Accounting Standards Board Exposure Draft Feedback Statement on Contribution Project for NPOs
In May 2024, the Accounting Standards Board (AcSB) released a Feedback Statement addressing responses to its March 2023 Exposure Draft, Contributions – Revenue Recognition and Related Matters. This project aims to enhance the consistency and clarity of financial reporting for not-for-profit organizations (NPOs).
Stay informed about the newest accounting and tax practices in the NPO
Key Proposals in the Exposure Draft
The Exposure Draft proposed the deferral method as the single revenue recognition model for restricted contributions, replacing the current options (deferral method or restricted fund method). Specifically, it suggested:
- Recognizing restricted contributions as liabilities until restrictions are met, aligning with performance obligations.
- Standardizing definitions, such as “restricted contributions” and “endowments.”
- Introducing enhanced disclosure requirements to improve transparency for financial statement users.
Feedback Highlights
Stakeholders raised several concerns:
- Complexity: Some worried the single recognition model would obscure fundraising results or misclassify funds as liabilities.
- Implementation costs: Smaller NPOs feared additional costs related to the transition.
- Sector diversity: Many argued a one-size-fits-all approach may not reflect the unique needs of diverse NPOs.
AcSB’s Response
In light of the feedback, the AcSB decided to retain the current accounting policy choice, allowing NPOs to continue using either the deferral or restricted fund method. While the Board recognizes the value of consistency, it acknowledged that imposing a single method could have unintended consequences for preparers and users alike.
Looking Ahead
In a new exposure draft, the AcSB plans to propose refinements to both existing methods, focusing on improving the quality and understandability of NPO financial statements. Many aspects of the original Exposure Draft will be carried forward such as:
- definitions (e.g., “restricted contributions” and “endowments”)
- recognition of restricted contributions using the deferral method and other recognition topics (e.g., contributed materials and services), and
- certain presentation and disclosure requirements.
If you have any questions, please reach out to your Welch advisor for guidance.
