New CICA regulations standardize treatment
of contributions and related investment incomeby Don Fairholm
November 27, 1996; Canadian FundRaiser
Contributions - revenue recognition, Section 4410
This new Section establishes standards for the recognition, measurement, presentation and disclosure of contributions, and related investment income, by not-for-profit organizations. Organizations are required to follow either the deferral method or the restricted fund method of accounting for contributions.
Under the deferral method, organizations are required to recognize:
- endowment contributions as direct increases in net assets;
- externally restricted contributions and externally restricted investment income as revenue in the same period in which the related expenses are incurred; and
- unrestricted contributions and unrestricted investment income as revenue in the current period.
Under the restricted fund method, organizations are required to recognize:
- endowment contributions as revenue of the endowment fund;
- externally restricted contributions and externally restricted investment income for which there is a corresponding restricted fund as revenue of the fund;
- externally restricted contributions and externally restricted investment income for which there is no corresponding restricted fund in the general fund in accordance with the deferral method; and
- unrestricted contributions and unrestricted investment income as revenue of the general fund.
In addition, the new Section requires all organizations to measure contributions at fair value and to disclose:
- the policies followed in accounting for each type of contributions;
- contributions by major source;
- the nature of changes to any deferred contributions balances; and
- total investment income earned on resources held for endowment and how it was recognized in the financial statements.
The Recommendations should be applied retroactively, unless the necessary financial information is not reasonably determinable.
Contributions receivable, Section 4420
This new Section establishes standards for the recognition and disclosure of contributions receivable by not-for-profit organizations.
Organizations are required to recognize contributions receivable when the amount to be received can be reasonably estimated and collection is reasonably assured. Disclosure of the amount of pledges and bequests recognized as assets and the amount recognized as revenue is required.
Capital assets held by not-for-profit organizations, Section 4430
This new Section establishes standards for the recognition, measurement, presentation and disclosure of capital assets by not-for-profit organizations. Organizations are required to:
- record capital assets on the statement of financial position at cost. For the contributed capital asset, cost is considered to be fair value at the date of contribution;
- amortize capital assets with limited lives;
- recognize amortization as an expense in the statement of operations;
- write down capital assets that no longer have any long-term service potential; and
- disclose the amount of amortization expense, the amount of any write- downs and information about major categories of capital assets and contributed capital assets.
Small not-for-profit organizations may limit the application of this Section to certain required disclosures about capital assets if the total average annual revenues recognized in the statement of operations in the current and preceding periods is less than $500,000.
Collections held by not-for-profit organizations, Section 4450
This new Section establishes disclosure standards for collections held by not-for-profit organizations. Organizations are required to disclose a description of the collection and the accounting policies followed along with certain information about changes in the collection.
Controlled and related entities by not-for-profit organizations, Section 4450
This new Section establishes standards for the presentation and disclosure of controlled, jointly controlled, significantly influenced and other related entities in the financial statements of not-for-profit organizations. Organizations are required to:
- Either present consolidated financial statements that include controlled not-for-profit organizations or disclose information about them. This information would include summary financial information, unless the controlled organization is one of a large number of individually immaterial organizations.
- Either present consolidated financial statements that include controlled profit-oriented enterprises or account for them using the equity method. Summary financial information about enterprises accounted for using the equity method must be disclosed.
- Account for interests in joint ventures using either the proportionate consolidation method or the equity method. When the equity method is used, summary financial information about the joint ventures must be disclosed.
- Disclose information about significantly influenced not-for-profit organizations. Significantly influenced profit-oriented enterprises would be accounted for using the equity method.
- Disclose the nature and extent of any economic interest in another not- for-profit organization, including controlled and significantly influenced not-for-profit organizations.
The Recommendations of the Section should be applied retroactively, unless the necessary financial information is not reasonably determinable.
Based on an overview of the new CICA Handbook revisions for not-for-profit organizations, presented at the 1996 Annual Conference of the Canadian Council of Christian Charities.
