accidents. NFP A is 

incorporated under the Canada Corporations Act as a not-for-profit organization and is a 

registered charity under the Income Tax Act. 

2. Significant Accounting Policies 

Revenue recognition 

NFP A follows the deferral method of accounting for contributions. Restricted 

contributions are recognized as revenue in the year in which the related expenses are 

incurred. Unrestricted contributions are recognized as revenue when received or 

receivable if the amount to be received can be reasonably estimated and collection is 

reasonably assured. Endowment contributions are recognized as direct increases in net 

assets. 

Restricted investment income is recognized as revenue in the year in which the related 

expenses are incurred. Unrestricted investment income is recognized as revenue when 

earned. 

Seminar fees are recognized as revenue when the seminars are held. 

Capital assets 

Purchased capital assets are recorded at cost. Contributed capital assets are recorded at 

fair value at the date of contribution. Amortization is provided on a straight-line basis 

over the assets' estimated useful lives, which for buildings is 20 years and for equipment 

is 5 years. 

Investments 

Investments are recorded at the lower of cost and market value. 

Contributed services 

Volunteers contribute about 500 hours per year to assist NFP A in carrying out its service 

delivery activities. Because of the difficulty of determining their fair value, contributed 

services are not recognized in the financial statements. 

3. Capital assets 

Cost 


Accumulated 

Amortization 

Net Book Value 

19x2 19x1 19x2 19x1 19x2 19x1 

Land $150,000 $50,000 $ $ $150,000 $ 50,000 

Buildings 540,000 140,000 87,000 70,000 453,000 70,000 

Equipment 40,000 25,000 16,000 10,000 24,000 15,000 

$730,000 $215,000 $103,000 $ 80,000 $627,000 $135,000


====== ====== ====== ====== ====== ====== 

4. Mortgage payable 

The mortgage payable is due July 1, 19x7 and has an interest rate of 8%. It is repayable at 

the rate of $3,474 per month including principal and interest. The building at 123 King 

St. is pledged as collateral. 

5. Deferred contributions 

Deferred contributions represent unspent resources externally restricted for research 

purposes and restricted operating funding received in the current period that is related to 

the subsequent period. Changes in the deferred contributions balance are as follows: 

19x2 

19x1 

Beginning balance, related to operating funding $105,000 $100,000 

Less amount recognized as revenue in the year (105,000) (100,000) 

Add amount received related to the following 

year 

110,000 105,000 

Ending balance, related to operating funding 110,000 105,000 

Investment revenue restricted for research 

purposes 

Less amount recognized as investment income in 

the year 

10,000 

(2,000) - 

Ending balance $118,000 $105,000 

======= ======= 

6. Deferred contributions related to capital assets 

Deferred contributions related to capital assets represent contributed capital assets and 

restricted contributions with which one of NFP A's buildings was originally purchased. 

The changes in the deferred contributions balance for the period are as follows: 


19x2 

19x1 

Beginning balance $70,000 $77,000 

Contributed equipment 5,000 

Amounts amortized to revenue (8,000) (7,000) 

Building campaign contributions 78,000 

Investment income related to building campaign 

funds 

2,000 - 

Ending balance $147,000 $70,000


======= ====== 

7. Building campaign 

In 19x2, NFP A launched a building campaign to raise $500,000 by 19x5 for a major 

expansion to one of NFP A's buildings. The $80,000 deferred building campaign 

contributions balance comprises $78,000 contributed to date and related investment 

income of $2,000, which is also externally restricted for the building expansion. 

8. Restrictions on net assets 

Of the net assets restricted for endowment purposes $150,000 is subject to externally 

imposed restrictions stipulating that the resources be maintained permanently. Investment 

income on $100,000 (19x1 - $100,000) of this amount is externally restricted for research 

purposes. Investment income on the remaining $50,000 (19x1 - $0) is unrestricted. In 

19x2, NFP A's board of directors internally restricted $10,000 (19x1 - $0) of unrestricted 

net assets to be held for endowment purposes and $25,000 (19x1 - $0) of unrestricted net 

assets to be used for research purposes. These internally restricted amounts are not 

available for other purposes without approval of the board of directors. 

9. 25th Anniversary dinner 

During 19x2, NFP A sponsored a special 25th anniversary dinner to raise funds for 

general operations. Contributions reported in the Statement of Operations include net 

revenue from this event of $5,000. Gross revenue and expenses related to this event were 

$15,000 and $10,000, respectively. 

10. Investment income 

Investment income earned is reported as follows: 


19x2 

19x1 

Income earned on unrestricted resources $ 4,000 $ 5,000 

Income earned on building campaign resources 2,000 

Income earned on resources held for 

endowment: 

Unrestricted 4,000 

Restricted for research purposes 10,000 10,000 

Total investment income earned in the period 20,000 15,000 

Less amount deferred 

Restricted for research purposes (8,000) 

Restricted for building campaign (2,000) - 

Total investment income recognized as revenue $10,000 $15,000


====== ====== 

Current 

assets 

Cash and term 

deposits 

Accounts 

receivable 

Grant 

receivable 

Investments 

(market 

$244,000 - 

19x1 

$102,000) 

Capital assets, 

net (note 3) 

Current 

liabilities 

Accounts 

payable and 

accrued 

liabilities 

Mortgage 

payable - 

current (note 

4) 

SITUATION II 

NFP A FOLLOWS THE RESTRICTED FUND METHOD 

The transaction and circumstances assumed for this example are the same as for Situation 

I, except that NFP A follows the restricted fund method of accounting for contributions. 

General Fund 

NFP A 



Research 

Fund 

Capital Asset 

Fund 

Endowment 

Fund 

19x2 Total 

19x1 Tot 

$118,000 $4,000 $ $ $122,000 $160, 

20,000 20,000 10, 

- 30,000 - - 30,000 25, 

138,000 34,000 172,000 195, 

80,000 160,000 240,000 100, 

- - 627,000 - 627,000 135, 

$138,000 $34,000 $707,000 $160,000 $1,039,000 $430, 

======= ======= ======= ======= ======= ===== 

$24,000 $1,000 $ $ $25,000 $20, 

- - 6,000 - 6,000 

24,000 1,000 6,000 - 31,000 20, 



Mortgage 

payable - 

long-term 

(note 4) 

Deferred 

contributions 

Deferred 

operating 

grant (note 5) 

Fund 

balances 

Invested in 


Externally 

restricted 

(note 6) 

Internally 

restricted 

(note 7) 

- - 441,000 - 441,000 

110,000 - - - 110,000 105, 

110,000 - - - 110,000 105, 

180,000 4a 

(5) 

180,000 135, 

8,000 80,000 150,000 238,000 100, 

25,000 10,000 35,000 

Unrestricted 4,000 - - - 4,00 70, 

4,000 33,000 260,000 160,000 457,000 305, 

$138,000 $34,000 $707,000 $160,000 $1,039,000 $430, 

======= ======= ======= ======= ======== ==== 

Revenues 

Federal 

government grants 

Contributions 

(notes 8 and 9) 

NFP A 

Statement of operations and changes in fund balances 


General Fund Restricted Funds Endowment Fund 

19x2 19x1 Research 

19x2 

Capital 

Asset 

19x2 

Total 19x2 

Total 

19x1 

19x2 19 

$105,000 $100,000 $30,000 $ $30,000 $25,000 $ $ 

80,000 65,000 83,000 83,000 50,000 

Seminar fees 80,000 7 

Investment 

income (note 10) 

8,000 5,000 10,000 2,000 12,000 10,000 - 



Expenses 

Salaries and 

benefits 

Purchased 

materials and 

services 

Amortization of 


Mortgage interest 

(note 4) 

Excess 

(deficiency) of 

revenues over 

expenses 

Fund balances, 

beginning of year 

Interfund transfers 

(note 7) 


end of year 

273,000 245,000 40,000 85,000 125,000 35,000 50,000 

200,000 173,000 30,000 30,000 27,000 

23,000 22,000 2,000 2,000 

23,000 23,000 12,000 

- - - 18,000 18,000 - - 

223,000 195,000 32,000 41,000 73,000 42,000 - 

50,000 50,000 8,000 44,000 52,000 (7,000) 50,000 

70,000 20,000 135,000 135,000 142,000 100,000 10 

(116,000) - 25,000 81,000 5a 

(6 

) 

106,000 - 10,000 

$ 4,000 $70,000 $33,000 $260,000 $293,000 $135,000 $160,000 $10 

====== ====== ====== ====== ====== ====== ====== == 

Sources of cash 

Federal 

government 

General 

Fund 

19x2 

NFP A 

Statement of cash flows 6a(7) 


Operating Activities 

Research 

Fund 

19x2 

Total 19x2 Total 19x1 Capital Asset 

Fund 

19x2 

$110,000 $25,000 $135,000 $125,000 

Financing and Investing Activities 

Endowment 

Fund 

19x2 

Total 19x2 

Contributions 55,000 55,000 30,000 $83,000 $50,000 $133,000 $ 

XYZ 

Foundation 

25,000 25,000 20,000 

Seminar fees 70,000 70,000 70,000 

Investment 8,000 10,000 18,000 15,000 2,000 2,000 

Income 


To


Mortgage 450,000 450,000 

Uses of cash 

Salaries and 

benefits 

Materials and 

services 

Purchase of 


Purchase of 

investments 

Contributed 

equipment put 

in service 

Mortgage 

interest and 

principal 

7a(8) 

Net increase 

(decrease) in 

cash and term 

deposits 

Cash and term 

deposits, 

beginning 

Interfund 

adjustments 

7(9) 

Cash and 

term deposits, 

end of year 

(200,000) (30,000) (230,000) (225,000) 

(19,000) (1,000) (20,000) (15,000) 

(510,000) (510,000) 

(80,000) (60,000) (140,000) 

(5,000) (5,000) 

(18,000) - (18,000) - (3,000) - (3,000) 

31,000 4,000 35,000 20,000 (63,000) (10,000) (73,000) 

185,000 (25,000) 160,000 140,000 

(98,000) 25,000 (73,000) - 63,000 10,000 73,000 

$118,000 $4,000 $122,000 $160,000 

======= ====== ======= ======= ======= ======= ======= = 


NFP A 



NFP A is a national organization operating programs and performing research aimed at 

helping those who lost family members in automobile accidents. NFP A is incorporated 

under the Canada Corporations Act as a not-for-profit organization and is a registered 

charity under the Income Tax Act. 




Fund accounting 

NFP A follows the restricted fund method of accounting for contributions. 

The General Fund accounts for the organization's program delivery and administrative 

activities. This fund reports unrestricted resources and restricted operating grants. 

The Research Fund reports only restricted resources that are to be used for research 

purposes. 

The Capital Asset Fund reports the assets, liabilities, revenues and expenses related to 

NFP A's capital assets and building expansion campaign. 

The Endowment Fund reports resources contributed for endowment. Investment income 

earned on resources of the Endowment Fund is reported in the Research or General Fund 

depending on the nature of any restrictions imposed by contributors of funds for 

endowment. 


Purchased capital assets are recorded at cost. Contributed capital assets are recorded at 

fair value at the date of contribution. Amortization is provided on a straight-line basis 

over the assets' estimated useful lives, which for buildings is 20 years and for equipment 

is 5 years. Amortization expense is reported in the Capital Asset Fund. 

Investments 



Restricted contributions related to general operations are recognized as revenue of the 

General Fund in the year in which the related expenses are incurred. All other restricted 

contributions are recognized as revenue of the appropriate restricted fund. 

Unrestricted contributions are recognized as revenue of the General Fund in the year 

received or receivable if the amount to be received can be reasonably estimated and 

collection is reasonably assured. 

Contributions for endowment are recognized as revenue in the Endowment Fund. 

Investment income earned on Endowment Fund resources that must be spent on research 

activities is recognized as revenue of the Research Fund. Unrestricted investment income 

earned on Endowment Fund resources is recognized as revenue of the General Fund. 

Investment income earned on building campaign resources is recognized as revenue of 

the Capital Asset Fund. Other investment income is recognized as revenue of the General 

Fund when earned. 



Seminar fees are recognized as revenue of the General Fund when the seminars are held. 





3. Capital assets 

Cost 

Accumulated 

Amortization 


19x2 19x1 19x2 19x1 19x2 19x1 

Land $150,000 $ 50,000 $ $ $150,000 $ 50,000 

Buildings 540,000 140,000 87,000 70,000 453,000 70,000 

Equipment 40,000 25,000 16,000 10,000 24,000 15,000 

$730,000 $215,000 $103,000 $80,000 $627,000 $135,000 

====== ====== ====== ====== ====== ====== 





5. Deferred operating grant 

The deferred operating grant reported in the General Fund represents restricted operating 

funding received in the current period that is related to the subsequent period. Changes in 

the deferred operating grant balance are as follows: 

19x2 

19x1 



Add amounts received related to next year 110,000 105,000 


======= ======= 

6. Externally restricted net assets 

Major categories of externally imposed restrictions on net assets are as follows: 

19x2 19x1 

Restricted for research purposes $ 8,000 $ 



Restricted related to building campaign (see 

below) 

Endowments, the income from which must be 

used for research purposes 

Endowments, the income from which is 

unrestricted 

80,000 

100,000 100,000 

50,000 - 

$238,000 $100,000 

======= ======= 


expansion to NFP A's existing building. the campaign has raised contributions of $78,000 

to date, which have been invested in marketable securities. Related investment income of 

$2,000, restricted for the building expansion, is also reported in the Capital Asset Fund. 

7. Interfund transfers and internally restricted net assets 

In 19x2, NFP A's board of directors internally restricted $25,000 to be used for research 

purposes and $10,000 to be held for endowment purposes. Transfers of these amounts 

were made from the General Fund to the Research Fund and the Endowment Fund, 

respectively. These internally restricted amounts are not available for unrestricted 

purposes without approval of the board of directors. In addition, $81,000 was transferred 

from the General Fund to the Capital Asset Fund in order to fund the cash outlays for 

capital asset acquisitions and mortgage principal and interest payments. 

8. Donated capital asset 

Contributions recognized in the Capital Asset Fund include contributed equipment 

received in 19x2 having a fair value of $5,000. 



general operations. Contributions reported in the General Fund include net revenue from 

this event of $5,000. Gross revenue and expenses related to this event were $15,000 and 

$10,000, respectively. 


Investment income including income earned on resources held for endowment, which is 

reported in the following funds: 

Investment income 

earned on: 


General Fund Research Fund Capital Asset Fund 

19x2 19x1 19x2 19x1 19x2 19x1


Endowment 

Fund resources 

Building 

campaign 

resources 

Other 

investments 

$4,000 $ $10,000 $10,000 $ 

2,000 

4,000 5,000 - - - - 

$8,000 $5,000 $10,000 $10,000 $2,000 

====== ====== ====== ====== ====== ====== 

SITUATION III 

NFP A FOLLOWS THE DEFERRAL METHOD AND REPORTS 

USING FUND ACCOUNTING 

The transactions and circumstances assumed for this example are the same as for 

Situations I and II, except that NFP A follows the deferral method of accounting for 

contributions and reports using fund accounting. 

Current assets 

Cash and term 

deposits 

Accounts 

receivable 

Operating 

Fund 


NFP A 



Research 

Fund 

Capital 

Asset Fund 

Endow 

ment Fund 

Total 19x2 Total 1 

$118,000 $4,000 $ $ $122,000 $160, 

20,000 20,000 10, 

Grant receivable - 30,000 - - 30,000 25, 

Investments 

(market $244,000 - 

19x1 $102,000) 

Capital assets, net 

(note 3) 

Current liabilities 

138,000 34,000 172,000 195, 

80,000 160,000 240,000 100, 

- - 627,000 - 627,000 135, 

$138,000 $34,000 $707,000 $160,000 $1,039,000 $430, 

======= ======= ======= ======= ======= =====


Accounts payable 

and accrued 

liabilities 

Mortgage payable - 

current (note 4) 

Mortgage payable - 

long-term (note 4) 

Deferred 

contributions (notes 

5 and 6) 

Fund balances 

Invested in capital 

assets 

Externally 

restricted (note 7) 

Internally restricted 

(note 8) 

$24,000 $1,000 $ $ +$25,000 $20, 

-- - 6,000 - 6,000 

24,000 1,000 6,000 - 31,000 20, 

- - 441,000 - 441,000 

110,000 8,000 147,000 - 265,000 175, 

113,000 8a 

(1 

0) 

113,000 65, 

150,000 150,000 100, 

25,000 10,000 35,000 

Unrestricted 4,000 - - - 4,000 70, 

4,000 25,000 113,000 160,000 302,000 235, 

$138,000 $34,000 $707,000 $160,000 $1,039,000 $430, 

======= ======= ======= ======= ======= ===== 

NFP A 

Statement of operations and changes in fund balances 


Revenues 

Federal government 

grants (note 5) 

General 

contributions (note 

9) 

Contribution from 

XYZ Foundation 

Operating 

Fund 

Research 

Fund 

Capital 

Asset Fund 

Endowment 

Fund 

Total 

19x2 

$105,000 $30,000 $ $ $135,000 $ 

55,000 55,000 

25,000 25,000 

To 




deferred 

contributions (note 

6) 

8,000 8,000 

Seminar fees 80,000 80,000 

Investment income 

(note 10) 

Expenses 

Salaries and 

benefits 

Purchased materials 

and services 



Mortgage interest 

(note 4) 

Excess (deficiency) 

of revenues over 

expenses 


beginning 

Endowment 

contributions 

Interfund transfers 

(note 8) 


ending 

8,000 2,000 - - 10,000 

273,000 32,000 8,000 - 313,000 

200,000 30,000 230,000 

23,000 2,000 25,000 

23,000 23,000 

- - 18,000 - 18,000 

223,000 32,000 41,000 - 296,000 

50,000 (33,000) 17,000 

70,000 65,000 100,000 235,000 

(116,000) 25,000 81,000 9a 

(1 

1) 

50,000 50,000 

10,000 - 

$4,000 $25,000 $113,000 $160,000 $302,000 $ 

======= ======= ======= ======= ======= == 

NFP A 

Statement of cash flows 


Cash from operating activities *(12) 

19X2 

19X1 



Excess of revenues over expenses $17,000 $35,000 

Amortization of capital assets 23,000 12,000 

Amortization of deferred contributions related to 


(8,000) (7,000) 

Net change in non-cash working capital (10,000) (25,000) 

Increase in deferred contributions related to 

operations and research 

13,000 5,000 

Net cash generated through operating activities 35,000 20,000 

Financing and investing activities 

Endowment contributions 50,000 

Deferred contributions and interest related to building 

campaign 

80,000 

Mortgage proceeds 450,000 

Purchase of capital assets (510,000) 

Mortgage principal repayments (3,000) 


Contributed equipment put in service (5,000) 

Purchase of investments (140,000) - 

Net cash used in financing and investing activities (73,000) - 

Net (decrease) increase in cash (38,000) 20,000 

Cash and term deposits, beginning of year 160,000 140,000 

Cash and term deposits, end of year $122,000 $160,000 

======= ======= 



NFP A 



NFP A is a national organization operating programs and performing research aimed at 

helping those who have lost family members in automobile accidents. NFP A is 

incorporated under the Canada Corporations Act as a not-for-profit organization and is a 

registered charity under the Income Tax Act. 


NFP A follows the deferral method of accounting for contributions. 

Fund accounting


Revenues and expenses related to program delivery and administrative activities are 

reported in the Operating Fund. 

Revenues and expenses related to research activities are reported in the Research Fund. 

The Capital Asset Fund reports the assets, liabilities, revenues and expenses related to 

NFP A's capital assets and building expansion campaign. 

Endowment contributions are reported in the Endowment Fund. Investment income 

earned on resources of the Endowment Fund is reported in the Research or Operating 

Fund depending on the nature of any restrictions imposed by contributors of funds for 

endowment. 


Restricted contributions are recognized as revenue of the appropriate fund in the year in 

which the related expenses are incurred. Unrestricted contributions are recognized as 

revenue of the appropriate fund when received or receivable if the amount to be received 

can be reasonably estimated and collection is reasonably assured. 

Endowment contributions are recognized as direct increases in the Endowment Fund 

balance. 

Restricted investment income is recognized as revenue of the appropriate fund in the year 

in which the related expenses are incurred. Unrestricted investment income is recognized 

as revenue when earned. 

Seminar fees are recognized as revenue of the Operating Fund when the seminars are 

held. 


Purchased capital assets are recorded in the Capital Asset Fund at cost. Contributed 

capital assets are recorded in the Capital Asset Fund at fair value at the date of 

contribution. Amortization is provided on a straight-line basis over the assets' estimated 

useful lives, which for buildings is 20 years and for equipment is 5 years. Amortization 

expense is reported in the Capital Asset Fund. 

Investments 






3. Building and equipment 


The 3. CICA Building Official and Pronouncements equipment Collection 

Cost 

Accumulated 

Amortization 


19x2 19x1 19x2 19x1 19x2 19x1 

Land $150,000 $ 50,000 $ $ $150,000 $ 50,000 

Buildings 540,000 140,000 87,000 70,000 453,000 70,000 

Equipment 40,000 25,000 16,000 10,000 24,000 15,000 

$730,000 $215,000 $103,000 $80,000 $627,000 $135,000 

====== ====== ====== ====== ====== ====== 







5. Deferred contributions 

Deferred contributions reported in the Operating Fund relate to restricted operating 

funding received in the current period that is related to the subsequent period. Changes in 

the deferred contributions balance reported in the Operating Fund are as follows: 

19x2 

19x1 



Add amount received related to the following 

year 

110,000 105,000 


======= ======= 

In addition, deferred contributions of $8,000 (19x1 - $0) are reported in the Research 

Fund. These deferred contributions relate to the unspent portion of investment income 

restricted for research purposes. 

6. Deferred contributions related to capital assets 

Deferred contributions reported in the Capital Asset Fund include the unamortized 

portions of contributed capital assets and restricted contributions with which one of NFP 

A's buildings was originally purchased. 


expansion to NFP A's existing building. Externally restricted contributions and 

investment income related to the building campaign are also included in deferred 

contributions reported in the Capital Asset Fund. 

The changes for the year in the deferred contributions balance reported in the Capital 

Asset Fund are as follows: 

19x2 

19x1 



Amounts amortized to revenue (8,000) (7,000) 

Building campaign contributions 78,000 



Investment income related to building campaign 

funds 

2,000 - 


======= ======= 

7. External restrictions on fund balances 

Major categories of externally imposed restrictions on fund balances are as follows: 

Endowments, the income from which must be 

used for research purposes 

Endowments, the income from which is 

unrestricted 

Externally restricted portion of Endowment 

Fund balance 

19x2 19x1 

$100,000 $100,000 

$50,000 - 

$150,000 $100,000 

======= ======= 

8. Interfund transfers and internally restricted fund balances 

In 19x2, NFP A's board of directors internally restricted resources amounting to $35,000. 

Of this amount, $25,000 is to be used for research purposes and $10,000 is to be 

maintained for endowment purposes. Transfers of these amounts were made from the 

Operating Fund to the Research Fund and the Endowment Fund, respectively. These 

internally restricted amounts are not available for other purposes without approval of the 

board of directors. In addition, $81,000 was transferred from the Operating Fund to the 

Capital Asset Fund in order to fund the cash outlays for capital asset acquisitions and 

mortgage principal and interest payments. 



general operations. Contributions reported in the Operating Fund include net revenue 

from this event of $5,000. Gross revenue and expenses related to this event were $15,000 

and $10,000, respectively. 


Investment income earned is reported as follows: 


19x2 

19x1 

Income earned on unrestricted resources $4,000 $5,000 

Income earned on building campaign resources 2,000


Income earned on resources held for 

endowment: 

Unrestricted 4,000 

Restricted for research purposes 10,000 10,000 

Total investment income earned in the period 20,000 15,000 

Less amounts deferred 

Restricted for research purposes (8,000) 

Restricted for building campaign (2,000) - 

Total investment income recognized as revenue $10,000 $15,000 

====== ====== 

4410 - Contributions - revenue recognition 


SECTION 4410 

contributions - revenue recognition 


Purpose and scope .01 

Paragraph 


Restricted contributions .06-.07 

Restricted government funding - special 

considerations 

.08-.09 

Revenue recognition .10-.18 

Contributed materials and services .16-.18 

Measurement .19-.20 

Disclosure .21-.27 

Deferral method .28-.56 

Recognition of endowment contributions .29-.30 

Recognition of restricted contributions for 

expenses of future periods 

Recognition of restricted contributions for the 

purchase of capital assets 

.31-.32 

.33-.37 




Recognition of restricted contributions for the 

repayment of debt 

Recognition of restricted contributions for 

expenses of the current period 

Paragraph 

.38-.44 

.45-.46 

Recognition of unrestricted contributions .47-.48 

Recognition of net investment income .49-.51 

Presentation and disclosure .52-.56 

Restricted fund method .57-.77 

Recognition of endowment contributions .60-.61 

Recognition of restricted contributions reported in 

restricted funds 

Recognition of restricted contributions reported in 

the general fund 

.62-.64 

.65-.67 

Recognition of unrestricted contributions .68-.69 

Recognition of net investment income .70-.72 



Overview of key recommendations 

Appendix A 



.01 This Section establishes standards for the recognition, measurement, presentation and 

disclosure of contributions, and related investment income, received by not-for-profit 

organizations. For purposes of this Section, contributions include contributions 

receivable recognized in the financial statements in accordance with CONTRIBUTIONS 

RECEIVABLE, Section 4420. The recognition of other revenue by not-for-profit 

organizations, such as that arising from the sale of services or goods, is dealt with in 

REVENUE, Section 3400. 

Definitions 

DEFINITIONS 

.02 The following definitions have been adopted for purposes of this Section. 








(b) A contribution is a non-reciprocal transfer to a not-for-profit organization of cash or 

other assets or a non-reciprocal settlement or cancellation of its liabilities. 

Government funding provided to a not-for-profit organization is considered to be a 

contribution. 

There are three types of contributions identified for purposes of this Section: 

(i) A restricted contribution is a contribution subject to externally imposed 

stipulations that specify the purpose for which the contributed asset is to be used. 

A contribution restricted for the purchase of a capital asset or a contribution of the 

capital asset itself is a type of restricted contribution. 

(ii) An endowment contribution is a type of restricted contribution subject to 

externally imposed stipulations specifying that the resources contributed be 

maintained permanently, although the constituent assets may change from time to 

time. 

(iii) An unrestricted contribution is a contribution that is neither a restricted 

contribution nor an endowment contribution. 

(c) Restrictions are stipulations imposed that specify how resources must be used. 

External restrictions are imposed from outside the organization, usually by the 

contributor of the resources. Internal restrictions are imposed in a formal manner by 

the organization itself, usually by resolution of the board of directors. Restrictions on 

contributions may only be externally imposed. Net assets or fund balances may be 

internally or externally restricted. Internally restricted net assets or fund balances are 

often referred to as reserves or appropriations. 

(d) Under the deferral method of accounting for contributions, restricted contributions 

related to expenses of future periods are deferred and recognized as revenue in the 

period in which the related expenses are incurred. Endowment contributions are 

reported as direct increases in net assets. All other contributions are reported as 

revenue of the current period. Organizations that use fund accounting in their 

financial statements without following the restricted fund method would account for 

contributions under the deferral method. 

(e) The restricted fund method of accounting for contributions is a specialized type of 

fund accounting which involves the reporting of details of financial statement 

elements by fund in such a way that the organization reports total general funds, one 

or more restricted funds, and an endowment fund, if applicable. Reporting of 

financial statement elements segregated on a basis other than that of use restrictions 

(e.g., by program or geographic location) does not constitute the restricted fund 

method. The following definitions relate to the restricted fund method of accounting 

for contributions: 

(i) A restricted fund is a self-balancing set of accounts the elements of which are 

restricted or relate to the use of restricted resources. Only restricted contributions, 



other than endowment contributions, and other externally restricted revenue 

would be reported as revenue in a restricted fund. Allocations of resources that 

result from the imposition of internal restrictions are recorded as interfund 

transfers to the restricted fund. 

(ii) An endowment fund is a self-balancing set of accounts which reports the 

accumulation of endowment contributions. Only endowment contributions and 

investment income subject to restrictions stipulating that it be added to the 

principal amount of the endowment fund would be reported as revenue of the 

endowment fund. Allocations of resources to the endowment fund that result from 

the imposition of internal restrictions are recorded as interfund transfers. 

(iii) A general fund is a self-balancing set of accounts which reports all unrestricted 

revenue and restricted contributions for which no corresponding restricted fund is 

presented. The fund balance represents net assets that are not subject to externally 

imposed restrictions. 

(f) 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. 

.03 Contributions can come from many sources, including individuals, corporations, 

governments and other not-for-profit organizations. Contributions include contributions 

receivable that meet the criteria for recognition in the financial statements (see 

CONTRIBUTIONS RECEIVABLE, Section 4420). 

.04 Certain types of government funding are calculated and paid as if they were fees for 

services. However, because the services being funded are provided to the not-for-profit 

organization's community of service, and not directly to the government funder, 

government funding is considered to be a contribution for purposes of this Section. 

.05 Many not-for-profit organizations receive membership fees. Such fees are considered 

fees for services when members receive services having a value commensurate with fees 

paid. In other cases, membership fees may be in substance contributions. An organization 

would decide whether its membership fees are contributions or fees for services and 

account for them accordingly on a consistent basis. Some membership fees have 

characteristics of both fees for services and contributions. Such fees would be divided 

into the portion that relates to fees for services and the portion that is in substance a 

contribution. 

Restricted contributions 

Restricted contributions 

.06 The distinction between restricted contributions and unrestricted contributions is 

important since different reporting principles apply. The fact that an organization does 

not expect or is unable to spend a contribution received in the current period, perhaps 

because the contribution was received late in the year, would not be sufficient grounds 



for presenting it as restricted. Most externally imposed restrictions will be explicitly 

stated by the contributor. However, external restrictions may also be clear from the 

purpose for which the contribution was solicited by the organization. Such implicit 

restrictions must bind the organization to use the resources contributed for the purposes 

specified. An organization would be considered to be bound by implicit restrictions as 

long as the contributor is aware of the purposes for which the contribution will be used 

and would have recourse if the contributed resources were not used in the ways specified. 

Implicit and explicit restrictions may be evident by a requirement to report to the 

contributor that the contribution was used in a way that fulfills the restrictions. Restricted 

contributions that will not be used in the manner stipulated may have to be returned, 

unless the contributor gives permission for another use. 

.07 Restrictions stipulate uses for the contributed resources that are more specific than broad 

limits resulting from the nature of the organization or the environment in which it 

operates. A restriction may stipulate an area of the organization's activities in which the 

contributed resources are to be used. Alternatively, an organization may receive a 

contribution subject to restrictions that the contribution be used for the organization's 

general operations in a future period. A contribution received with instructions that it be 

used for general operations and without any indication of the period in which it should be 

used or of the specific operating expenses it is intended to fund would not be considered 

restricted. 

Restricted government funding - special considerations 

Restricted government funding - special considerations 

.08 Government funding is a significant component of many not-for-profit organizations' 

total contributions. The assessment of whether government funding in a particular 

situation represents a restricted or an unrestricted contribution depends on the 

characteristics of the contribution. Restrictions on government funding may be indicated 

by the fact that the funding is provided based on the organization's approved operating 

budget. Another indication that funding is restricted may be a requirement to report to the 

funder as to how the resources were actually used. Sometimes restricted government 

funding left over at the end of the period must be returned to the funder. 

.09 Some annual government funding arrangements relate more closely to time periods than 

to the incurring of specific expenses. For example, a funder may contribute funds for a 

particular period without specifically identifying the expenses towards which the 

contribution is to be applied. Such contributions, when received in advance of the period 

that is being funded, are in effect restricted contributions related to expenses of the future 

period being funded. 

Revenue Recognition 

REVENUE RECOGNITION 

.10 ♦ An organization should recognize contributions in accordance with either: 

(a) the deferral method (see paragraphs 4410.28-.56); or 



(b) the restricted fund method (see paragraphs 4410.57-.77). [APRIL 1997] 

.11 A unique characteristic of contributions is that they are often subject to externally 

imposed restrictions that specify how the resources contributed are to be used or, in some 

cases, that they be maintained permanently. Not-for-profit organizations have three types 

of contributions to report: endowment contributions, restricted contributions and 

unrestricted contributions. To show the extent to which the organization has been able to 

obtain resources to cover the expenses associated with service delivery for the period, it 

is necessary to report in a way that distinguishes the different types of contributions. This 

reporting is achieved by following either the deferral method or the restricted fund 

method of accounting for contributions. 

.12 An organization would select one of the methods for recognizing contributions set out in 

paragraph 4410.10 and apply that method consistently to all contributions received. If an 

organization changes its method of accounting for contributions, the change would be 

treated as a change in accounting policy in accordance with ACCOUNTING CHANGES, 

Section 1506. 

.13 Under the deferral method, contributions for which externally imposed restrictions 

remain unfulfilled are accumulated as deferred contributions in the statement of financial 

position. Under this method, endowment contributions are not recognized as revenue at 

all since they must be maintained permanently. 

.14 The restricted fund method is a specialized use of fund accounting in which the 

organization presents total general funds and at least one restricted fund. Most restricted 

contributions and endowment contributions are reported separately from unrestricted 

resources by using restricted funds and an endowment fund. Contributions for which 

externally imposed restrictions remain unfulfilled, as well as endowment contributions, 

are presented in the appropriate fund balance. 

.15 Not all uses of fund accounting will meet the definition of the restricted fund method. An 

organization may present its financial statements on a fund accounting basis without 

following the restricted fund method. The restricted fund method is a specific use of fund 

accounting in which the various funds are used primarily to segregate restricted resources 

from unrestricted resources. Fund accounting may be used for purposes other than to 

report restrictions, for example to report on different programs in such a way that 

individual funds include both restricted and unrestricted resources. When fund 

accounting is not being used in a way that meets the definition of the restricted fund 

method, the organization would recognize contributions using the deferral method in the 

various funds reported. (A general discussion of fund accounting is presented in 

FINANCIAL STATEMENT PRESENTATION BY NOT-FOR-PROFIT 

ORGANIZATIONS, Section 4400.) 

Contributed materials and services 

Contributed materials and services 



.16 ♦ An organization may choose to recognize contributions of materials and services, but 

should do so only when a fair value can be reasonably estimated and when the materials 

and services are used in the normal course of the organization's operations and would 

otherwise have been purchased. [APRIL 1997] 

.17 Organizations may receive substantial contributed materials and services. Often these 

contributions are not recorded because of record-keeping and valuation difficulties. For 

example, it may be impractical to record the receipt of contributed services where the 

organization depends heavily on the use of volunteers to provide services. Where 

contributed materials and services meet the criteria in paragraph 4410.16, recording their 

value would provide useful information. 

.18 Contributed materials and services that are part of a constructed capital asset would be 

recognized at fair value in accordance with CAPITAL ASSETS HELD BY 

NOT-FOR-PROFIT ORGANIZATIONS, Section 4430. 

Measurement 

MEASUREMENT 

.19 ♦ Contributions should be measured at fair value at the date of contribution if fair value 

can be reasonably estimated. [APRIL 1997] 

.20 A contribution of assets other than cash would be measured at fair value. Fair value 

would be estimated using market or appraisal values. For contributed materials and 

services that are normally purchased, fair value would be determined in relation to the 

purchase of similar materials and services. 

Disclosure 

DISCLOSURE 

.21 ♦ An organization should disclose: 

(a) the policy followed in accounting for endowment contributions; and 

(b) the policies followed in accounting for restricted contributions. [APRIL 1997] 

.22 ♦ An organization should disclose its contributions by major source. [APRIL 1997] 

.23 ♦ An organization should disclose the policy followed in accounting for contributed 

materials and services. [APRIL 1997] 

.24 ♦ An organization should disclose the nature and amount of contributed materials and 

services recognized in the financial statements. [APRIL 1997] 

.25 Organizations will report contributions differently depending on whether they follow the 

deferral method or the restricted fund method. An organization would disclose its 

policies for accounting for each different type of contribution. 

.26 Information about the sources of contributions will help financial statement users to 

assess the organization's economic relationship with other entities and to predict its 



ability to generate future cash flows. This information would be disclosed for each source 

of significant contributions to the organization. The sources would be grouped by major 

categories, such as different levels of government, foundations, corporate contributors, 

individuals and other not-for-profit organizations. It may be desirable to name individual 

entities providing significant levels of support unless there is reason for them to remain 

anonymous. 

.27 The disclosures required by paragraphs 4410.21-.24 would be provided by all 

not-for-profit organizations. Specific presentation and disclosure requirements related to 

organizations following the deferral method and to those following the restricted fund 

method are discussed in paragraphs 4410.52-.56 and paragraphs 4410.73-.77, 

respectively. 

Deferral Method 

DEFERRAL METHOD 

.28 Under the deferral method, restricted contributions for which the related restrictions 

remain unfulfilled are accumulated as deferred contributions. As a result, the 

organization's excess of revenue over expenses for the period represents the increase in 

resources that are not restricted to cover specific expenses of a future period. 

Organizations that choose to follow the restricted fund method would refer to paragraphs 

4410.57-.77. 

Recognition of endowment contributions 


.29 ♦ Endowment contributions should be recognized as direct increases in net assets in the 

current period. [APRIL 1997] 

.30 Endowment contributions will never be available to meet expenses associated with the 

organization's service delivery activities. Therefore, an organization following the 

deferral method would exclude such contributions from revenue available for current 

expenses by recognizing them as direct increases in net assets. Net investment income 

earned on resources held for endowment would be accounted for in accordance with 

paragraph 4410.49. 

Recognition of restricted contributions for expenses of future periods 

Recognition of restricted contributions for expenses of future periods 

.31 ♦ Restricted contributions for expenses of one or more future periods should be deferred 

and recognized as revenue in the same period or periods as the related expenses are 

recognized. [APRIL 1997] 

.32 The deferral of restricted contributions related to expenses of future periods provides the 

organization with a means to segregate those contributions of resources that must be set 

aside to cover expenses in the future. The deferred contributions balances reported on the 

statement of financial position represent the amount of restricted contributions that are 

related to expenses of future periods. When these contributions are recognized as 



revenue, they will be matched with the expenses that they were intended to fund. When 

the only restriction on a contribution is that it cannot be used until a particular future 

period, the total amount of the contribution would be recognized as revenue in that future 

period, whether or not it has been spent. 

Recognition of restricted contributions for the purchase of capital assets 

Recognition of restricted contributions for the purchase of capital assets 

.33 ♦ Restricted contributions for the purchase of capital assets that will be amortized should 

be deferred and recognized as revenue on the same basis as the amortization expense 

related to the acquired capital assets. [APRIL 1997] 

.34 ♦ Restricted contributions for the purchase of capital assets that will not be amortized 

should be recognized as direct increases in net assets. [APRIL 1997] 

.35 The deferral of contributions restricted for the purchase of capital assets that will be 

amortized provides a means to match such contributions with the benefits provided by the 

capital assets acquired. Such contributions will be recognized as revenue over the useful 

life of the acquired capital asset to reflect the fact that the contribution provides benefits 

in all the periods in which the organization has the use of the capital asset. When the 

acquired capital asset will not be subject to amortization because it has an unlimited 

useful life, it is not possible to match the contribution with the benefits provided since 

these benefits are unlimited. Therefore, contributions restricted for the purchase of capital 

assets that will not be amortized are recognized as direct increases in net assets. 

.36 A restricted contribution may be provided for a certain area of activity, for example 

research, without the contributor specifying which portion is to be used to acquire capital 

assets. In order for a contribution to be accounted for as a contribution restricted for the 

purchase of a capital asset, the contributor must specify the portion of the contribution 

that is to be used to purchase capital assets. If the contributor does not so specify, then 

the contribution would be recognized as revenue when spent for the particular purpose 

covered by the restriction, regardless of the fact that some of the expenditures may relate 

to the purchase of capital assets. 

.37 Organizations that meet the criteria in CAPITAL ASSETS HELD BY 

NOT-FOR-PROFIT ORGANIZATIONS paragraph 4430.03 and that expense capital 

assets on acquisition would account for restricted contributions for the purchase of capital 

assets in accordance with paragraph 4410.31 or .45, as appropriate. If capital assets are 

capitalized but not amortized, restricted contributions for the purchase of capital assets 

would be accounted for in accordance with paragraph 4410.34. 

Recognition of restricted contributions for the repayment of debt 

Recognition of restricted contributions for the repayment of debt 

.38 ♦ Restricted contributions for the repayment of debt that was incurred to fund expenses of 

one or more future periods should be deferred and recognized as revenue in the same 

period or periods as the related expenses are recognized. [APRIL 1997] 



.39 ♦ Restricted contributions for the repayment of debt that was incurred to fund the 

purchase of a capital asset that will not be amortized should be recognized as direct 

increases in net assets. [APRIL 1997] 

.40 ♦ Restricted contributions for the repayment of debt that was incurred for purposes other 

than those described in paragraph 4410.38 or .39 should be recognized as revenue in the 


.41 When an organization obtains debt financing for specific purposes, contributions 

restricted for the repayment of that debt would be recognized as if the contribution itself 

were restricted for the same purpose as the debt financing was used. For example, a 

restricted contribution for the repayment of the mortgage on an organization's building 

would be recognized as revenue in the same periods as the amortization expense 

associated with the building. (This treatment is consistent with the accounting for 

restricted contributions for the purchase of capital assets set out in paragraph 4410.33.) 

When the restricted contribution to repay the mortgage is received as a lump sum, 

matching with the related amortization expense would be achieved by deferring the 

contribution and recognizing it as revenue over the remaining useful life of the building. 

When the restricted contributions for the repayment of the mortgage are received to fund 

the periodic mortgage repayments, matching with the related amortization expense may 

be achieved by recognizing the contributions as revenue when received. 

.42 In considering whether debt was incurred to fund specific expenses, the organization 

would consider the timing of the debt financing in relation to the incurring of the 

expenses. If debt financing is obtained to coincide with a particular project, then it may 

be linked with the expenses related to that project. Debt would likely be considered to be 

linked with a particular capital asset if the debt were used to finance the acquisition and 

the capital asset were pledged as security. Because of their current nature, most 

short-term operating loans would be considered to be related to expenses of the current 

period. 

.43 Debt financing may be incurred to fund the purchase of a capital asset that will not be 

amortized, such as land. Any contributions restricted for the repayment of such debt 

would be recognized as direct increases in net assets. This treatment is consistent with the 

accounting for restricted contributions for the purchase of capital assets that will not be 

amortized (see paragraph 4410.34). 

.44 Restricted contributions for the repayment of debt that was incurred for purposes other 

than to fund expenses of future periods or the acquisition of capital assets that will not be 

amortized would be recognized as revenue in the current period. Such contributions are 

similar to unrestricted contributions since they effectively allow the organization the use 

of unrestricted resources that would otherwise have been used to repay its debt. 

Recognition of restricted contributions of expenses of the current period 

Recognition of restricted contributions for expenses of the current period 



.45 ♦ Restricted contributions for expenses of the current period should be recognized as 

revenue in the current period. [APRIL 1997] 

.46 When a restricted contribution is received or recognized as a contribution receivable in 

the same period in which the related expenses are incurred, the restrictions have been 

complied with by the reporting date. Therefore, such restricted contributions would be 

recognized as revenue in the current period. 

Recognition of unrestricted contributions 


.47 ♦ Unrestricted contributions should be recognized as revenue in the current period. 

[APRIL 1997] 

.48 Since unrestricted contributions are for use at the organization's discretion, they are 

available to fund operations of current and future periods as required. This increase in 

economic resources is recognized when it occurs by reporting such contributions as 

revenue of the current period. 

Recognition of net investment income 


.49 ♦ An organization should recognize: 

(a) net investment income that is not externally restricted in the statement of operations; 

(b) externally restricted net investment income that must be added to the principal 

amount of resources held for endowment as direct increases, or decreases, in net 

assets; and 

(c) other externally restricted net investment income in the statement of operations, in 

the appropriate deferred contributions balance or in net assets, depending on the 

nature of restrictions, on the same basis as described in paragraphs 4410.31 to .48. 

[APRIL 1997] 

.50 Net investment income may be subject to externally imposed restrictions. In order to 

ensure the appropriate reporting of restricted and unrestricted resources, an organization 

would account for net investment income in the manner appropriate to the nature of any 

external restrictions imposed. 

.51 For purposes of this Section, net investment income includes revenue, gains or losses on 

investments. Any gains or losses on investments would be considered to be restricted or 

unrestricted based on the restrictions imposed on the resources originally contributed. For 

example, if losses were recognized on investments purchased with contributions subject 

to externally imposed restrictions that the related income is to be used for a particular 

project, the losses would be recognized as decreases in the deferred contributions balance 

related to that project. If there were no deferred contributions balance related to that 

project, such losses would be recognized in the statement of operations. 

Presentation and disclosure 



Deferred contributions 



.52 ♦ Deferred contributions balances should be presented in the statement of financial 

position outside net assets. [APRIL 1997] 

.53 ♦ An organization should disclose the nature and amount of changes in deferred 

contributions balances for the period. [APRIL 1997] 

.54 The deferral method of reporting contributions is an alternative to the restricted fund 

method. Disclosure of changes in deferred contributions balances permits comparisons 

between organizations that follow the deferral method and those that follow the restricted 

fund method. Increases in deferred contributions balances normally result from the 

receipt of restricted contributions for which the related expenses will not be recognized 

until a later period. Decreases normally result from the recognition in revenue of 

previously deferred contributions. It may be desirable to present the changes in deferred 

contributions balances as a separate statement. 

Net investment income earned on resources held for endowment 


.55 ♦ An organization should disclose the following related to net investment income earned 

on resources held for endowment: 

(a) the amounts recognized in the statement of operations in the period; 

(b) the amounts deferred in the period; 

(c) the amounts recognized as direct increases or decreases in net assets in the period; 

and 

(d) the total earned in the period. [APRIL 1997] 

.56 Net investment income earned on resources held for endowment is in effect a 

contribution and would be reported based on the nature of any related externally imposed 

restrictions (see paragraphs 4410.49-.51.) As a result, some portions of net investment 

income earned in the period may be recognized immediately as revenue, while other 

portions may be deferred or reported as direct increases in net assets. Disclosure of total 

net investment income will allow financial statement readers to assess the performance of 

investments held for endowment. This disclosure would be presented in a way that shows 

which portions of total net investment income appear in the financial statements as 

revenue, deferred contributions and direct increases in net assets. Similar disclosure may 

be useful for other externally restricted net investment income. 

Restricted Fund Method 

RESTRICTED FUND METHOD 

.57 The restricted fund method is a specialized use of fund accounting. Organizations using 

fund accounting in ways that do not meet the definition of the restricted fund method 



would follow the deferral method in accordance with paragraphs 4410.28-.56. When an 

organization follows the restricted fund method, it presents a single general fund, or the 

total of all general funds, and one or more restricted funds. The purpose of a restricted 

fund is to record the receipt and use of resources that are subject to restrictions. An 

organization following the restricted fund method would also present a separate 

endowment fund if it receives endowment contributions. All revenue reported in a 

restricted fund is externally restricted. Resources transferred to a restricted or endowment 

fund as a result of the organization imposing internal restrictions would be recognized as 

interfund transfers in accordance with the general Recommendations on fund accounting 

presented in FINANCIAL STATEMENT PRESENTATION BY NOT-FOR PROFIT 

ORGANIZATIONS, paragraphs 4400.06 to .17. 

.58 The restricted fund method requires that a general fund be used to report changes in 

unrestricted net assets. Organizations may choose to report more than one general fund as 

long as a total for all general funds is presented. Restricted contributions would be 

recognized in the general fund using the deferral method when an appropriate restricted 

fund does not exist. The excess or deficiency of revenues over expenses in the general 

fund represents the change in net assets that are not restricted to cover future periods' 

expenses. 

.59 An organization following the restricted fund method of accounting for contributions 

would choose which restricted funds to report. Because of this choice, two organizations 

following the restricted fund method may each report similar kinds of restricted 

contributions differently. For example, one organization may present contributions 

restricted for research in a separate restricted research fund. Another organization may 

not report a separate research fund. In this case, contributions that are restricted for 

research purposes would be reported in the general fund using the deferral method. What 

is important is that all similar contributions recognized by the organization be treated in a 

consistent manner. 



.60 ♦ Endowment contributions should be recognized as revenue of the endowment fund in 

the current period. [APRIL 1997] 

.61 The only revenue reported in the endowment fund would be endowment contributions 

and net investment income subject to externally imposed restrictions stipulating that it be 

added to the endowment fund. Any allocations of internally restricted resources to the 

endowment fund would be accounted for as interfund transfers. The endowment fund 

balance represents the accumulation of resources subject to both externally and internally 

imposed restrictions specifying that they be maintained permanently. Net investment 

income earned on resources held for endowment would be recognized in the manner 

appropriate to whether it is restricted or unrestricted, in accordance with paragraph 

4410.70. 

Recognition of restricted contributions reported in restricted funds 



Recognition of restricted contributions reported in restricted funds 

.62 ♦ Restricted contributions for which a corresponding restricted fund is presented should 

be recognized as revenue of that fund in the current period. [APRIL 1997] 

.63 Under the restricted fund method, an organization would report one or more restricted 

funds. Each restricted fund would accumulate resources that are restricted for similar 

purposes. Contributions subject to similar external restrictions would all be accounted for 

the same way on a consistent basis from year to year. For example, if an organization 

reports a restricted research fund, all contributions received subject to restrictions 

stipulating that they be used for research would be reported as revenue of the restricted 

research fund. A change in the restricted funds reported would be treated as a change in 

accounting policy in accordance with ACCOUNTING CHANGES, Section 1506. 

.64 The only revenue reported in a restricted fund would be restricted contributions and other 

revenue subject to externally imposed restrictions, such as income earned on resources 

held for endowment. Any allocations of internally restricted resources to a restricted fund 

would be accounted for as interfund transfers. The restricted fund balance at the reporting 

date represents the accumulation of resources subject to internal or external restrictions 

that have yet to be complied with. 

Recognition of restricted contributions reported in the general fund 

Recognition of restricted contributions reported in the general fund 

.65 ♦ Restricted contributions for which no corresponding restricted fund is presented should 

be recognized in the general fund in accordance with the deferral method (see paragraph 

4410.31, .33, .34, .38, .39, .40 or .45). [APRIL 1997] 

.66 Organizations following the restricted fund method would present a general fund, the 

purpose of which is to account for both unrestricted revenues and restricted contributions 

for which there is not a corresponding restricted fund. For example, core operating 

funding that is provided to fund specifically identified expenses would be considered to 

be a restricted contribution. An organization may prefer to report core operating funding 

in the general fund. The same recognition principles that apply to an organization using 

the deferral method apply to the general fund. Therefore, a restricted contribution 

reported in the general fund would be accounted for in accordance with paragraph 

4410.31, .33, .34, .38, .39, .40 or .45, depending on the nature of the restrictions imposed 

on the contribution. 

.67 When an organization receives a restricted contribution for which it does not present a 

corresponding restricted fund, it may decide to establish such a fund. All subsequent 

restricted contributions for similar purposes would be reported in the restricted fund 

established for that purpose. Since such a change represents a change in accounting 

policy, prior years' financial statements would be retroactively restated if similar 

contributions had been reported in the general fund in prior periods (see ACCOUNTING 

CHANGES, Section 1506). Any resources allocated to the new fund based on internal 



restrictions would be recorded as interfund transfers. 



.68 ♦ Unrestricted contributions should be recognized as revenue of the general fund in the 


.69 Unrestricted contributions are available for use at the organization's discretion. When all 

such contributions are reported as revenue of the general fund, the excess of revenues 

over expenses in the general fund represents the increase in unrestricted net assets after 

deducting the expenses of the current period. Unrestricted resources may be allocated to a 

restricted fund but this allocation would be reported as an interfund transfer. 



.70 ♦ An organization should recognize: 

(a) net investment income that is not externally restricted in the statement of operations 

in the general fund; 

(b) externally restricted net investment income that must be added to the principal 

amount of resources held for endowment in the statement of operations in the 

endowment fund; and 

(c) other externally restricted net investment income in the statement of operations in the 

appropriate restricted fund or, if there is no appropriate restricted fund, in the 

general fund on the same basis as that described in paragraph 4410.65. [APRIL 

1997] 

.71 Net investment income may be subject to externally imposed restrictions. In order to 

ensure the appropriate reporting of restricted and unrestricted resources, an organization 

would account for net investment income in the manner appropriate to the nature of 

external restrictions imposed. 

.72 For purposes of this Section, net investment income includes revenue, gains or losses on 

investments. Any gains or losses would be considered to be restricted or unrestricted 

based on the restrictions imposed on the resources originally contributed. For example, 

losses recognized on investments purchased with contributions subject to externally 

imposed restrictions that the related income be used for research would be recognized in 

the statement of operations in the research fund. 





.73 ♦ When restricted contributions are recognized in the general fund in accordance with 

paragraph 4410.65, any deferred contributions balances should be presented in the 



statement of financial position outside net assets. [APRIL 1997] 

.74 ♦ When restricted contributions are recognized in the general fund in accordance with 

paragraph 4410.65, the nature and amount of changes in deferred contributions 

balances for the period should be disclosed. [APRIL 1997] 

.75 Deferred contributions may be recognized in the general fund related to restricted 

contributions for which no corresponding restricted fund is reported. Increases in 

deferred contributions balances normally result from the receipt of restricted 

contributions for which the related expenses will not be recognized until a later period. 

Decreases normally result from the recognition in revenue of previously deferred 

contributions. It may be desirable to present the changes in deferred contributions 

balances as a separate statement. 



.76 ♦ An organization should disclose the following related to net investment income earned 

on resources held for endowment: 

(a) the amounts recognized in the general fund in the period; 

(b) the amounts recognized in each restricted fund in the period; 

(c) the amounts recognized in the endowment fund in the period; 

(d) any amounts deferred in the period; and 

(e) the total earned in the period. [APRIL 1997] 

.77 Net investment income earned on resources held for endowment is to be reported based 

on the nature of any associated restrictions (see paragraphs 4410.70-.72). As a result, 

some portions of net investment income earned in the period may be reported in the 

general fund while other portions would be reported in the appropriate restricted fund or 

in the endowment fund. Disclosure of total net investment income will allow financial 

statement readers to assess the performance of investments held for endowment. This 

disclosure would be presented in a way that shows which portions of total net investment 

income appear in the general, restricted and endowment funds. Similar disclosure may be 

useful for other externally restricted net investment income. 








1506.) 





Appendix A 

APPENDIX A 

This Appendix has been prepared by the staff of the Accounting Standards Board. It does 

not form part of the Accounting Recommendations. 



Organization following the deferral method 

Organization following the restricted fund method 



4420 - Contributions receivable 



contributions receivable 



.01 This Section establishes standards for the recognition and disclosure of contributions 

receivable by not-for-profit organizations. Recommendations dealing with revenue 

recognition appear in CONTRIBUTIONS - REVENUE RECOGNITION, Section 4410. 

Definition 

DEFINITION 









Recognition 

(b) A contribution is a non-reciprocal transfer to a not-for-profit organization of cash or 

other assets or a non-reciprocal settlement or cancellation of its liabilities. 

Government funding provided to a not-for-profit organization is considered to be a 

contribution. 

RECOGNITION 

.03 ♦ A contribution receivable should be recognized as an asset when it meets the following 

criteria: 

(a) the amount to be received can be reasonably estimated; and 

(b) ultimate collection is reasonably assured. [APRIL 1997] 

.04 An organization may have reason to expect that a particular contribution is forthcoming, 

such as when funding is provided under a contractual arrangement. A contribution 

receivable would be recognized as an asset only if the amount to be received can be 

reasonably estimated and ultimate collection is reasonably assured. Because of the 

non-reciprocal nature of contributions, there may be considerable uncertainty 

surrounding collectibility. When this uncertainty exists, a contribution would not be 

recognized until the contributed assets have been received. Generally, the further in the 

future the contributed assets are expected to be received the greater is the uncertainty 

associated with collectibility. 

Pledges and bequests 

Pledges and bequests 

.05 A pledge is a promise to contribute cash or other assets to a not-for-profit organization. 

Similar to any other contribution receivable, an uncollected pledge would only be 

recognized if it meets the criteria in paragraph 4420.03. Whether or not a pledge will be 

collected depends on factors outside the organization's control, such as current economic 

conditions and the continued goodwill and ability to pay of the individual or entity 

making the pledge. In many cases, pledges would not meet the criteria for recognition 

and therefore would not be recognized until the pledged assets are received. 

.06 There are circumstances, however, in which pledges would meet the criteria for 

recognition. Organizations that have large, annual fundraising campaigns may find that 

they can estimate the realizable value of pledges quite accurately based on historical 

results. Such organizations may therefore conclude that reasonable assurance exists that a 



certain proportion of the total amount pledged will be collected and would recognize that 

proportion before it is collected. An organization would consider whether or not pledges 

come from recurring sources and the length of time before pledges fall due in order to 

assess whether there is reasonable assurance with respect to the proportion of outstanding 

pledges that will be collected. The uncertainty associated with pledges due more than a 

year from the reporting date would normally be so great as to preclude their recognition. 

.07 Bequests are often subject to considerable uncertainty surrounding both the timing of the 

receipt and the amount that will actually be received. In many cases, the recognition 

criteria in paragraph 4420.03 will not be satisfied and the bequest will not be recognized 

until it is received. 

Disclosure 

DISCLOSURE 

.08 ♦ When a not-for-profit organization has recognized outstanding pledges and bequests in 

its financial statements, the following should be disclosed: 

(a) the amount recognized as assets at the reporting date; and 

(b) the amount recognized as revenue in the period. [APRIL 1997] 

.09 In many cases, pledges will not be recognized until collected because the organization 

cannot make a reasonable estimate of the amount that will be collected and collection is 

not reasonably assured. The recognition of pledges outstanding involves a considerable 

degree of judgment on the part of the organization. Disclosure of outstanding pledges and 

bequests recognized in the financial statements will help financial statement users to 

understand the significance of these uncollected amounts to the organization's financial 

position. 



.10 ♦ The Recommendations of this Section should be applied retroactively. [APRIL 1997] 



1506.) 



4430 - Capital assets held by not-for-profit organizations 



capital assets held by not-for-profit organizations 




Paragraph 

Purpose and scope .01-.04 

Definitions .05 

Recognition and measurement .06-.30 

Cost .06-.15 

Amortization .16-.24 

Future removal and site restoration costs .25-.27 

Write downs .28-.29 

Disposal .30 


Contributed capital assets .37-.39 

Capital assets held by small organizations .40 




.01 This Section deals with accounting for capital assets held by not-for-profit organizations. 

Items held as part of a collection are accounted for in accordance with COLLECTIONS 

HELD BY NOT-FOR-PROFIT ORGANIZATIONS, Section 4440. 

.02 This Section applies to capital assets recognized under LEASES, Section 3065. 

.03 Organizations may limit the application of this Section to the Recommendation in 

paragraph 4430.40 if the average of annual revenues recognized in the statement of 

operations for the current and preceding period of the organization and any entities it 

controls is less than $500,000. When an organization reports some of its revenues net of 

related expenses (see FINANCIAL STATEMENT PRESENTATION BY 

NOT-FOR-PROFIT ORGANIZATIONS, paragraphs 4400.37-.40), gross revenues would 

be used for purposes of this calculation. 

.04 The Accounting Standards Board encourages even those organizations meeting the 

criterion in paragraph 4430.03 to follow all of the Recommendations 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 4430.03 and for which the cost of 

following all of the Recommendations of this Section may exceed the benefits, may 

choose to provide only the disclosure required by paragraph 4430.40. Once an 

organization fails to meet the criterion in paragraph 4430.03, it is expected that it would 



continue to follow all the Recommendations of this Section, even if average revenues 

subsequently fall below $500,000. 

Definitions 

DEFINITIONS 

.05 The definitions that follow have been adopted for purposes of this Section. 






(b) Capital assets, comprising tangible properties, such as land, buildings and 

equipment, and intangible properties, are identifiable 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 capital assets; 

(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 

NOT-FOR-PROFIT ORGANIZATIONS, Section 4440. 

(c) Intangible properties are capital assets that lack physical substance. Examples of 

intangible properties include copyrights, patents and software. 

(d) Cost is the amount of consideration given up to acquire, construct, develop, or better 

a capital asset and includes all costs directly attributable to the acquisition, 

construction, development or betterment of the capital asset including installing it at 

the location and in the condition necessary for its intended use. For a contributed 

capital asset, cost is considered to be fair value at the date of contribution. 

(e) 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 


(f) Net carrying amount of a capital asset is cost less both accumulated amortization 

and the amount of any write downs. 

(g) Residual value is the estimated net realizable value of a capital asset at the end of its 

useful life to an organization. 

(h) Service potential is used to describe the service capacity or output of a capital asset 

and is normally determined by reference to attributes such as useful life, associated 



operating costs, physical output capacity and quality of output. 

(i) Useful life is the estimate of the period over which a 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 capital asset may 

extend beyond its useful life to an organization. The life of a capital asset is normally 

the shortest of the physical, technological and legal life. 

Recognition and Measurement 

Cost 

RECOGNITION AND MEASUREMENT 

Cost 

.06 ♦ A capital asset should be recorded on the statement of financial position at cost. For a 

contributed capital asset, cost is considered to be fair value at the date of contribution. In 

unusual circumstances when fair value cannot be reasonably determined, the capital 

asset should be recorded at nominal value. [APRIL 1997] 

.07 Capital assets represent significant economic resources for many not-for-profit 

organizations. Without capital assets, many organizations would not be able to provide 

the same level of service without incurring other expenses, such as rent. Therefore, 

recording 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. 

.08 The cost of a capital asset includes the purchase price and other acquisition costs such as 

installation costs, design and engineering fees, legal fees, survey costs, site preparation 

costs, freight charges, transportation, insurance costs and duties. 

.09 Organizations may receive substantial contributions of capital assets. Recognition of 

contributions of 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. A contributed capital asset would be recognized at its fair value 

at the date of contribution. Fair value of a contributed capital asset may be estimated 

using market or appraisal values. When an estimate of fair value cannot reasonably be 

made, both the capital asset and the related contribution would be recognized at nominal 

value. 

.10 A 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 capital asset and fair value reported as a contribution. 

.11 The cost of each capital asset acquired together as part of a single purchase (e.g., the 

purchase of a building and land for a single amount) is determined by allocating the total 

price paid for all the capital assets acquired to each one on the basis of its relative fair 

value at the time of acquisition. 



.12 When, at the time of acquisition, a portion of the acquired capital asset is not intended for 

use, its cost and any costs of disposal, net of any estimated proceeds, are attributed to that 

portion of the acquired capital asset which is intended for use. For example, the cost of 

acquired land that includes a building which will be demolished comprises the cost of the 

acquired property and the cost of demolishing the building. 

Construction or development over time 

Construction or development over time 

.13 The cost of a capital asset includes direct construction or development costs (such as 

materials and labour) and overhead costs directly attributable to the construction or 

development activity. A capital asset which 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. 

.14 The degree of certainty as to future benefits to be derived from costs attributable to 

developing intangible property varies and, in many cases, the expected future benefits 

may be too uncertain to justify asset recognition. When future benefits are reasonably 

assured, however, such costs are capitalized. 

Betterment 

Betterment 

.15 The cost incurred to enhance the service potential of a capital asset is a betterment. 

Service potential may be enhanced when there is an increase in the previously assessed 

service capacity, associated operating costs are lowered, the useful life is extended, or the 

quality of output is improved. The cost incurred in the maintenance of the service 

potential of a capital asset is a repair, not a betterment. If a cost has the attributes of both 

a repair and a betterment, the portion considered to be a betterment is included in the cost 

of the capital asset. 

Amortization 

Amortization 

.16 ♦ The cost, less any residual value, of a capital asset with a limited life should be 

amortized over its useful life in a rational and systematic manner appropriate to its 

nature and use by the organization. Amortization should be recognized as an expense in 

the organization's statement of operations. [APRIL 1997] 

.17 Most capital assets have limited useful lives. This fact is recognized by amortizing capital 

assets in a rational and systematic manner over their useful lives. Recognizing 

amortization in this way allocates the cost of capital assets to the periods of service 

provided. Amortization expense is an important part of the cost associated with providing 

an organization's services, regardless of how the acquisition of capital assets is funded. 

Information about the organization's total costs is relevant to any assessment of the 

benefits the organization provides. 

.18 Different methods of amortizing a capital asset result in different patterns of expense 



recognition. The objective is to provide a rational and systematic basis for allocating the 

cost of a capital asset, less any residual value, over its useful life. A straight line method 

reflects a constant charge for the service as a function of time. A variable charge method 

reflects service as a function of usage. Other methods may be appropriate in certain 

situations. 

.19 Residual value is the amount that the organization expects to be able to realize on 

disposal of a capital asset at the end of its useful life to the organization. In most cases, 

residual value would be negligible and would be ignored for the purpose of calculating 

amortization. However, when the organization expects the residual value of a capital 

asset to be significant, it would be factored into the calculation of amortization. 

.20 The useful life of a capital asset depends on its expected use by the organization. The fact 

that a capital asset is capable of lasting for a certain time period would not be justification 

for establishing a useful life for amortization purposes that is longer than the period over 

which the organization expects to be able to use the asset. Factors to be considered in 

estimating the useful life of a capital asset include expected future usage, effects of 

technological obsolescence, expected wear and tear from use or the passage of time, the 

maintenance program, and the condition of existing comparable items. 

Land and certain works of art and historical treasures 

Land and certain works of art and historical treasures 

.21 Land normally has an unlimited life and would not be amortized. 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. 

Collections of works of art and historical treasures are subject to specific organizational 

policies that demonstrate the organization's commitment to protect and preserve them. 

Because of the significant valuation problems associated with collections, they are dealt 

with in a separate section, COLLECTIONS HELD BY NOT-FOR-PROFIT 

ORGANIZATIONS, Section 4440. 

Amortization when a fund accounting basis of reporting is used 

Amortization when a fund accounting basis of reporting is used 

.22 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, for a discussion of reporting on a 

fund accounting basis.) 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 capital asset or plant fund. This presentation shows all revenues and 



expenses associated with capital assets in a single fund. 

Review of amortization 

Review of amortization 

.23 ♦ The amortization method and the estimate of the useful life of a capital asset should be 

reviewed on a regular basis. [APRIL 1997] 

.24 Significant events that may indicate a need to revise the amortization method or the 

estimate of the useful life of a capital asset include: 

(a) a change in the extent the capital asset is used; 

(b) a change in the manner in which the capital asset is used; 

(c) removal of the capital asset from service for an extended period of time; 

(d) physical damage; 

(e) significant technological developments; and 

(f) a change in the law or environment affecting the period of time over which the capital 

asset can be used. 

Future removal and site restoration costs 

Future removal and site restoration costs 

.25 ♦ When reasonably determinable, provisions for future removal and site restoration 

costs, net of expected recoveries, should be recognized as expenses in a rational and 

systematic manner. [APRIL 1997] 

.26 Future removal and site restoration costs include costs, net of expected recoveries, for 

dismantling and abandoning a property. Provisions are needed to accrue the liability for 

future removal and site restoration costs, when the likelihood of their incurrence is 

established as a result of environmental law, contract, or because the organization has a 

policy to restore a site, and when such costs can be reasonably determined. Provisions are 

recorded as liabilities and are not classified with accumulated amortization. 

.27 When future removal and site restoration costs cannot be reasonably determined, 

measurement uncertainty exists. (See MEASUREMENT UNCERTAINTY, Section 

1508). 

Write downs 

Write downs 

.28 ♦ When a capital asset no longer has any long-term service potential to the organization, 

the excess of its net carrying amount over any residual value should be recognized as an 

expense in the statement of operations. A write down should not be reversed. [APRIL 

1997] 

.29 When a capital asset no longer contributes to the organization's ability to provide 

services, its carrying amount would be written down to residual value, if any. A write 

down would be necessary, for example, when the organization no longer plans to use the 



capital asset because it has been damaged or rendered obsolete. When a 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 

Disposal 

.30 On disposal of a 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 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 

PRESENTATION AND DISCLOSURE 

.31 ♦ For each major category of capital assets there should be disclosure of: 

(a) cost; 

(b) accumulated amortization, including the amount of any write downs; and 

(c) the amortization method used, including the amortization period or rate. [APRIL 

1997] 

.32 ♦ The net carrying amounts of major categories of capital assets not being amortized 


.33 ♦ The amount of amortization of capital assets recognized as an expense for the period 


.34 ♦ The amount of any write downs of capital assets should be disclosed in the financial 

statements for the period in which the write downs are made. [APRIL 1997] 

.35 Major categories of capital assets are determined by reference to type (e.g., land, 

buildings, office equipment, leasehold improvements, vehicles, patents) and/or nature of 

operations or program (e.g., operating, research). 

.36 Capital assets not being amortized would include land, works of art and historical 

treasures meeting the criteria in paragraph 4430.21, capital assets under construction or 

development, and may include capital assets removed from service for an extended 

period of time. The net carrying amounts of major categories of such assets would be 

disclosed in accordance with paragraph 4430.32. 

Contributed capital assets 

Contributed capital assets 

.37 ♦ The nature and amount of contributed capital assets received in the period and 



recognized in the financial statements should be disclosed. [APRIL 1997] 

.38 ♦ Information should be disclosed about contributed capital assets recognized at nominal 

value. [APRIL 1997] 

.39 A contributed 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 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. 

Capital Assets Held by Small Organizations 

CAPITAL ASSETS HELD BY SMALL ORGANIZATIONS 

.40 ♦ Organizations meeting the criterion in paragraph 4430.03 and not following the other 

Recommendations of this Section should disclose the following: 


(a) the policy followed in accounting for capital assets; 

(b) information about major categories of capital assets not recorded in the statement of 

financial position, including a description of the assets; and 

(c) if capital assets are expensed when acquired, the amount expensed in the current 

period. [APRIL 1997] 





.42 ♦ Information should be disclosed about major categories of capital assets not recorded 

because the necessary financial information is not reasonably determinable. [APRIL 

1997] 

.43 An organization would apply the Recommendations of this Section to as many of its 

capital assets as possible. The organization would record retroactively those capital assets 

for which the necessary financial information is reasonably determinable. 

.44 Information about capital assets not recorded because the necessary financial information 

is not determinable would 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. 



1506). 





4440 - Collections Held by Not-for-profit Organizations 



collections held by not-for-profit organizations 



.01 This Section establishes disclosure standards 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 CAPITAL ASSETS HELD BY NOT-FOR-PROFIT ORGANIZATIONS, 

Section 4430. 

Definition 

DEFINITION 

.03 The following definitions have been adopted for purposes of this Section: 

Nature of Collections 






(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 

(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. 

NATURE OF COLLECTIONS 

.04 Although items meeting the definition of a collection exhibit the characteristics of assets 

set out in FINANCIAL STATEMENT CONCEPTS, Section 1000, 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 which would 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. 

.06 The cost of capitalizing collections often would exceed the incremental benefit of the 

information gained, especially for organizations that have been in existence for several 

decades. Accordingly, although the capitalization of collections is not precluded, it is not 

required. 

Disclosure 

DISCLOSURE 

.07 ♦ A not-for-profit organization should disclose the following: 

(a) a description of its collection; 

(b) the accounting policies followed with respect to the collection; 

(c) details of any significant changes to the collection in the period; 

(d) the amount of expenditures on collection items in the period; and 

(e) proceeds of any sales of collection items in the period and how the proceeds were 

used. [APRIL 1997] 

.08 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. 

.09 Accounting policies related to collections may vary from organization to organization. 

Disclosure of the organization's accounting policies with respect to collections would 

include whether or not the collection is recognized in the statement of financial position 

and, if so, at what value. This disclosure would also state how contributed and purchased 

collection items are accounted for. 

.10 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. 



.11 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 4440.07, 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 

EFFECTIVE DATE 



4450 - Reporting Controlled and Related Entities by Not-for-profit Organizations 



reporting controlled and related entities by not-for-profit 

organizations 


Purpose and Scope .01 

Paragraph 


Control .04-.08 

Significant influence .09 

Economic interest .10-.12 

Relationships with funding bodies .13 

Presentation and disclosure of controlled 

not-for-profit organizations 

.14-.29 

Consolidated financial statements .19-.21 

Controlled organizations that are not consolidated .22-.25 

Control over a large number of individually 

immaterial organizations 

Presentation and disclosure of controlled profit 

oriented enterprises 

.26-.29 

.30-.35 

Presentation and disclosure of joint ventures .36-.39 




Disclosure of significantly influenced 

not-for-profit organizations 

Presentation of significantly influenced profit 


Paragraph 

.40-.42 

.43-.44 

Disclosure of economic interest .45-.46 

Financial information at different dates .47-.49 


Decision tree summarizing the reporting of 

controlled and significantly influenced 

not-for-profit organizations and economic 

interests in not-for-profit organizations 

Decision tree summarizing the reporting of 

controlled and significantly influenced profit 


Sample disclosures 

Appendix A 

Appendix B 

Appendix C 



.01 This Section deals with the presentation and disclosure of controlled, significantly 

influenced and other related entities in the financial statements of not-for-profit 

organizations. DISCLOSURE OF RELATED PARTY TRANSACTIONS BY 

NOT-FOR-PROFIT ORGANIZATIONS, Section 4460, establishes additional disclosure 

standards for situations where there are transactions with related parties. 

Definitions 

DEFINITIONS 







(b) Control of an entity is the continuing power to determine its strategic operating, 

investing and financing policies without the co-operation of others. 

(c) Joint control of an economic activity is the contractually agreed sharing of the 

continuing power to determine its strategic operating, investing and financing 

policies. 



(d) A joint venture is an economic activity resulting from a contractual arrangement 

whereby two or more venturers jointly control the economic activity. 

(e) Significant influence over an entity is the ability to affect the strategic operating, 

investing and financing policies of the entity. 

(f) An economic interest in another not-for-profit organization exists if: 

(i) the other organization holds resources that must be used to produce revenue or 

provide services for the reporting organization; or 

(ii) the reporting organization is responsible for the liabilities of the other 

organization. 

.03 Not-for-profit organizations can have many different types of relationships with other 

entities, both not-for-profit and profit oriented. An organization may have control over 

another entity. A discussion of the definition of control follows in paragraphs 

4450.04-.08. Presentation and disclosure of controlled entities is dealt with in paragraphs 

4450.14-.35. When the relationship falls short of control, the organization may instead 

have significant influence over the other entity. A discussion of the definition of 

significant influence appears in paragraph 4450.09. Presentation and disclosure of 

significantly influenced entities is dealt with in paragraphs 4450.40-.44. Economic 

interest is a concept unique to relationships among not-for-profit organizations. It may be 

an indicator of either control or significant influence. Alternatively, an economic interest 

may exist without control or significant influence. A discussion of the definition of 

economic interest appears in paragraphs 4450.10-.12. Disclosure of economic interest 

when it exists without control or significant influence is dealt with in paragraphs 

4450.45-.46. 

Control 

Control 

.04 Strategic operating, investing and financing policies establish the basis for the conduct of 

an entity's operations and the deployment of its resources. The holder of the right to 

appoint the majority of the voting members of an entity's board of directors (or board of 

governors) would normally have the power to determine the entity's strategic policies. 

The right to appoint the majority of an entity's board of directors may be held in the form 

of ownership of the other entity's voting shares. Not-for-profit organizations are usually 

established without a transferable ownership interest. Therefore, the right to appoint the 

majority of another not-for-profit organization's board of directors is normally established 

by other means. For example, appointment of the board of directors may be dealt with in 

the organization's by-laws or articles of incorporation. 

.05 One organization is presumed to control another entity when it has the right to appoint 

the majority of the voting members of the other entity's board of directors. When two 

organizations have the same board of directors, the presumption is that one organization 

controls the other. The presumption of control would only be overcome if there is clear 



evidence that control does not exist. The more directors appointed by the reporting 

organization beyond a simple majority, the more persuasive this evidence must be to 

overcome the presumption that control exists. The presumption of control based on the 

ability to appoint the majority of another entity's board of directors applies to questions 

of control over both not-for-profit organizations and profit oriented enterprises. Further 

factors to be considered in determining whether the organization controls a profit 

oriented enterprise are presented in SUBSIDIARIES, Section 1590. 

.06 In the absence of the right to appoint the majority of the voting members of another 

not-for-profit organization's board of directors, the reporting organization would consider 

the characteristics of its relationship with the other organization to determine if any 

indicators of control are present. Possible indicators of control are: 

(a) a significant economic interest in the other organization (see paragraphs 4450.10-.12 

for a discussion of economic interest); 

(b) provisions in the other organization's charter or bylaws that cannot be changed 

without the reporting organization's consent and that limit the other organization to 

activities that provide future economic benefits to the reporting organization; or 

(c) the other organization's purpose is integrated with that of the reporting organization 

so that the two organizations have common or complementary objectives. 

.07 In some cases, the presence of a single indicator of control is sufficient for the 

organization to conclude that control exists. For example, whether or not an organization 

has an economic interest in another organization is an important characteristic of its 

relationship with the other organization. The significance of economic interest as an 

indicator of control can vary. If an organization is only able to raise funds and transfer 

them exclusively to the reporting organization, the economic interest may be so 

significant that the reporting organization may have control over the other organization, 

even without the ability to appoint the majority of the other organization's board of 

directors. A less significant economic interest would have less impact on the question of 

whether or not control exists. 

.08 In other cases, more than one indicator of control may be necessary in order for the 

organization to conclude that control exists. For example, local not-for-profit 

organizations sometimes join an associated group or create a national organization in 

order to achieve their common objectives. These local organizations may receive certain 

membership rights and privileges (e.g., centralized fund raising, investing or public 

education). In exchange, the local organizations may agree to operate under a common 

name and be bound by certain standards and policies of the national organization. In such 

cases, additional indicators of control beyond common objectives may be required to 

provide evidence that the national organization controls the local organizations. 

Significant influence 

Significant influence 



.09 In situations where it is concluded that control does not exist, an organization may be 

able to exercise significant influence over the strategic operating, financing and investing 

activities of another entity. Factors that may indicate that the reporting organization has 

significant influence over another entity would include representation on the board of 

directors, the existence of an economic interest, participation in policy-making processes, 

material inter-entity transactions, or interchange of managerial personnel. A temporary 

ability to affect the other entity's strategic policies would not be considered to be 

significant influence for purposes of this Section. 

Economic interest 

Economic interest 

.10 The reporting organization has an economic interest in another not-for-profit organization 

when the other organization holds resources for the benefit of the reporting organization. 

An economic interest also exists when the reporting organization is responsible for the 

other organization's liabilities. The following are possible indicators of economic interest: 

(a) The other organization solicits funds in the name of and with the expressed or implied 

approval of the reporting organization, and substantially all of the funds solicited are 

intended by the contributor or are otherwise required to be transferred to the reporting 

organization or used at its discretion or direction; 

(b) The reporting organization transfers significant resources to the other organization, 

whose resources are held for the benefit of the reporting organization; 

(c) The other organization is required to perform significant functions on behalf of the 

reporting organization that are integral to the reporting organization's achieving its 

objectives; or 

(d) The reporting organization guarantees significant liabilities of the other organization. 

.11 Economic interests can exist in varying degrees of significance. At one extreme, the 

reporting organization would not be able to function in its current form without the 

organization in which it has an economic interest. In such cases, the existence of the 

economic interest may be a strong indicator that control exists. At the other extreme, 

economic interests are much more limited and exist without control or significant 

influence. 

.12 In determining if an economic interest in another organization exists, the reporting 

organization would consider whether the other organization is required to transfer 

resources to or perform significant functions for the reporting organization. For example, 

externally imposed restrictions on the other organization's resources could create an 

economic interest. However, a funding relationship where the other organization is not 

obliged to provide resources to the reporting organization may not be considered to be an 

economic interest. Similarly, a situation where another organization holds fund raising 

events from time to time for the benefit of the reporting organization may not result in an 

economic interest. 



Relationships with funding bodies 

Relationships with funding bodies 

.13 Government and other entities that provide resources to not-for-profit organizations may 

have some influence over such organizations by virtue of the fact that funding may be 

withdrawn if the funder disagrees with the funded organization's strategic policies. The 

fact that an organization depends on the reporting organization for resources is not by 

itself an indication of control or significant influence for purposes of this Section. In 

addition to the funding relationship, other indicators, such as representation on the board 

of directors or the existence of an economic interest, would have to be present in order to 

conclude that control or significant influence exists. In cases where the reporting 

organization itself is economically dependent on particular resource providers this fact 

would be clear from the disclosure of contributions by major source in accordance with 

CONTRIBUTIONS - REVENUE RECOGNITION, Section 4410. 

Presentation and Disclosure of Controlled Not-for-Profit Organizations 

PRESENTATION AND DISCLOSURE OF CONTROLLED NOT-FOR-PROFIT 

ORGANIZATIONS 

.14 ♦ An organization should report each controlled not-for-profit organization in one of the 

following ways: 

(a) by consolidating the controlled organization in its financial statements; 

(b) by providing the disclosure set out in paragraph 4450.22; or 

(c) if the controlled organization is one of a large number of individually immaterial 

organizations, by providing the disclosure set out in paragraph 4450.26. [APRIL 

1997] 

.15 ♦ For a controlled not-for-profit organization, regardless of whether or not it is 

consolidated, the following should be disclosed: 

(a) the policy followed in reporting the controlled organization; 

(b) a description of the relationship with the controlled organization; 

(c) a clear and concise description of the controlled organization's purpose, its intended 

community of service, its status under income tax legislation and its legal form; and 

(d) the nature and extent of any economic interest that the reporting organization has in 

the controlled organization. [APRIL 1997] 

.16 Controlled organizations can have a significant impact on the resources and operations of 

the reporting organization. Therefore, financial statement users need information about 

the relationship with each controlled organization and its significance to the reporting 

organization. This information is provided by presenting consolidated financial 

statements to include controlled organizations or by disclosing information about 

controlled organizations. Similar controlled organizations may be grouped together for 

disclosure purposes. In addition to following the consolidation or disclosure requirements 



of this Section, the organization would also provide any disclosure required by 

DISCLOSURE OF RELATED PARTY TRANSACTIONS BY NOT-FOR-PROFIT 

ORGANIZATIONS, Section 4460. 

.17 Control over another organization will often be accompanied by an economic interest in 

that organization. The nature of the economic interest may be clear from the disclosure of 

the controlled organization's purpose. The nature and extent of any other economic 

interest would be specifically disclosed. (See paragraphs 4450.45-.46 for a further 

discussion of the disclosure of economic interest.) 

.18 An organization may follow different policies for reporting different controlled 

organizations. For example, one group of controlled organizations may be consolidated 

in the financial statements, while another group is disclosed in accordance with either 

part (b) or part (c) of paragraph 4450.14. Similar types of controlled organizations would 

be reported in the same manner. The organization's policy for reporting each controlled 

organization or group of controlled organizations would be disclosed. 

Consolidated financial statements 


.19 CONSOLIDATED FINANCIAL STATEMENTS, Section 1600, sets out the 

Recommendations to be followed when consolidated financial statements are presented. 

However, certain of the Recommendations of Section 1600, such as those dealing with 

non-controlling interests and shareholders' equity transactions, may not be applicable 

where a not-for-profit organization controls other not-for-profit organizations. 

Consolidated financial statements would be prepared by aggregating the financial 

statement elements of the controlled organization with those of the reporting 

organization. Transactions between the organizations and inter-organization balances 

would be eliminated in the consolidated financial statements. In the not-for-profit sector, 

consolidated financial statements have often been referred to as combined financial 

statements. 

.20 The resources of controlled organizations may be subject to restrictions on their use. 

Information about major categories of restrictions on resources would be provided for all 

the organizations included in consolidated financial statements in accordance with 

FINANCIAL STATEMENT PRESENTATION BY NOT-FOR-PROFIT 

ORGANIZATIONS, Section 4400. Depending on the significance of controlled 

organizations to the reporting organization, broader categories of restrictions on 

controlled organizations' resources may be disclosed in the reporting organization's 

financial statements than in the controlled organizations' own financial statements. 

Information about external restrictions that require resources to flow to the reporting 

organization and external restrictions that preclude the transfer of resources to the 

reporting organization would be disclosed. 

.21 The accounting policies of each controlled organization would be adjusted to conform 

with those of the reporting organization for purposes of consolidation. 



Controlled organizations that are not consolidated 

Controlled organizations that are not consolidated 

.22 ♦ For each controlled not-for-profit organization or group of similar controlled 

organizations not consolidated in the reporting organization's financial statements, the 

following should be disclosed, unless the group of controlled organizations is comprised 

of a large number of individually immaterial organizations (see paragraph 4450.26): 

(a) total assets, liabilities and net assets at the reporting date; 

(b) revenues (including gains), expenses (including losses) and cash flows from 

operating, financing and investing activities reported in the period; 

(c) details of any restrictions, by major category, on the resources of the controlled 

organizations; and 

(d) significant differences in accounting policies from those followed by the reporting 

organization. [APRIL 1997] 

.23 When the reporting organization controls another organization it effectively controls that 

other organization's resources by virtue of its power to determine the strategic policies 

governing the deployment of resources. Presenting consolidated financial statements is 

one means of providing financial statement users with information about these controlled 

resources. When a controlled organization is not consolidated in the reporting 

organization's financial statements, information about the resources of this controlled 

organization would be disclosed in the reporting organization's financial statements in 

accordance with paragraph 4450.22. 

.24 The resources of the controlled organization may be subject to restrictions on their use. 

Information about major categories of restrictions on controlled organizations' resources 

would be disclosed. Depending on the significance of controlled organizations to the 

reporting organization, broader categories of restrictions on controlled organizations' 

resources may be disclosed in the reporting organization's financial statements than in the 

controlled organizations' own financial statements. Information about external 

restrictions that require resources to flow to the reporting organization and external 

restrictions that preclude the transfer of resources to the reporting organization would be 

disclosed. 

.25 It is desirable for the information disclosed in accordance with paragraph 4450.22 to be 

presented using the same accounting policies as the reporting organization. If this is not 

the case, significant differences in the accounting policies used to present financial 

information related to unconsolidated controlled organizations would be disclosed. 

Control over a large number of individually immaterial organizations 

Control over a large number of individually immaterial organizations 

.26 ♦ An organization may exclude a group of controlled organizations from both 

consolidation and the disclosure set out in paragraph 4450.22, provided that 



(a) the group of organizations is comprised of a large number of organizations that are 

individually immaterial; and 

(b) the reporting organization discloses the reasons why the controlled organizations 

have been neither consolidated nor included in the disclosure set out in paragraph 

4450.22. [APRIL 1997] 

.27 Some not-for-profit organizations have control over dozens, hundreds or even thousands 

of individually immaterial organizations. Because of the large number and the relative 

insignificance of each controlled organization, the reporting organization may choose not 

to exercise financial control over these small organizations. As a result, the reporting 

organization may not receive financial information from these organizations on a timely 

basis, if at all. Furthermore, the financial information that is received from these small 

organizations will often not be in the form of financial statements prepared using 

generally accepted accounting principles. In such cases, the expense and effort of 

preparing consolidated financial statements or providing the information set out in 

paragraph 4450.22 may far exceed any benefits from doing so. In addition to the 

disclosure required by paragraph 4450.15, the reasons for not providing consolidated 

financial statements or financial information about the controlled organizations would 

also be disclosed. Possible reasons could include cost / benefit considerations and the 

decision not to exercise financial control. 

.28 Judgment would be exercised in determining whether the number of controlled 

organizations is sufficient to justify the organization following the Recommendation in 

paragraph 4450.26 and whether individual organizations are immaterial. The number of 

organizations would have to be sufficiently large that collecting financial information 

would be unduly onerous. The materiality of individual organizations would be assessed 

in relation to the reporting organization excluding the controlled organizations that are 

being considered for reporting under paragraph 4450.26. 

.29 An organization may find that some of the organizations it controls qualify for reporting 

under paragraph 4450.26, while others may not. For example, a national organization that 

controls both provincial and local branches may find that provincial branches do not meet 

the criterion in part (a) of paragraph 4450.26 since they are all material. Small local 

branches, on the other hand, may meet this criterion if they are numerous and 

individually immaterial. In such cases, the organization would consolidate the controlled 

provincial branches or disclose the information set out in paragraph 4450.22 about the 

controlled provincial branches. Reasons for not consolidating or providing financial 

information about the large number of controlled local branches would be disclosed in 

accordance with paragraph 4450.26. 

Presentation and Disclosure of Controlled Profit Oriented Enterprises 

PRESENTATION AND DISCLOSURE OF CONTROLLED PROFIT ORIENTED 

ENTERPRISES 

.30 ♦ An organization should report each controlled profit oriented enterprise in either of the 



following ways: 

(a) by consolidating the controlled enterprise in its financial statements; or 

(b) by accounting for its investment in the controlled enterprise using the equity method 

and providing the disclosure set out in paragraph 4450.32. [APRIL 1997] 

.31 ♦ For a controlled profit oriented enterprise, regardless of whether it is consolidated or 

accounted for using the equity method, the following should be disclosed: 

(a) the policy followed in reporting the controlled enterprise; and 

(b) a description of the relationship with the controlled enterprise. [APRIL 1997] 

.32 ♦ For each controlled profit oriented enterprise or group of similar controlled 

enterprises accounted for using the equity method, the following should be disclosed: 

(a) total assets, liabilities and shareholders' equity at the reporting date; and 

(b) revenues (including gains), expenses (including losses), net income and cash flows 

from operating, financing and investing activities reported in the period. [APRIL 

1997] 

.33 An organization may present consolidated financial statements to include controlled 

entities. Consolidated financial statements would be prepared in accordance with 

CONSOLIDATED FINANCIAL STATEMENTS, Section 1600. Investments in 

controlled profit oriented enterprises that are not consolidated would be accounted for 

using the equity method in accordance with LONG-TERM INVESTMENTS, Section 

3050. When the equity method is used, additional financial information about the 

controlled entity would be disclosed to provide users with information about the 

controlled entity's financial position and results of operations. Similar controlled 

enterprises may be grouped together for purposes of disclosure. An organization may 

choose to consolidate some controlled enterprises and to account for others using the 

equity method. Similar types of controlled enterprises would be reported in the same 

manner. The organization's policy in accounting for each controlled enterprise or group 

of enterprises would be disclosed. 

.34 Disclosure of the relationship with a controlled enterprise would be provided whether the 

enterprise is consolidated or accounted for using the equity method. This disclosure 

would include information about how the controlled entity's operations relate to or 

complement those of the reporting organization. In addition, the reporting organization 

would provide any disclosure required by DISCLOSURE OF RELATED PARTY 

TRANSACTIONS BY NOT-FOR-PROFIT ORGANIZATIONS, Section 4460. 

.35 LONG-TERM INVESTMENTS, Section 3050, presents additional disclosure 

Recommendations to be followed when investments are accounted for using the equity 

method. CONSOLIDATED FINANCIAL STATEMENTS, Section 1600, presents 

disclosure Recommendations for when consolidated financial statements are presented. 



The controlled enterprise's accounting policies would be adjusted to conform with those 

of the reporting organization. 

Presentation and Disclosure of Joint Ventures 

PRESENTATION AND DISCLOSURE OF JOINT VENTURES 

.36 ♦ An organization should report each interest in a joint venture in either of the following 

ways: 

(a) by accounting for its interest using the proportionate consolidation method in 

accordance with INTERESTS IN JOINT VENTURES, Section 3055; or 

(b) by accounting for its interest using the equity method and disclosing the information 

set out in paragraph 4450.38. [APRIL 1997] 

.37 ♦ For an interest in a joint venture, regardless of whether it is reported using the 

proportionate consolidation or the equity method, the following should be disclosed: 

(a) the policy followed in reporting the interest; and 

(b) a description of the relationship with the joint venture. [APRIL 1997] 

.38 ♦ For each interest in a joint venture, or group of similar interests, accounted for using 

the equity method, the following should be disclosed: 

(a) the reporting organization's share of the joint venture's total assets, liabilities and net 

assets, or shareholders' equity, at the reporting date; 

(b) the reporting organization's share of the joint venture's revenues (including gains), 

expenses (including losses), and cash flows from operating, financing and investing 

activities reported in the period; and 

(c) significant differences in accounting policies from those followed by the reporting 

organization. [APRIL 1997] 

.39 An organization may enter into a joint venture with other entities. (INTERESTS IN 

JOINT VENTURES, Section 3055, provides guidance on different types of joint ventures 

and how they may be identified.) A situation where the reporting organization's 

proportionate share of assets, liabilities, revenues or expenses related to the jointly 

controlled activity is not determinable would not be considered to meet the definition of a 

joint venture for purposes of this Section. The organization would instead consider 

whether such a situation would be reported as one of significant influence or economic 

interest. A reporting organization has joint control over the joint ventures in which it has 

an interest. In order to provide information about all the economic resources under its 

control, the reporting organization would report its interest in a joint venture in 

accordance with paragraph 4450.36. An organization may follow different policies for 

reporting different interests in joint ventures. The organization's accounting policies with 

respect to reporting joint ventures would be disclosed. Interests in similar joint ventures 

may be grouped together for purposes of disclosure. 

Disclosure of Significantly Influenced Not-for-Profit Organizations 



DISCLOSURE OF SIGNIFICANTLY INFLUENCED NOT-FOR-PROFIT 

ORGANIZATIONS 

.40 ♦ When the reporting organization has significant influence in another not-for-profit 

organization, the following should be disclosed: 

(a) a description of the relationship with the significantly influenced organization; 

(b) a clear and concise description of the significantly influenced organization's purpose, 

its intended community of service, its status under income tax legislation and its legal 

form; and 

(c) the nature and extent of any economic interest that the reporting organization has in 

the significantly influenced organization. [APRIL 1997] 

.41 Since not-for-profit organizations are usually established without transferable ownership 

interest, significant influence over another not-for-profit organization will normally exist 

through other means. In such cases, there would be no ownership interest to be reflected 

in the reporting organization's financial statements and the information required by 

paragraph 4450.40 would be disclosed. Similar significantly influenced organizations 

may be grouped together for purposes of disclosure. 

.42 Significant influence involves the ability to affect, rather than control, how the other 

organization's resources are used. Therefore, the reporting organization would not 

provide information about all the significantly influenced organization's resources. 

Details about the significantly influenced organization's purpose would be disclosed. 

Information about any economic interest would also be provided so that users are aware 

of resources from which the reporting organization will benefit in the future and of risks 

to which the reporting organization may be exposed. See paragraphs 4450.45-.46 for a 

further discussion of the disclosure of economic interest. In addition, the reporting 

organization would provide any disclosure required by DISCLOSURE OF RELATED 

PARTY TRANSACTIONS BY NOT-FOR-PROFIT ORGANIZATIONS, Section 4460. 

Presentation of Significantly Influenced Profit Oriented Enterprises 

PRESENTATION OF SIGNIFICANTLY INFLUENCED PROFIT ORIENTED 

ENTERPRISES 

.43 ♦ When the reporting organization has significant influence over a profit oriented 

enterprise, the investment should be accounted for using the equity method in accordance 

with LONG-TERM INVESTMENTS, Section 3050. [APRIL 1997] 

.44 LONG-TERM INVESTMENTS, Section 3050, sets out the presentation and disclosure 

requirements for significantly influenced investees. In addition, DISCLOSURE OF 

RELATED PARTY TRANSACTIONS BY NOT-FOR-PROFIT ORGANIZATIONS, 

Section 4460, sets out disclosure requirements for transactions with related parties. 

Disclosure of Economic Interest 

DISCLOSURE OF ECONOMIC INTEREST 



.45 ♦ When an organization has an economic interest in another not-for-profit organization 

over which it does not have control or significant influence, the nature and extent of this 

interest should be disclosed. [APRIL 1997] 

.46 Information about the nature and extent of an economic interest will help financial 

statement users assess the reporting organization's financial position by making them 

aware of resources from which that organization will benefit in the future and of the risks 

to which it may be exposed. If, for example, the economic interest takes the form of 

assets that will flow to the reporting organization, the amount of these assets and the 

purposes for which they are to be used would be disclosed. If the economic interest takes 

the form of an arrangement to solicit funds on behalf of the reporting organization, details 

of this arrangement would be disclosed. The extent to which the economic interest 

involves responsibility for the other organization's liabilities would also be disclosed. 

Financial Information at Different Dates 

FINANCIAL INFORMATION AT DIFFERENT DATES 

.47 ♦ When the fiscal periods of the reporting organization and the other entity do not 

substantially coincide, the financial information required to be disclosed in accordance 

with paragraph 4450.22, .32 or .38 should be as at the other entity's most recent 

reporting date and the following should be disclosed: 

(a) the reporting period covered by the financial information; and 

(b) the details of any events or transactions in the intervening period that are significant 

to the reporting organization's financial position or results of operations. [APRIL 

1997] 

.48 It is expected that reasonable efforts would be made to obtain the financial information 

required by paragraphs 4450.22, .32 and .38 for financial reporting periods that 

substantially coincide with that of the reporting organization. However, in cases where 

this is not possible, the exclusion of the financial information about the controlled or 

jointly controlled entity would not be justified. Financial information for the other entity's 

most recent reporting date would be disclosed. Details of events or transactions in the 

intervening period would include the magnitude of their effect on any of the financial 

information disclosed about the controlled or significantly influenced entity. 

.49 The presentation of consolidated financial statements when the reporting organization 

and the controlled entity's reporting periods do not substantially coincide is dealt with in 

CONSOLIDATED FINANCIAL STATEMENTS, Section 1600. The guidance in 

Section 1600 is appropriate for consolidations of both controlled profit oriented 

enterprises and controlled not-for-profit organizations with reporting periods that differ 

from that of the reporting organization. LONG-TERM INVESTMENTS, Section 3050, 

deals with accounting for an investee using the equity method when the reporting 

organization and the investee have different reporting periods. 










1506.) 



Appendix A 

APPENDIX A 

Decision tree summarizing the reporting of controlled and significantly influenced 

not-for-profit organizations and economic interests in not-for-profit organizations 

Appendix B 

APPENDIX B 



Decision tree summarizing the reporting of controlled and significantly influenced 

profit oriented enterprises 

Appendix C 


APPENDIX C 


SITUATION I 

DISCLOSURE OF CONTROLLED ENTITIES THAT ARE NOT CONSOLIDATED 

Note X to financial statements 

ABC University (the University) controls ABC University Foundation (the Foundation) 

and a wholly-owned subsidiary, Research Inc. The Foundation raises funds from the 

University's alumni and from the community. The Foundation is incorporated under the 

Canada Corporations Act and is a registered charity under the Income Tax Act. The 

University appoints the majority of the Foundation's board of directors and, according to 



the Foundation's bylaws, all resources of the Foundation must be provided to the 

University or used for the University's benefit. 

Research Inc. was established to create and operate a joint university-industry research 

centre to provide overall economic growth for its government sponsors, business growth 

for its industry sponsors, expanded quality education and research for its university 

sponsors, and stimulating research opportunities for its staff. 

Neither the Foundation nor Research Inc. have been consolidated in the University's 

financial statements. Financial statements of the Foundation and of Research Inc. are 

available on request. Financial summaries of these unconsolidated entities as at March 

31, 19x2 and 19x1 and for the years then ended are as follows (in thousands of dollars): 

Financial position 

ABC University Foundation 

19x2 

19x1 

Total assets $3,778 $3,800 

===== ===== 

Total liabilities $109 $184 

Total net assets *(13) 3,669 3,616 

$3,778 $3,800 

===== ===== 

Results of operations 

19x2 19x1 

Total revenues $3,323 $2,991 

Total expenses *(14) 3,270 2,943 

Excess of revenue over expenses $53 $48 

=== === 

Cash flows 

19x2 19x1 

Cash from operations $ 80 $ 72 

Cash used in financing and investing activities (100) (90) 

Decrease in cash $20 $18 

==== ==== 



Research Inc. 

Financial position 

19x2 19x1 

Total assets $3,940 $3,626 

===== ===== 

Total liabilities *(15) $339 $305 

Shareholders' equity 3,601 3,321 

$3,940 $3,626 

===== ===== 

Results of operations 

19x2 19x1 

Total revenues $8,899 $8,009 

Total expenses 8,619 7,757 

Net income $280 $252 

==== ==== 

Cash flows 

19x2 19x1 

Cash from operations $325 $293 

Cash used in financing activities (40) (36) 

Cash used in investing activities (95) (86) 

Increase in cash $190 $171 

==== ==== 

SITUATION II 

DISCLOSURE OF A SIGNIFICANTLY INFLUENCED 

NOT-FOR-PROFIT ORGANIZATION 

Note X to financial statements 

NFP B exercises significant influence over NFP B Foundation (the Foundation) by virtue 

of its ability to appoint some of the Foundation's board of directors. The Foundation was 



established to raise funds for the use of NFP B and of other organizations in the 

community with objectives similar to those of NFP B. The Foundation is incorporated 

under the Canada Corporations Act and is a registered charity under the Income Tax Act. 

Resources of the Foundation amounting to $335,000 (19x1 - $347,000) are to be 

transferred to NFP B and used for purposes to be agreed upon by NFP B and the 

Foundation. 

4460 - Disclosure of Related Party Transactions by Not-for-profit Organizations 



disclosure of related party transactions by not-for-profit 

organizations 



.01 This Section establishes disclosure standards for related party transactions in the financial 

statements of not-for-profit organizations. The measurement of related party transactions 

is not dealt with in this Section. 

.02 This Section does not apply to management compensation arrangements, expense 

allowances and other similar payments to individuals in the normal course of operations. 

Definitions 

DEFINITIONS 

.03 The following definitions have been adopted for the purposes of this Section. (Further 

discussion of the definitions of control, significant influence and economic interest is 

presented in REPORTING CONTROLLED AND RELATED ENTITIES BY 

NOT-FOR-PROFIT ORGANIZATIONS, Section 4450.) 






(b) Control of an entity is the continuing power to determine its strategic operating, 

investing and financing policies without the co-operation of others. 

(c) Joint control of an economic activity is the contractually agreed sharing of the 

continuing power to determine its strategic operating, investing and financing 

policies. 



(d) Significant influence over an entity is the ability to affect the strategic operating, 

investing and financing policies of the entity. 

(e) An economic interest in another not-for-profit organization exists if 

(i) the other organization holds resources that must be used to produce revenue or 

provide services for the reporting organization; or 

(ii) the reporting organization is responsible for the liabilities of the other 

organization. 

(f) Related parties exist when one party has the ability to exercise, directly or indirectly, 

control, joint control or significant influence over the other. Two or more parties are 

related when they are subject to common control, joint control or common significant 

influence. Two not-for-profit organizations are related parties if one has an economic 

interest in the other. Related parties also include management and immediate family 

members (see paragraph .04). 

(g) A related party transaction is a transfer of economic resources or obligations 

between related parties, or the provision of services by one party to a related party, 

regardless of whether any consideration is exchanged. The parties to the transaction 

are related prior to the transaction. When the relationship arises as a result of the 

transaction, the transaction is not one between related parties. 

(f) Fair value is the amount of consideration that would be agreed upon in an arm's 

length transaction between knowledgeable, willing parties, who are under no 


Identification of Related Parties 

IDENTIFICATION OF RELATED PARTIES 

.04 The most commonly encountered related parties of a reporting organization include the 

following: 

(a) an entity that directly, or indirectly through one or more intermediaries, controls, or is 

controlled by, or is under common control with, the reporting organization; 

(b) an individual who directly, or indirectly through one or more intermediaries, controls 

the reporting organization; 

(c) an entity that, directly or indirectly, is significantly influenced by the reporting 

organization or has significant influence over the reporting organization or is under 

common significant influence with the reporting organization; 

(d) the other organization when one organization has an economic interest in the other; 

(e) management: any person(s) having authority and responsibility for planning, 

directing and controlling the activities of the reporting organization. (Management 

would include the directors, officers and other persons fulfilling a senior management 

function.) 



(f) An individual that has either significant influence or joint control over the reporting 

organization; and 

(g) members of the immediate family of individuals described in paragraphs (b), (e) and 

(f). (Immediate family comprises an individual's spouse and those dependent on 

either the individual or the individual's spouse.); 

(h) the other party, when a management contract or other management authority exists 

and the reporting organization is either the managing or managed party; and 

(i) any party that is subject to joint control by the reporting organization (In this instance 

a party subject to joint control is related to each of the venturers that share that joint 

control. However, the venturers themselves are not related to one another solely by 

virtue of sharing of joint control.). 

.05 The degree of influence which one party may exert on another is a major factor in 

determining whether they are related. In some cases, the degree of influence may be so 

remote that they need not be considered related. For example, two organizations may be 

unrelated even though one director serves on the board of each; in such a case, the degree 

of influence exercised by the director over the strategic policies of each organization 

determines whether the organizations are related. 

.06 Management would make reasonable efforts to identify all related parties. Circumstances 

that might indicate the existence of related parties include abnormal terms of trade or 

transactions not normally entered into by the reporting organization. When management 

has identified circumstances indicating that the other party to a transaction may be 

related, management has a responsibility to ascertain whether that party is, indeed, 

related. 

Disclosure 

DISCLOSURE 

.07 ♦ An organization should disclose the following information about its transactions with 

related parties: 

(a) a description of the relationship between the transacting parties; 

(b) a description of the transaction(s), including those for which no amount has been 

recorded; 

(c) the recorded amount of the transactions classified by financial statement category; 

(d) the measurement basis used for recognizing the transaction in the financial 

statements; 

(e) amounts due to or from related parties and the terms and conditions relating thereto; 

(f) contractual obligations with related parties, separate from other contractual 

obligations; 

(g) contingencies involving related parties, separate from other contingencies. [APRIL 



1997] 

.08 Related party transactions may be entered into on the same terms as if the parties were 

unrelated, or they may be entered into on terms differing from those that might have 

prevailed if the parties had been unrelated to one another. Without disclosure of 

information about related party transactions, financial statement readers would be 

justified in assuming that the transactions reported in the financial statements took place 

at prices bargained with unrelated parties. 

.09 Information about related party transactions is often of more significance to a financial 

statement user than information about unrelated party transactions, regardless of the size 

of such transactions. When considering disclosure of related party transactions, the 

qualitative as well as the quantitative characteristics of materiality are considered. 

Description of relationship 

Description of relationship 

.10 Terms such as affiliate, associate and related entity are insufficiently precise to describe 

relationships. With additional explanation, the effect of the related party relationship on 

the enterprise is more understandable. Terms such as controlled organization, 

significantly influenced organization, common control organization, organization in 

which the reporting organization has an economic interest, management, member of the 

immediate family of management, and director, describe the relationships better. 

.11 An explanation of how significant influence, joint control or control is exercised between 

the reporting organization and a related party clarifies the nature of their relationship. It is 

desirable for such an explanation to include, for example, the extent of representation on 

the board of directors of either party, or details of management contracts between the 

parties, depending upon the factor which establishes the relationship. 

Description of transaction 

Description of transaction 

.12 A clear description of a related party transaction that sets out the significance of the 

transaction to the operations of the organization clarifies the effects of the transaction on 

the organization. Such a description includes information about the nature of the items 

exchanged. 

.13 A contribution or exchange of goods or services between related parties that has not been 

given accounting recognition, is also a related party transaction. For example, an 

organization may provide a related party with management services or the use of 

premises without receiving consideration in exchange. An explanation of the nature of 

such a transaction and the fact that no consideration has been received or paid is useful to 

explain the effect of the transaction on the organization. 

Amount of transactions 

Amount of transactions 

.14 To convey the extent of related party transactions, the recorded amounts of such 



transactions are disclosed. Disclosure of information aggregated by financial statement 

item (for example: contributions, purchases, administrative expenses, interest expense or 

income, and management fee income or expense) and nature of relationship is more 

useful than disclosure of individual transactions with related parties, except for 

individually significant transactions. 

Measurement basis 

Measurement basis 

.15 Disclosure of the basis used to recognize related party transactions in the financial 

statements (e.g., carrying amount, fair value at the date of contribution or nominal value) 

assists in evaluating the effect of related party transactions on the reporting organization. 

Amounts due to or from related parties 

Amounts due to or from related parties 

.16 When amounts are due to or from related parties disclosure includes the relationship of 

the parties. It is desirable to disclose the nature of the transaction(s) giving rise to the 

balances. 



.17 In consolidated financial statements, inter-entity transactions are eliminated and 

disclosure of such transactions is normally not required. However, when an organization 

participates in transactions with a controlled or significantly influenced profit oriented 

enterprise accounted for by the equity method, the profit or loss is eliminated from the 

financial statements but the transactions themselves are not. Therefore, disclosure is 

required of related party transactions between the reporting organization and a controlled 

or significantly influenced enterprise accounted for using the equity method. 

Contractual obligations and contingencies 

Contractual obligations and contingencies 

.18 Information about the organization's contractual obligations and contingencies would be 

disclosed in accordance with CONTRACTUAL OBLIGATIONS, Section 3280, and 

CONTINGENCIES, Section 3290. Contractual obligations and contingencies involving 

related parties may have different characteristics than those involving unrelated parties. 

Therefore, information about contractual obligations and contingencies involving related 

parties would be disclosed separately. 

Effective Date 

EFFECTIVE DATE 





Endnotes 

1 (Popup - Popup) 




*a Operating activities include service delivery, administrative and research activities. Statement 

has been prepared using the direct method (see paragraph 4400.48). 




6a. Statement prepared on a fund accounting basis using the direct method (see paragraph 

4400.48.) 




7a. Interest is recognized in the Statement of Operations as an expense of the Capital Asset Fund 

but is reported here as an item affecting cash from operating activities. This explains the 

difference between interfund adjustments reported here and interfund transfers reported in the 

Statement of Operations. 


7. Interest is recognized in the Statement of Operations as an expense of the Capital Asset Fund 

but is reported here as an item affecting cash from operating activities. This explains the 

difference between interfund adjustments reported here and interfund transfers reported in the 

Statement of Operations. 




* Statement prepared using the indirect method (see paragraph 4400.48). 


* All of the Foundation's net assets must be provided to the University or used for the 

University's benefit. In accordance with donor imposed restrictions, $250 (19x1 - $195) of the 

Foundation's net assets must be used to expand the University's library collection. A further 

$1,300 (19x1 - $1,114) of the Foundation's net assets are subject to donor imposed restrictions 

that they be maintained permanently with the investment revenue earned to be used to provide 

scholarships for worthy students studying science. 


* Total expenses include contributions of $3,110 (19x1 - $2,885) to the University. 


* Research Inc. has long-term debt of $250 (19x1 - $275) which has been guaranteed by the 

University.

NOT-FOR-PROFIT ORGANIZATIONS SECTION 4410 ... - PageOut

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