Non-Profit Accounting Alert: Revenue Recognition Update

AcSB determined that no single revenue recognition approach fully addresses all stakeholder concerns

On May 2024, the Accounting Standards Board (AcSB) recently released a feedback statement summarizing stakeholder responses to its Exposure Draft (ED) on "Contributions - Revenue Recognition and Related Matters." This ED proposed changes aimed at improving the consistency and transparency of financial reporting for not-for-profit organizations (NFPOs). However, the feedback revealed mixed reactions from the NFPO community and other stakeholders. Below is an overview of the key feedback points and the AcSB's planned next steps.

Key Feedback Highlights

1. Recognition of Restricted Contributions

   The ED proposed eliminating the existing accounting policy choice between restricted fund accounting and the deferral method in favor of a single model that closely resembles the current deferred contributions approach. Under this model, restricted contributions would be recognized in revenue when (or as) the external restriction(s) are met, provided the contribution is measurable and collection is reasonably assured. While this approach aims to standardize financial reporting and improve comparability, many NFPOs raised concerns about increased administrative burdens and whether the proposed model would accurately reflect fundraising efforts.

   
   

2. Usefulness of Financial Statements

   For NFPOs that rely heavily on fundraising, many stakeholders expressed concerns that the proposed changes would obscure the results of fundraising efforts. Currently, the restricted fund method allows for immediate recognition of restricted contributions, clearly reflecting fundraising achievements. Moving to a deferral model could make financial statements harder for donors to interpret, potentially affecting donor confidence and fundraising evaluations. Some stakeholders suggested that additional disclosures would be required to compensate for the perceived loss of clarity.

   
   

3. Alignment with Financial Statement Concepts

   Some respondents questioned whether the proposed model aligns with fundamental financial statement concepts in Part III of the Handbook. Specifically, they noted that most restrictions placed on contributions do not meet the definition of a “liability.” Alternatively, some believed that all contributions carry an implicit restriction, as NFPOs are expected to use funds prudently to fulfill their mandates.

   
   

4. Increased Costs for Preparers

   A significant concern among stakeholders was the cost of transitioning to the new model. NFPOs that currently use the restricted fund method would need to implement new tracking systems, analyze contribution agreements in greater detail, and manage deferred contributions. Many respondents believed these changes would lead to higher ongoing compliance and audit costs, creating additional financial strain on organizations with limited resources.

   
   

5. Support for Enhanced Clarity

   Some stakeholders supported the proposed model, arguing that it would improve transparency by clearly showing obligations related to restricted contributions as deferred liabilities. They noted that the restricted fund method is not well understood by all financial statement users and that aligning with a deferral-based approach could make NFPO financial statements easier to interpret. Additionally, some respondents believed the changes could reduce perceived volatility in financial statements, helping organizations present a more stable financial position.

   
   

AcSB’s Response and Next Steps

After reviewing the feedback and exploring alternative models, the AcSB determined that no single approach fully addresses all stakeholder concerns. However, they remain committed to improving the consistency and understandability of NFPO financial statements while balancing complexity and usability.

Next Steps:

• The AcSB will develop a revised Exposure Draft that retains an accounting policy choice while enhancing financial reporting quality.

• The project will remain a priority, with further refinements aimed at reducing unnecessary complexity while maintaining transparency.

• The AcSB will provide ongoing updates regarding the revised Exposure Draft and its implementation timeline.

  
  

This is a summary of the Accounting Standards Board's "Contributions - Revenue Recognition and Related Matters: Exposure Draft Feedback Statement - May 2024", written by Katharine Christopoulos, CPA, CA, at the AcSB.