Accounting Standards Improvements for Not-for-Profit Organizations. Responses to Exposure Draft

Transcription

1 Accounting Standards Improvements for Not-for-Profit Organizations Responses to Exposure Draft February 2017

2 Accounting Standards Improvements for Not-for-Profit Organizations Responses to Exposure Draft Table of Contents Response No. Organization Contact Person Page No. 1 Clark Olson, CPA, CA Clark Olson, CPA, CA Calvin Klontz, CPA, CGA Calvin Klontz, CPA, CA Council of Ontario Finance Officers Heather Woermke, CPA, CA Imagine Canada Bruce MacDonald BDO Canada LLP Janet Stockton, FCPA, FCA Ordre des CPA du Québec Annie Smargiassi, CPA auditrice, CA Collins Barrow National Cooperative Incorporated Jim King, CPA, CA Ernst & Young LLP Eric Spiekman, CPA, CA Grant Thornton LLP and Raymond Chabot Grant Thornton LLP Rinna Sak, CPA, CA Gilles Henley, CPA, CA Provincial Auditor of Saskatchewan Judy Ferguson, FCPA, FCA The Salvation Army Samantha Moss, CPA, CMA McMaster University Deidre (Dee) Henne, CPA, MBA, CA Ontario Nonprofit Network Cathy Taylor Clearline Consulting Tom Gillespie, CPA, CA KPMG LLP Janet Allan, FCPA, FCA PricewaterhouseCoopers LLP Michael Walke, CPA, CA Lucy Durocher, CPA, CA 17 Deloitte LLP Gloria Lemire, FCPA, FCA

3 1 May 9, 2017 Sent by to: Re: Feedback on the NFPO Accounting Standards Improvements Exposure Draft Hi Katherine Thank you for the invite, unfortunately I cannot attend the video conference, however here are my comments on the E.D.: Basis for Conclusions paragraph 13:...recognizing collections on the face of the statement of financial position would also bring increased awareness to the existence of collections held by NFPOs. If NPO s choose to record their collections at nominal value, then, in addition to having a prominent disclosure on the SFP for (say) $1, there should be a requirement to have additional note disclosure describing in general terms what the collection is comprised of. Basis for Conclusions paragraph 34...The Advisory Committee informed the AcSB they are not aware of any NFPOs that account for works of art etc. as inventories. I support the AcSB proposal to include reference to INVENTORIES HELD BY NOT-FOR-PROFIT ORGANIZATIONS, Section 3032 as I know first hand of NPO s that record works of art as inventories when the intention is to resell them to raise funds. Basis for Conclusions paragraph 52:...The AcSB is seeking input on whether the proposals would result in NFPOs reporting multiple collections and whether NFPOs with multiple collections should be permitted to value each collection differently. I support the AcSB proposal that the requirement to record collections at either cost or nominal value should be an accounting policy choice that is applied by an NFPO to all of its collections. However see my note above regarding paragraph 13. Basis for Conclusions paragraph 58:...The AcSB is also seeking input on how cash received on disposal of items in a collection prior to acquiring more items or maintaining the existing collection is reported (i.e., whether the cash is separately identified on the statement of financial position or disclosed in the notes).: I do not like separate identification of restricted cash on the SFP as that does not reflect the everyday reality of how organizations understand and manage their cash operations. Further, an NPO may carry a receivable or part receivable in respect of the sale of an item in the

4 2 collection instead of having the cash on hand, which doesn t make the restriction any less important. However, NPO s and their F/S readers do understand obligations very well, so disclosure of that obligation as a liability or an equity item on the SFP would make much more sense to both mgmt and the reader. Best, Clarke Clarke Olson, CPA, CA Accountant The Valley Group

5 3 Exposure Draft Accounting Standards Board Proposed Accounting Standards for Not-for-Profit Organizations Accounting Standards Improvements for Not-for-Profit Organizations February 2017 COMMENTS TO THE AcSB MUST BE RECEIVED BY MAY 31, 2017 The deadline for providing your comment letter to the AcSB is May 31, You may your comments (in a Word file) to: ed.accounting@cpacanada.ca. address yoca, CPA (Illinois) COMMENTS BELOW ARE SUBMITTED BY: Calvin Klontz, CPA, CGP Finance Manager Alberta College of Paramedics calvin.klontz@collegeofparamedics.org cc. ceklontz@telusplanet.net Phone: , 2755 Broadmoor Blvd., Sherwood Park, AB T8H 2W7 Please note: my comments are based on the full sum of my working experience with small NFPs around the $500,000 limit as well as my current working experience at ACP, which is closer to $5,000,000 size., Accounting Standards Accounting Standards Board 277 Wellington Street West Toronto, Ontario M5V 3H2 COMMENTS FROM Calvin Klontz, CPA, CGA:

6 4 While the AcSB welcomes comments on all changes proposed in this Exposure Draft, it particularly welcomes comments on the questions listed below. 1. Do you agree that NFPOs should be directed to follow PROPERTY, PLANT AND EQUIPMENT, Section 3061, IMPAIRMENT OF LONG LIVED ASSETS, Section 3063, GOODWILL AND INTANGIBLE ASSETS, Section 3064, and ASSET RETIREMENT OBLIGATIONS, Section 3110 in Part II of the Handbook for tangible capital assets and intangible assets held by NFPOs, except for the guidance included in Sections 4433 and 4434 (see paragraphs and )? If not, why not? Yes. Part II should not be duplicated in Part III. But clear reference to use part II should be given. Capital assets for a NPO should be able to be used to provide organization mandated services not necessarily linked to cash flow, i.e. Infrastructure needed to sustain services whether cash-flow is generated or not. A NPO should be a net income zero so cash-flow may not be relevant where deferred revenue or no revenue is standard. 2. Tangible capital assets, intangible assets and collections would be written down to their fair value or replacement cost to reflect partial impairments. Do you agree with the following: (a) Tangible capital assets, intangible assets and collections should be written down to reflect partial impairments (see paragraphs , and ). If not, why not? Yes. To the extent practical or of a cost beneficial to do. Capital assets are clearer to understand than intangible assets or collections, especially by small NPOs - I say $750K is a better threshold than $500K, as grants can make $500K come too soon. For example, net 0 workshop revenue is still + revenue even if the expenses match or exceed the revenue. Unsold quantities of community educational materials priced at the cost of research may be shelved for years and sold in small quantities at a time over many years. These booklets may become like collections whose revenue is recognized at infrequent sales. The value may be immaterial. Immateriality or non beneficial costliness should be a criterion for intangible assets, collections or public education "inventory" or collections. Depending on

7 5 immateriality the timing should be flexible. What may seem to have no public education demand now may become useful or re-usable in a few years - perhaps in college or university courses when initiatives become in favour. (b) Tangible capital assets, intangible assets and collections should be written down to their fair value or replacement cost (see paragraphs , and ). If not, what value? Fair value at initial cost or replacement cost is the most simply objective. It should be equally understandable no matter what the size or expertise of the NPO. And the same criteria. (c) The list of indicators, which provide examples of conditions that may indicate impairment, would be helpful (see paragraphs , and ). If not, why not? Yes. Base it on a principles approach with examples to promote the application of the standards to changing circumstances. 3. Do you foresee issues specific to NFPOs being required to consider the guidance in PROPERTY, PLANT AND EQUIPMENT, paragraph in Part II on componentization for tangible capital assets? If so, what are they? I see few issues, if any, except for NFPs without the internal expertise and tight budgets to afford consulting. Once the amortization schedule is developed for audits it would just carry on. Unaudited, small NFPs could find componentization difficult to make a professional judgement about, if this applies. Thresholds based on expertise as well as size needs to apply with encouragement to get the expertise externally or internally, perhaps hiring accounting students and using auditor advice. Standardization with Part II and componentization would be a helpful consistency that is not confusing in its application. The principle should be useful life matching the amortization schedule, i.e. Roof, heating system, etc. being on a different schedule than the building structure.

8 6 4. Do you agree that collections should be recorded on the statement of financial position at cost or nominal value (see paragraph )? If not, why not? Yes, with a note about their composition and value. Indeterminate or nominal values could be noted. Valuation should be objective with either the cost or original nominal value, or comparable replacement cost. As nominal value could be a $1 legal transfer the note would be an important clarification. Immaterial values would better be disclosed in a note referenced on the SFP. 5. Do you think the proposals in Section 4441 would result in NFPOs reporting multiple collections? If so, what would be the rationale for reporting multiple collections? Yes. I think NPOs should report multiple collections where, similar to capital asset componentization, write-downs or fair value changes are not similar, just as useful life may not be similar. A "close-enough" or a management accounting approach would need to be taken if one collection reporting was preferable for simplification. Notes could give explanations and schedules that clarify componentization of collections valuation and change characteristics 6. Do you think that NFPOs with multiple collections should be permitted to value each collection differently (see paragraph )? Why or why not? Yes. Some collections may not have a replacement value or objective original cost. Sometimes the value may be dependant on perception at the time, which is changeable. Irreplaceable collections or educational materials may have no monetary value or demand, and held in trust for future use or perceived demand. Indeterminable objective values should be stated as such in notes referenced on the SFP. 7. In accordance with the definition of a collection in Section 4441, the proceeds on disposal of items in a collection must be used to acquire more items in the collection or maintain the existing collection.

9 7 (a) Do you agree that on disposal of one or more items in a collection, whether by sale, destruction, loss or expropriation, the difference between the net proceeds on disposal and the net carrying amount should be recognized: i. in accordance with CONTRIBUTIONS REVENUE RECOGNITION, Section 4410 for items contributed to a collection that are subject to external restrictions (see paragraph ); or Yes. (ii) in the statement of operations for items in a collection that are not subject to external restrictions (see paragraph )? If not, how should it be recognized? Yes. (b) How do you report cash received on disposal of items in a collection prior to acquiring more items or maintaining the existing collection (i.e., is the restricted cash separately identified on the statement of financial position or disclosed in the notes)? Both, I think replenishable collection disposals make sense as a contra collections account similar to the use of accumulated amortization, except it would be reduced up to 0.00 as the collection is replenished. Amounts bought beyond this would be recognized as collection additions; or gifts after this point would be recognized as revenue. A note would explain the circumstance and intention of disposal and replacement. (c) CASH FLOW STATEMENT, paragraph in Part II, requires disclosure of the amount of cash and cash equivalents for which the use is restricted. Are the disclosure requirements in paragraphs and (e) adequate to inform users when the proceeds on disposal of items in a collection are internally restricted (i.e., must be used to acquire more items or maintain the existing collection) or externally restricted (i.e., donor

10 8 stipulations on contributed items?) If not, what additional requirements are needed? I prefer to see disclosure on the SFP as much as possible except where the value is uncertain or indeterminable, in which case notes are needed. Notes should also be used to show a schedule of how much is restricted and how much is not. A best approach is on the SFP that the amount of restricted and unrestricted collections be valued separately. Notes could breakdown each collection, its value, how it was determined, and its contribution to restricted or unrestricted. In either case a replenishment contra account could be used to track the net to replenish (amortization should not occur - only disposals to a contra account or additions bought or gifted in revenue). 8. It is proposed that Sections 4433 and 4434 be applied prospectively in accordance with ACCOUNTING CHANGES, Section 1506 in Part II and with special transitional provisions. Do you agree with the following: a. Sections 4433 and 4434 should be applied prospectively (see paragraphs and ). If not, why not? Yes. I think retrospectively would be a resource burden, especially to small NFPs. (b) NFPOs should be permitted to recognize an adjustment to opening net assets at the date Sections 4433 and 4434 are first applied, to reflect partial impairments of tangible capital assets and intangible assets existing at that date (see paragraphs and ). If not, why not? Yes. This is clean and a one-time burden on resources. Boards can understand it easier and it makes for better governance. (c) NFPOs should be permitted to allocate the costs of tangible capital assets to their component parts based on: cost or fair value at the date of

11 9 acquisition, or fair value or replacement cost at the date the Section is first applied (see paragraph ). If not, why not? Yes, however... Objectivity suggests that proportional allocation with the stated value of the whole is important. The tangible capital asset would have been amortized unless it was land, collections, or not yet in useful service. So providing an estimate of the proportion of original cost fair value or current replacement value or current value makes sense to the extent that amortization is likewise recognizes and entered into a contra account or the capital asset value reduced. In other words, past usage must reduct the value by its used life. 9. It is proposed that Section 4441 be applied retrospectively in accordance with ACCOUNTING CHANGES, Section 1506 in Part II and with special transitional provisions. a. Do you agree that Section 4441 should be applied retrospectively (see paragraph )? If not, why not? No, but the prior period reported should be. If a NPO can only re-value going forward, the comparison of current to prior period should begin at the next fiscal date, when the re-valuation of the in-scope prior year had been done. In this case the in-scope prior year is the "current" of the previous year and should have to be valued at the new valuation (for next year's comparative financial statements) as well as the historical valuation (for the comparative financial statements). (b) Do you agree with the proposed transition relief for measuring collections at cost (see paragraphs )? If not, why not? Yes. That can be more reliably objective than an estimation model. (c) Do you think the proposed transition relief for measuring collections at cost will encourage more NFPOs to use the cost method? If not, what would make a transition to the cost method easier? I do not know. Collections valuation could be a daunting task for a NPO that is resource challenged. The simpler the better. If historical transaction papers

12 10 are archived and not indexed well they may not be findable. Objective valuations may not be possible; only "I thinks". There needs to be appropriate (doable) alternatives when the cost benefit of using the proposed method(s) is not feasible. 10. Do you agree with the proposed effective date (i.e., fiscal years beginning on or after January 1, 2019) (see paragraphs , , and )? If not, why not? Yes, if the fiscal year end is December 31st. 11. Given that many NFPOs have March 31st fiscal year ends, would an effective date of April 1st be preferable for these and future proposals? Why or why not? It the fiscal year end is March 31st, I think the effective date would best be March 31, In other words, the effective date should be the beginning of the fiscal year following December 31, Do NFPOs need more than one year to implement the proposed changes in Section 4433, 4434 and 4441? If so, how long and why? There may be some NPOs that do, depending on their collections or extent of capital assets that need componentizations, i.e. Housing and community ownership situations. I think most do not and special extensions could be considered for others, where deemed necessary. Accounting Standards Improvements for Not-for-Profit Organizations Exposure Draft February 2017

13 COUNCIL OF ONTARIO UNIVERSITIES CONSEIL DES UNIVERSITES DE L'ONTARIO Dundas Street West, Suite 1800 Toronto, Ontario MSG 1Z8 \ g cou.on.ca April27, 2107 Ms. Rebecca Villmann, CPA, CA, CPA (Illinois) Director, Accounting Standards Accounting Standards Board 277 Wellington Street West Toronto, ON M5V 3H2 Dear Ms. Villmann: The Council of Ontario Finance Officers ("COFO") is pleased to provide you with feedback on the Exposure Draft for Accounting Standards Improvements for Not-for-Profit Organizations. COFO is an affiliate of the Council of Ontario Universities, comprised of finance officers from Ontario universities. COFO promotes communication, information exchange and cooperation among its members. COFO supports the Accounting Standards Board's strategy to retain and improve accounting standards for not-for-profit organizations (NFPOs), and the objective of removing duplicative guidance in Parts II and Ill of the handbook. For ease of reference, feedback on the Exposure Draft is grouped by topic in the sections below. Tangible capital assets and intangible assets Ontario universities have significant capital infrastructure, and comprehensive processes exist to inform maintenance plans and stakeholder reporting. Timely and useful financial information regarding tangible capital assets and intangible assets cannot be obtained through historical cost information alone; consequently, information presented in financial statements must be reviewed in conjunction with other financial information such as budgets, capital projections and other financial reporting. COFO encourages the Accounting Standards Board to evaluate the extent to which componentization is applied in practice by organizations following Part II of the Handbook, together with the usefulness of this information, before imposing this requirement on NFPOs. These comments have been prepared with the understanding that the requirement to componentize assets is prospective. The Accounting Standards Board is encouraged to review the language in the proposed standard to make sure the transitional requirements reflect prospective application in all cases. COFO would have significant concerns if the requirement to componentize is retrospective, as information to inform the componentization of existing buildings is not available, and therefore the requirement is not practicable. Page 1 of2

14 12 Collections Collections are an important part of many universities across Ontario, as they are essential in helping institutions carry out and achieve their objectives. In some cases, universities may hold multiple collections in support of academic and research objectives and may already disclose the existence of collections in the notes to the financial statements. COFO agrees that recording collections on the statement of financial position provides useful information to financial statement readers and helps in promoting awareness of their existence, and particularly for universities, the resources available to contribute to the overall student experience. Because of the many qualitative and quantitative considerations around the value of a collection, COFO also agrees that providing a choice between nominal value and cost is appropriate and important. Lastly, COFO concurs that all collections within an institution should be measured using the same approach. COFO would like to thank the Accounting Standards Board and Not-for-Profit Advisory Committee for its continued work on the improvement of accounting standards. If you have any questions, please do not hesitate to contact me at heather.woermke@queensu.ca. Yours sincerely, Heather Woermke, CPA, CA Chair, Financial Reporting Committee Council of Ontario Finance Officers Page 2 of 2

15 13 May 31, 2017 Rebecca Villmann, CPA, CA, CPA (Illinois) Director, Accounting Standards Accounting Standards Board 277 Wellington Street West Toronto, Ontario M5V 3H2 Dear Ms. Villmann: Imagine Canada, the national umbrella for Canada s charitable and nonprofit sector, welcomes the opportunity to provide comments to the Accounting Standards Board ("AcSB") on the Accounting Standards Improvements for Not-for-Profit Organizations (the Exposure Draft ). Our responses to the specific questions posed in the Exposure Draft are included below. Please note that we worked with a number of finance professionals representing a range of charities and nonprofits across Canada. Comments on Specific Questions Requested by the AcSB 1. Do you agree that NFPOs should be directed to follow PROPERTY, PLAND AND EQUIPMENT, Section 3061, IMPAIRMENT OF LONG LIVED ASSETS, Section 3063, GOODWILL AND INTANGIBLE ASSETS, Section 3064, and ASSET RETIREMENT OBIGATIONS, Section 3110 in Part II of the Handbook for tangible capitals and intangible assets held by NFPOs, except for the guidance included in Sections 4433 and 4434 (see paragraphs and )? If not, why not? We agree that NFPOs should be directed to follow the sections noted above in Part II, except for the guidance included in Sections 4433 and We agree with the AcSB s conclusion that NFPOs should follow the Part II standards when NFPOs have no unique characteristics. 2. Tangible capital assets, intangible assets and collections would be written down to their fair value or replacement cost to reflect partial impairments. Do you agree with the following: (a) Tangible capital assets, intangible assets and collections should be written down to reflect partial impairments (see paragraphs , and ). If not, why not? We agree that tangible capital assets, intangible assets and collections should be written down to reflect partial impairments. However, as noted below in other comments, we do not believe the definition of when a writedown is required included in paragraph is appropriate.

16 14 (b) Tangible capital assets, intangible assets and collections should be written down to their fair value or replacement cost (see paragraphs , and ). If not, what value? We agree that fair value and replacement cost are the options that should be given to an NFPO to determine the written down value. (c) The list of indicators, which provide examples of conditions that may indicate impairment, would be helpful (see paragraphs , and ). If not, why not? As noted below in other comments, we believe the only situation when a full or partial writedown should be required is when the tangible capital asset no longer contributes to the organization s ability to provide goods and services. We do not agree the conditions set out in paragraph (b) (f) represent circumstances when a writedown may be required. Paragraph in Part II includes similar conditions as indicators that the carrying amount may no longer be recoverable. These conditions are relevant for the for-profit recoverability test. We do not think they are relevant for determining if there is a need to write down a tangible capital asset being used by an NFPO. 3. Do you foresee issues specific to NFPOs being required to consider the guidance in PROPERTY, PLANT AND EQUIPMENT, paragraph on componentization for tangible capital assets? If so, what are they? We are not aware of issues that are unique to NFPOs with respect to accounting for the components of tangible capital assets. Since NFPOs have generally not accounted for components, our members have no experience with implementing this requirement. We assume that the information will be readily available to comply with this requirement since all for profits have the same requirement. 4. Do you agree that collections should be recorded on the statement of financial position at cost or nominal value (see paragraph )? If not, why not? We are concerned that requiring a collection accounted for at nominal value to be recorded on the balance sheet with a value of $1 may mislead readers about the value of the collection. A note reference, similar to that required for contingencies and commitments, would alert the reader to the existence of the collection and direct them to the note that provides details about the collection.

17 15 5. Do you think the proposals in Section 4441 would result in NFPOs reporting multiple collections? If so, what would be the rationale for reporting multiple collections? If there are circumstances where an organization has collections of very different types of items (eg art and rare books), we believe it would be appropriate to report multiple collections. 6. Do you think that NFPOs with multiple collections should be permitted to value each collection differently (see paragraph )? Why or why not? We believe organizations should be permitted to value each collection differently if the different choices are appropriate for the different collections. However, in practice, we believe organizations are likely to value different collections consistently. 7. In accordance with the definition of a collection in Section 4441, the proceeds on disposal of items in a collection must be used to acquire more items in the collection or maintain the existing collection. (a) Do you agree that on disposal of one or more items in a collection, whether by sale, destruction, loss or expropriation, the difference between the net proceeds on disposal and the net carrying amount should be recognized: (i) (ii) In accordance with CONTRIBUTIONS REVENUE RECOGNITION, Section 4410 for items contributed to a collection that are subject to external restrictions (see paragraph ); or In the statement of operations for items in a collection that are not subject to external restrictions (see paragraph )? If not, how should it be recognized? We agree that the difference between the net proceeds on disposal and the net carrying amount should be recognized as proposed in the Exposure Draft since the proposal provides that restricted and unrestricted amounts are accounted for consistent with other contributions. However, Section 4410 doesn t address the situation where an item was contributed or purchased with restricted contributions and recorded at fair value at the date of contribution. The fair value would have been credited directly to net assets since a collection is a nondepreciable asset. On sale, Paragraph says that the difference between net proceeds and the net carrying amount is recognized in accordance with Section However, if there is an external restriction on the proceeds, the full amount is restricted and should be recorded as deferred contributions, not just the difference between the net proceeds and the net carrying amount. The amount originally credited directly to net assets needs to be transferred to deferred contributions. We recommend that this situation be addressed in Section 4410.

18 16 (b) How do you report cash received on disposal of items in a collection prior to acquiring more items or maintaining the existing collection (i.e. is the restricted cash separately identified on the statement of financial position or disclosed in the notes)? (c) CASH FLOW STATEMENT, paragraph in Part II, requires disclosure of the amount of cash and cash equivalents for which the use is restricted. Are the disclosure requirements in paragraphs and adequate to inform users when the proceeds of disposal of items in a collection are internally restricted (i.e., must be used to acquire more items or maintain the existing collection) or externally restricted (i.e., donor stipulations on contributed items?) If not, what additional requirements are needed? We do not believe the Exposure Draft adequately addresses the disclosure of cash received on the disposal of items in a collection prior to acquiring more items or maintaining the existing collection. Paragraph requires the disclosure of cash and cash equivalents for which the use is restricted. The examples in this section relate to situations where there is a legal restriction related to the use of the cash. Many NFPOs receive significant amounts of cash where the credit is recorded as a liability (eg deferred contributions). In general, however, there are no legal requirements to set this cash aside in separate accounts only to be used for the restricted purpose. As a result, NFPOs have one bank account that holds cash that must be used for a restricted purpose together with other cash. To require cash received on the sale of a collection item that is externally restricted or subject to internal restrictions that has not yet been used on a separate line would be inconsistent with how other similar amounts are dealt with on the statement of financial position of NFPOs. Paragraph also does not adequately address the disclosure of this cash since none of the subsections includes the requirement to disclose the proceeds not used by period end and where these proceeds are recorded in the accounts (net assets or deferred contributions). We suggest that this requirement be added to paragraph In addition, the disclosure of how an organization plans to use the unused proceeds referred to in paragraph could be added to paragraph Consideration could also be given to requiring that unused proceeds at period end that are not subject to any external restrictions be segregated in the net asset section as internally restricted. Externally restricted proceeds are included in deferred contributions so the fact that the proceeds are restricted is reflected in the classification of the amount as a liability. 8. It is proposed that Sections 4433 and 4434 be applied prospectively in accordance with ACCOUNTING CHANGES, Section 1506 in Part II and with special transitional provisions. Do you agree with the following: (a) Sections 4433 and 4434 should be applied prospectively (see paragraphs and ). If not, why not? We agree the sections should be applied prospectively.

19 17 (b) NFPOs should be permitted to recognize an adjustment to opening net assets at the date Sections 4433 and 4434 are first applied, to reflect partial impairments of tangible capital assets and intangible assets existing at that date (see paragraphs and ). If not, why not? We agree NFPOs should be permitted to recognize an adjustment to opening net assets at the date the Sections 4433 and 4434 are first applied to reflect partial impairments. (c) NFPOs should be permitted to allocate the costs of tangible capital assets to their component parts based on: cost or fair value at the date of acquisition, or fair value or replacement cost at the date the Section is first applied (see paragraph ). If not, why not? We agree with the proposed approach to allocating costs of tangible capital assets to their component parts. 9. It is proposed that Section 4441 be applied retrospectively in accordance with ACCOUNTING CHANGES, Section 1506 in Part II with special transitional provisions. (a) Do you agree that Section 4441 should be applied retrospectively (see paragraph )? If not, why not? We agree that Section 4441 should be applied retrospectively. (b) Do you agree with the proposed transition relief for measuring collections at cost (see paragraphs )? If not, why not? We agree with the proposed transition relief for measuring collections at cost. (c) Do you think the proposed transition relief for measuring collections at cost will encourage more NFPOs to use the cost method? If not, what would make a transition to the cost method easier? We do not believe the proposed transition relief for measuring collections at cost will change the accounting choice made with respect to the accounting for collections.

20 Do you agree with the proposed effective date (i.e., fiscal years beginning on or after January 1, 2019) (see paragraphs , , and ? If not, why not? We believe the proposed effective date is reasonable, assuming the final standard is able to be issued on a timely basis. We believe that NFPOs need at least one year between the publication date of the new standards and the implementation date. 11. Given that many NFPOs have March 31 st fiscal year ends, would an effective date of April 1 st be preferable for these and future proposals? Why or why not? Although many NFPOs have March 31 st year ends, there are also many with December year ends and many that have other months as their year ends. We do not believe there is any compelling reason for standards that apply to NFPOs to have an effective date that is different from the effective date used for all other standards. 12. Do NFPOs need more than one year to implement the proposed changes in section 4433, 4434 and 4441? If so, how long and why? As noted above, we believe NFPOs require at least one year to implement the proposed changes. Other comments Paragraphs / , / and /4441/11 The Exposure Draft does not highlight the addition of a criterion for when a writedown of a capital asset, intangible asset and collection item is required. Requiring a writedown when the value of future economic benefits associated with these assets is less than their net carrying amount represents a significant change to the standards. Sections 4431 and 4432 in Part III currently only require a writedown when a tangible capital asset and intangible asset no longer have any long-term service potential. The amount that the organization would need to pay to acquire the economic benefits or service potential to achieve the objectives of the organization is not the most relevant measure of the value of the asset to the organization based on the cost accounting model. Determining this value for tangible capital assets and intangible assets when a condition occurs that may be an indicator of an impairment would be very onerous for an organization. We do not agree with the comment in the Basis for Conclusions that partial impairments would be infrequent for NFPOs based on the new criterion added for when a writedown is required. It could be a common occurrence that an NFPO could acquire the economic benefits or service potential of an asset for an amount that is less than the net book value recorded in the accounts. We agree that it would be infrequent and likely limited to buildings if the criterion for requiring a writedown is limited to whether the asset continues to have long-term service potential.

21 19 Section 4441 This section uses the terms net proceeds and proceeds in connection with the disposal of collection items. There is no definition of these terms and it is not clear why the different terms are used. We recommend that if there is a reason why these different terms are used that the significance of the difference be more clearly explained. Paragraph We recommend that consideration be given to whether some of the extensive disclosures set out in this section should be required for collections that are recorded at cost. A similar level of disclosures is not required for capital assets recorded in the accounts at cost. Further, we recommend that consideration be given to requiring the disclosure of how proceeds have been accounted for. Differences with PSAB The Basis of Conclusions highlights that the AcSB is committed to continue to work with PSAB with the objective of achieving consistency between private and public sector standards for NFPOs when appropriate. We believe strongly that accounting standards for similar organizations in the public and private sectors should be consistent. We are concerned that some of the changes proposed in the Exposure Draft will create further differences between Part II of the Handbook and the standards used by public sector NFPOs. Thank you for the opportunity to provide comments on the Exposure Draft. If you have any questions, please contact Bill Schaper at x268. Yours truly, Bruce MacDonald President & CEO

22 20 Rebecca Villmann, CPA, CA CPA (Illinois) Director, Accounting Standards Accounting Standards Board 277 Wellington Street West Toronto, Ontario M5V 3H2 May 29, 2017 Re: Accounting Standards Improvements for Not-for-Profit Organizations Exposure Draft Dear Ms. Villmann, We have read the above-mentioned Exposure Draft that was issued in February 2017 and are pleased to have the opportunity to provide responses to your specific questions as outlined below. In preparing our response to this Exposure Draft, we reached out to a large number of partners and staff across our firm to obtain feedback from those who deal directly with not-forprofit clients. Our outreach included holding a well-attended webinar on the proposals outlined in the Exposure Draft and using polling questions to gather feedback on specific questions. We also met with individual partners and staff who have significant experience in the industry in a number of one-on-one sessions to discuss in greater detail the proposals and questions set out in the Exposure Draft. The following response includes the feedback obtained through this process. 1. Do you agree that NFPOs should be directed to follow PROPERTY, PLANT AND EQUIPMENT, Section 3061, IMPAIRMENT OF LONG LIVED ASSETS, Section 3063, GOODWILL AND INTANGIBLE ASSETS, Section 3064, and ASSET RETIREMENT OBLIGATIONS, Section 3110 in Part II of the Handbook for tangible capital assets and intangible assets held by NFPOs, except for the guidance included in Sections 4433 and 4434 (see paragraphs and )? If not, why not? Yes, we agree NFPOs should be directed to follow Section 3061, Section 3063 and Section 3064 for tangible capital assets and intangible assets held by NFPOs, except for the guidance included in Sections 4433 and 4434 as this will result in the removal of duplicate guidance in Parts II and III of the CPA Canada Handbook and Part III will then only include guidance on these topics that is unique to NFPOs. 2. Tangible capital assets, intangible assets and collections would be written down to their fair value or replacement cost to reflect partial impairments. Do you agree with the following: a. Tangible capital assets, intangible assets and collections should be written down to reflect partial impairments (see paragraphs , and ). If not, why not?

23 21 Yes, we agree tangible capital assets, intangible assets and collections should be written down to reflect partial impairments as this will appropriately reflect the service potential / future economic benefit of these items. b. Tangible capital assets, intangible assets and collections should be written down to their fair value or replacement cost (see paragraphs , and ). If not, what value? Yes, we agree tangible capital assets, intangible assets and collections should be written down to their fair value or replacement cost as these amounts will be reflective of the remaining service potential / future economic benefit of these items. Providing NFPOs with a choice of writing these items down to either fair value or replacement cost is helpful as this will allow the NFPO to choose the value that is readily available or the value they can obtain without incurring excessive costs. c. The list of indicators, which provide examples of conditions that may indicate impairment, would be helpful (see paragraphs , and ). If not, why not? Yes, we believe the list of indicator of examples of conditions that may indicate impairment would help NFPOs in identifying when there are indicators of impairment. 3. Do you foresee issues specific to NFPOs being required to consider the guidance in PROPERTY, PLANT AND EQUIPMENT, paragraph in Part II on componentization for tangible capital assets? If so, what are they? We do not believe componentization of tangible capital assets should be required for NFPOs. This would be a change in practice for NFPOs as they have not been required to componentize their tangible capital assets in the past. We do not believe the benefits of componentization outweigh the costs, as gathering the information required for componentization would be burdensome for NFPOs, especially those who already struggle with finding enough resources to carry out their mission and mandate. Additionally, componentization is often an arbitrary allocation and we do not see this information providing increased benefits for the NFPO or the users of its financial statements. Further, NFPOs do not typically make decisions to replace a tangible capital asset based on whether or not it is fully amortized, but instead based on whether or not it is still functional and whether there is funding available to replace it. While componentization is required in Part II of the Handbook, it is not commonly adhered to in practice due to a cost/benefit perception. Therefore, we believe the requirement to componentize assets should be removed from Section 3061 of the Handbook, rather than extending this requirement to NFPOs. Componentization will always remain an acceptable concept in accounting standards for private and not-forprofit entities. Entities following ASPE or ASNPO should instead be permitted to

24 22 componentize their assets if this information would be useful to them and their users. This would be similar to the approach taken in the Public Sector Accounting Handbook. Paragraph 12 of Section PS 3150, Tangible Capital Assets, states:.12 Many tangible capital assets, particularly complex network systems such as those for water and sewage treatment, consist of a number of components. Whether a government decides to record and account for each component as a separate asset will be determined by the usefulness of the resulting information to the government and the cost versus the benefit of collecting and maintaining it. Additionally, derecognition of tangible capital assets is not impacted by whether or not there is componentization guidance in the Handbook. When part of a tangible capital asset is replaced, that part must be derecognized. If componentization has not been done in the past, the entity may not know the exact original cost of the part that needs to be derecognized. However, in practice, entities often use the cost of the replacement part to estimate the cost of the original part when it was initially acquired or constructed. This is similar to what is permitted under paragraph 70 of IAS 16, Property, Plant and Equipment, which states: 70 If, under the recognition principle in paragraph 7, an entity recognises in the carrying amount of an item of property, plant and equipment the cost of a replacement for part of the item, then it derecognises the carrying amount of the replaced part regardless of whether the replaced part had been depreciated separately. If it is not practicable for an entity to determine the carrying amount of the replaced part, it may use the cost of the replacement as an indication of what the cost of the replaced part was at the time it was acquired or constructed. By using these methods NFPOs and the users of their financial statements would receive information about tangible capital assets that is useful, but does not come at a cost that outweighs the benefit. 4. Do you agree that collections should be recorded on the statement of financial position at cost or nominal value (see paragraph )? If not, why not? Yes, we agree collections should be recorded on the statement of financial position at cost or nominal value, as this will bring awareness to users of the financial statements that an NFPO has collections. This will also increase consistency in the way collections are recognized among private sector NFPOs. 5. Do you think the proposals in Section 4441 would result in NFPOs reporting multiple collections? If so, what would be the rationale for reporting multiple collections? While we do not believe the majority of NFPOs would report multiple collections under the proposals set out in Section 4441, we could see some NFPOs choosing to report more than one collection. For example, a museum or art gallery may hold distinct types of collections and may want to report each separately (e.g. may want to report a collection of paintings separate from a collection of sculptures).

25 23 6. Do you think that NFPOs with multiple collections should be permitted to value each collection differently (see paragraph )? Why or why not? Yes, we believe NFPOs with multiple collections should be permitted to value each collection differently. While we acknowledge that the transitional provisions set out in paragraph provides a practical solution that may result in more NFPOs making an accounting policy choice to record their collections at cost, we believe there still may be situations where it is impracticable to determine the cost of an entire collection. For example, an NFPO has multiple collections for which it is able to determine cost, but one collection of priceless artifacts for which it is unable to determine cost, fair value or replacement cost (as allowed for by paragraph ). In that situation, if the NFPO is required to measure all of its collections using the same method, it would be forced to choose an accounting policy of nominal value for all of its collections, even though that may not provide the most useful information to the users of the financial statements. 7. In accordance with the definition of a collection in Section 4441, the proceeds on disposal of items in a collection must be used to acquire more items in the collection or maintain the existing collection. a. Do you agree that on disposal of one or more items in a collection, whether by sale, destruction, loss or expropriation, the difference between the net proceeds on disposal and the net carrying amount should be recognized: i. In accordance with CONTRIBUTIONS REVENUE RECOGNITION, Section 4410 for items contributed to a collection that are subject to external restrictions (see paragraph ); or Yes, we agree that on disposal of one or more items in a collection, the difference between the net proceeds on disposal and the net carrying amount should be recognized in accordance with Section 4410 for items contributed to a collection that are subject to external restrictions. However, we believe that some additional guidance may be needed to clarify how this would work in practice when an NFPO has an accounting policy to record its collection(s) at cost, since it is the entire proceeds received on disposal that are restricted. For example, if an NFPO receives an item donated to its collection that has a value of $100 and the NFPO has an accounting policy to record its collection at cost the item would be recorded at $100. If the NFPO later sells that item for $300 cash, the difference of between the proceeds of $300 and the carrying amount of $100 will be record as a deferred contribution of $200 until spent in accordance with the requirements of the external restriction. This could be confusing to those preparing or using the NFPOs financial statements as the restricted cash of $300 (the entire proceeds of disposition) will not match the $200 deferred contribution. Additionally, we believe the Board should consider adding guidance to clarify how a loss on disposal of an item subject to an external restriction

26 24 should be accounted for. For example, if the NFPO in the above example sold the item for only $80, there would be a $20 loss on disposal. ii. In the statement of operations for items in a collection that are not subject to external restrictions (see paragraph )? If not, how should it be recognized? Yes, we agree that on disposal of one or more items in a collection, the difference between the net proceeds on disposal and the net carrying amount should be recognized in the statement of operations for items in a collection that are not subject to external restrictions. If the Board of the NFPO has created a policy that requires these proceeds be used for the purchase of other items for the collection, then that is an internal restriction which would be treated as an interfund transfer shown on the statement of changes in net assets. In this situation, note disclosure could explain that the related cash received is subject to an internal restriction. b. How do you report cash received on disposal of items in a collection prior to acquiring more items or maintaining the existing collection (i.e., is the restricted cash separately identified on the statement of financial position or disclosed in the notes)? For cash received upon disposal of items in a collection prior to acquiring more items or maintaining the existing collection, we have seen NFPOs disclose this information in the notes to the financial statements. c. CASH FLOW STATEMENT, paragraph in Part II, requires disclosure of the amount of cash and cash equivalents for which the use is restricted. Are the disclosure requirements in paragraphs and (e) adequate to inform users when the proceeds on disposal of items in a collection are internally restricted (i.e., must be used to acquire more items or maintain the existing collection) or externally restricted (i.e., donor stipulations on contributed items?) If not, what additional requirements are needed? Yes, we believe the disclosure requirements in paragraphs and (e) are adequate to inform users when the proceeds on disposal of items in a collection are internally restricted or externally restricted. 8. It is proposed that Sections 4433 and 4434 be applied prospectively in accordance with ACCOUNTING CHANGES, Section 1506 in Part II and with special transitional provisions. Do you agree with the following:

27 25 a. Sections 4433 and 4434 should be applied prospectively (see paragraphs and ). If not, why not? Yes, we agree Section 4433 and 4434 should be applied prospectively. b. NFPOs should be permitted to recognize an adjustment to opening net assets at the date Sections 4433 and 4434 are first applied, to reflect partial impairments of tangible capital assets and intangible assets existing at that date (see paragraphs and ). If not, why not? Yes, we agree NFPOs should be permitted to recognize an adjustment to opening net assets at the date Sections 4433 and 4434 are first applied to reflect partial impairments of tangible capital assets and intangible assets existing at that date. c. NFPOs should be permitted to allocate the costs of tangible capital assets to their component parts based on: cost or fair value at the date of acquisition, or fair value or replacement cost at the date the Section is first applied (see paragraph ). If not, why not? As stated in our response to question 3 above, we do not believe NFPOs should be required to componentize their tangible capital assets. However, if componentization is required, we agree that NFPOs should be permitted to allocate the costs of tangible capital assets to their component parts based on: cost or fair value at the date of acquisition, or fair value or replacement cost at the date the Section is first applied. 9. It is proposed that Section 4441 be applied retrospectively in accordance with ACCOUNTING CHANGES, Section 1506 in Part II and with special transitional provisions. a. Do you agree that Section 4441 should be applied retrospectively (see paragraph )? If not, why not? Yes we agree Section 4441 should be applied retrospectively. b. Do you agree with the proposed transition relief for measuring collections at cost (see paragraphs )? If not, why not? Yes, we agree with the proposed transition relief for measuring collections at cost. c. Do you think the proposed transition relief for measuring collections at cost will encourage more NFPOs to use the cost method? If not, what would make a transition to the cost method easier? Yes, we believe that the transitional provisions set out in paragraph will encourage more NFPOs to measure their collections using the cost method. We

28 26 believe the transitional provisions provide a practical solution for the situation where an NFPO has purchased some items in a collection many years ago, but no longer has records of the cost of those items anymore. Without the transitional provisions the NFPO would have been forced to record the entire collection at nominal value, but by using the transitional relief the NFPO will still be able to make an accounting policy choice to record the collection at cost. 10. Do you agree with the proposed effective date (i.e., fiscal years beginning on or after January 1, 2019) (see paragraphs , , and )? If not, why not? Yes, we agree with the proposed effective date of fiscal years beginning on or after January 1, Given that many NFPOs have March 31 st fiscal year ends, would an effective date of April 1 st be preferable for these and future proposals? Why or why not? While we acknowledge many NFPOs have March 31 st fiscal year ends, we do not believe an effective date of April 1 st would be preferable for these and future proposals. NFPOs also have to apply the standards set out in Part II of the Handbook, when those standards are applicable to their situation. Changes to the standards in Part II are always effective for fiscal years beginning on or after January 1, 20XX. If changes to the standards in Part III of the Handbook start becoming effective for years beginning on or after April 1 st this will create confusion for NFPOs, in that they will have to start tracking two different effective dates in order to determine when new or amended standards are applicable for them. 12. Do NFPOs need more than one year to implement the proposed changes in Section 4433, 4434 and 4441? If so, how long and why? As stated in our response to question 3 above, we do not believe NFPOs should be required to apply componentization. If NFPOs are not required to apply componentization we believe one year will be sufficient to implement the proposed changes to Section 4433, 4434 and However, if NFPOs are required to apply componentization, we believe the time required to gather the information needed to implement this policy would require a period longer than one year. As stated in our responses to the above questions, in general we agree with the proposed changes set out in this Exposure Draft. However, we do not agree that NFPOs should be required to apply componentization. Instead, we believe a change should be made to Part II of the Handbook whereby componentization would be permitted, but not required, for all entities applying Part II and Part III of the Handbook as this would achieve cost / benefit considerations and would align with what is already occurring in practice.

29 27 Thank you for your consideration of the above-noted responses. If you have any further questions, please contact me at Yours sincerely, Janet Stockton, FCPA, FCA National Professional Standards Partner BDO Canada LLP

30 28 Montréal, le 30 mai 2017 Mme Rebecca Villmann, CPA, CA, CPA (Illinois, É.-U.) Directrice, Normes comptables Conseil des normes comptables 277, rue Wellington Ouest Toronto (Ontario) M5V 3H2 Madame, Vous trouverez ci-joint les commentaires du Groupe de travail technique OSBL Comptabilité financière Partie III, de l Ordre des comptables professionnels agréés du Québec concernant l exposé-sondage intitulé «Amélioration des Normes comptables pour les organismes sans but lucratif». Nous vous serions reconnaissants de nous faire parvenir une copie de la traduction anglaise de nos commentaires. Veuillez prendre note que ni l Ordre des comptables professionnels agréés du Québec, ni quelque personne que ce soit ayant participé à la préparation des commentaires ne peuvent être tenus responsables relativement à leur utilisation et ils ne sont tenus à aucune garantie de quelque nature que ce soit découlant de ces commentaires, comme décrit dans le déni de responsabilité joint à la présente. Veuillez agréer, Madame Villmann, mes salutations distinguées. Annie Smargiassi, CPA auditrice, CA Représentante du Groupe de travail technique OSBL Comptabilité financière Partie III p. j. Déni de responsabilité et commentaires

31 29 DÉNI DE RESPONSABILITÉ Les documents préparés par les Groupes de travail de l Ordre des comptables professionnels agréés du Québec (Ordre) ci-après appelés les «commentaires», sont fournis selon les conditions décrites dans la présente, pour faire connaître leur opinion sur des énoncés de principes, des documents de consultation, des exposés-sondages préliminaires ainsi que des exposés-sondages publiés par le Conseil des normes comptables, le Conseil des normes d audit et de certification, le Conseil sur la comptabilité dans le secteur public, le Conseil sur la gestion des risques et la gouvernance et d autres organismes. Les commentaires fournis ne doivent pas être utilisés comme substitut à des missions confiées à des professionnels spécialisés. Il est important de noter que les lois, les normes et les règles sur lesquelles sont émis les commentaires peuvent changer en tout temps et que, dans certains cas, les commentaires écrits peuvent être sujets à controverse. Ni l Ordre, ni quelque personne que ce soit ayant participé à la préparation des commentaires ne peuvent être tenus responsables relativement à l utilisation de ces commentaires et ils ne sont tenus à aucune garantie de quelque nature que ce soit découlant de ces commentaires. Les commentaires donnés ne lient pas, par ailleurs, les membres des Groupes de travail de l Ordre ou, de façon plus particulière, le Bureau du syndic de l Ordre. La personne qui se réfère ou utilise ces commentaires assume l entière responsabilité de sa démarche ainsi que tous les risques liés à l utilisation de ceux-ci. Elle consent à exonérer l Ordre à l égard de toute demande en dommages-intérêts qui pourrait être intentée par suite de toute décision qu elle aurait pu prendre en fonction de ces commentaires. Elle reconnaît également avoir accepté de ne pas faire état de ces commentaires reçus via le Groupe de travail dans les avis exprimés ou les positions prises.

32 30 MANDAT DU GROUPE DE TRAVAIL Le Groupe de travail de l'ordre des comptables professionnels agréés du Québec a comme mandat notamment de recueillir et de canaliser le point de vue des praticiens exerçant en cabinet et des membres œuvrant dans les affaires, dans les services gouvernementaux, dans l'industrie et dans l'enseignement ainsi que le point de vue d autres personnes concernées œuvrant dans des domaines d expertise connexes. Pour chaque exposé-sondage ou autre document étudié, les membres mettent leurs analyses en commun. Les commentaires ci-dessous reflètent les points de vue exprimés et, sauf indication contraire, ces commentaires ont fait l'objet d'un consensus parmi les membres du Groupe de travail ayant participé à cette analyse. Les commentaires formulés ne font l'objet d'aucune sanction de l'ordre. Ils n'engagent pas la responsabilité de celui-ci.

33 31 COMMENTAIRES GÉNÉRAUX Révision du cadre conceptuel Les membres ont manifesté des préoccupations relativement au morcellement du projet de refonte des normes comptables applicables aux organismes sans but lucratif. Ils comprennent que le CNC veuille aller de l avant rapidement avec certains changements proposés dans la première phase du projet de refonte (ci-après nommée la refonte) qui font consensus. Par contre, cette approche a le désavantage de ne pas permettre de réviser dans un premier temps le cadre conceptuel applicable aux organismes sans but lucratif, qui, selon eux, est la pierre angulaire des normes comptables applicables à ces organismes. Les membres sont également préoccupés par le fait que l approche bilancielle, qui avait été proposée originalement dans la refonte, n ait pas fait l objet d une discussion en amont des changements proposés dans cet exposé-sondage. Ils conçoivent que cette approche n aurait pas d impact sur le sujet du présent exposé-sondage, mais, selon eux, cette discussion aurait dû avoir lieu au début du processus d amélioration des normes comptables applicables aux OSBL. Ils réitèrent donc leur demande au CNC, soit celle de réviser le cadre conceptuel des normes comptables applicables aux OSBL. Ils sont majoritairement d avis que le cadre conceptuel applicable aux entreprises à capital fermé n est pas nécessairement applicable aux OSBL, car l objectif de ces entités n est pas de faire du profit et de générer de la valeur pour des actionnaires, mais plutôt de réaliser leur mission en utilisant leurs ressources de façon optimale. Les besoins des utilisateurs sont ainsi davantage orientés sur l état des résultats plutôt que sur le bilan. Actifs nets investis en immobilisations Des membres ont également énoncé des préoccupations relativement à la disparition de l obligation de présenter, à la face de l état de la situation financière, l actif net investi en immobilisation. Selon ces membres, bien que plusieurs OSBL présentent cette information comme une affectation interne, plusieurs utilisateurs croient, maintenant à tort, que l actif net investi en immobilisations qui se retrouve ainsi regroupé pour certains dans l actif net non affecté est disponible pour des projets futurs. Le manque de

34 32 compréhension de cette situation fait en sorte que les bailleurs de fonds, moins au fait des normes comptables, auraient tendance à couper dans les financements accordés aux OSBL ou à questionner les besoins de financement de ceux-ci. De plus, selon ceuxci, le fait d élargir les possibilités de présentation de cette information et même de la rendre non obligatoire, affaiblit la comparabilité des états financiers dans le secteur. Pour plusieurs membres, la pertinence de ne pas présenter les actifs nets investis en immobilisations, de façon distincte à l état de la situation financière, devrait être révisée. Selon ces derniers, si les exigences de dépréciation des immobilisations sont révisées, les exigences de présentation des actifs nets investis en immobilisations devraient être révisées également. Distinction de la Partie II et de la Partie III Certains membres ont suggéré au CNC d élaborer des Parties II et III complètes et distinctes. Selon ces membres, il n est pas toujours clair si la Partie II s applique et dans quel contexte elle s applique. De plus, plusieurs professionnels n ont pas tendance à examiner la Partie II quand la Partie III est muette sur un sujet. Certains ont suggéré l ajout d une table de concordance claire. D autres ont suggéré une Partie III distincte et complète de la Partie II avec une table des matières contenant tous les chapitres qui peuvent s appliquer au contexte d un OSBL et contenant des renvois aux chapitres de la Partie II, s il y a lieu. Par exemple, il n est pas clair à la lumière de la lecture du chapitre 3841 Dépendance économique, que celui-ci ne s applique pas aux OSBL et que la dernière phrase du paragraphe traite de la question. Une Partie III autonome pourrait permettre de présenter un chapitre dans la Partie III en faisant référence à la Partie II pour les exigences similaires, comme c est le cas actuellement avec les chapitres 3032 et De plus, les membres recommandent au CNC d établir un mécanisme d analyse systématique des normes de la Partie II lors de leur publication initiale ou de leur modification. Ils suggèrent un mécanisme permettant de conclure au sujet de

35 33 l applicabilité des exigences aux OSBL, de tout nouveau chapitre ou de tout changement dans les chapitres de la Partie II. L avantage d une Partie III distincte est aussi de permettre des lettres de mise à jour plus complète au sujet des chapitres applicables à chaque type d entités. RÉPONSES AUX QUESTIONS SPÉCIFIQUES DU CNC 1. Êtes-vous d avis qu il faudrait enjoindre aux OSBL de se conformer au chapitre 3061, Immobilisations corporelles, au chapitre 3063, Dépréciation d actifs à long terme, au chapitre 3064, Écarts d acquisition et actifs incorporels, et au chapitre 3110, Obligations liées à la mise hors service d immobilisations, de la Partie II du Manuel en ce qui a trait aux immobilisations corporelles et aux actifs incorporels qu ils détiennent, sauf en ce qui concerne les indications des chapitres 4433 et 4434 (voir les paragraphes et )? Dans la négative, pourquoi? Les membres ne sont pas unanimes à ce sujet. Certains membres sont d accord avec les propositions au sujet des chapitres 3061 Immobilisations corporelles et 3063 Dépréciation d actifs à long terme. Par contre, d autres membres sont d avis que les Parties II et III devraient être autonomes et différentes dans leurs exigences au sujet des immobilisations ainsi que de leur amortissement et dépréciation. Selon eux, le cadre conceptuel devrait faire l objet d une révision. Il pourrait clairement en ressortir des différences importantes dans les principes de base applicables. Les membres en désaccord avec les propositions sont d avis que l intérêt des utilisateurs des états financiers des OSBL est de comprendre comment les sommes reçues sont dépensées en fonction des objectifs de l organisme et d évaluer sa capacité à rendre des services. Donc, pour eux, l amortissement (et aussi la dépréciation) n est pas une charge qui est afférente à la prestation de services, donc qui n est pas utile pour les utilisateurs. Selon eux, des propositions différentes et autonomes pour les OSBL et les entités à capital fermé seraient préférables. Ces remarques sont tellement vraies pour certains OSBL que ceux-ci préparent leur état des résultats en montrant un excédent des produits sur les charges avant amortissement et dépréciation avant d en arriver à montrer leur excédent ou déficit net de la période.

36 34 Au sujet de l applicabilité du chapitre 3064 Écarts d acquisition et actifs incorporels, tous les membres sont préoccupés par ce sujet, car le chapitre 1582 Regroupements d entreprises qui amène à la comptabilisation des écarts d acquisition ne s applique pas aux OSBL (réf A). Ainsi, ils sont en désaccord avec les propositions présentées à la lumière des exigences actuelles. Il serait plus intéressant d avoir un chapitre différent dans la Partie III portant sur les actifs incorporels seulement dans un contexte d OSBL. Le chapitre 4434 plus élaboré servirait à rencontrer cet objectif. 2. Les immobilisations corporelles, les actifs incorporels et les collections seraient ramenés à leur juste valeur ou à leur coût de remplacement pour tenir compte de leur dépréciation partielle. Êtes-vous en accord avec les énoncés suivants? a) Les immobilisations corporelles, les actifs incorporels et les collections devraient faire l objet d une réduction de valeur pour tenir compte de leur dépréciation partielle (voir les paragraphes , et ). Dans la négative, pourquoi? Les membres sont d accord avec les principes généraux de ces propositions, sauf pour les collections. Toutefois, selon eux, les réductions de valeur devraient être reliées aux situations entraînant la réduction de la capacité des actifs à rendre des services et non pas à la juste valeur des immobilisations corporelles et des actifs incorporels. Les membres ne sont pas d accord sur la comptabilisation d une dépréciation au sujet des collections. Pour eux, la détention d une collection reflète des objectifs autres que la prestation de services, par exemple la protection du patrimoine. Les membres ont conclu que la dépréciation partielle pourrait être applicable aux collections, mais uniquement pour celles qui sont comptabilisées au coût. En effet, pour les collections comptabilisées à la valeur symbolique, aucune réduction de valeur ne serait applicable. Ils ont proposé de clarifier le libellé en conséquence (.les collections

37 35 au coût devraient faire l objet d ) si le CNC choisit d appliquer la dépréciation partielle aux collections plutôt que ne pas les amortir du tout. Les membres suggèrent que le CNC se penche sur la dépréciation de certains actifs incorporels qui influent sur la capacité à rendre des services et sur la capacité à lever des fonds pour rendre ces services, par exemple les listes de donateurs acquises. De plus, ils sont préoccupés par les enjeux reliés à la comptabilisation de dépréciation d actifs corporels et incorporels, notamment les pertes possibles de subventions et l impact sur les apports reportés afférents aux immobilisations dévaluées. Également, il n est pas nécessairement évident pour un lecteur de comprendre la portée de ces changements. Des membres ont suggéré de regrouper les paragraphes c) et afin d éviter des redondances. Finalement, les membres ont indiqué être préoccupés par les différences que ces dispositions amèneraient par rapport aux normes comptables pour les OSBL du secteur public et ont demandé de se pencher sur la pertinence de ces différences. b) Les immobilisations corporelles, les actifs incorporels et les collections devraient être ramenés à leur juste valeur ou à leur coût de remplacement (voir les paragraphes , et ). Dans la négative, à quelle valeur? Les membres sont d accord avec la proposition, sauf en ce qui concerne les collections. c) La liste d exemples de circonstances pouvant indiquer une dépréciation serait utile (voir les paragraphes , et ). Dans la négative, pourquoi? Les membres sont unanimement d avis que les exemples sont appréciés et nécessaires pour les aider à exercer leur jugement et mentionnent que des clarifications sont requises à l effet que les listes d exemples ne sont pas exhaustives.

38 36 3. Entrevoyez-vous des problèmes liés à l exigence que les OSBL tiennent compte des indications sur la décomposition des immobilisations corporelles énoncées au paragraphe.18 du chapitre 3061 de la Partie II, Immobilisations corporelles? Dans l affirmative, lesquels? Effectivement, les membres entrevoient des problèmes liés à cette proposition et ils sont résumés ci-dessous. D abord, les membres ont indiqué qu en pratique, il y a peu d entreprises à capital fermé qui ventilent les composantes des immobilisations corporelles et donc que cette situation est assez rare. La principale raison évoquée est l impact non significatif sur l amortissement. De plus, pour le professionnel en exercice, c est un principe qui demande beaucoup de travail. Ils sont également inquiets de l impact sur l amortissement des apports reportés afférents à ces immobilisations et leurs composantes. Le suivi des apports reportés par composante entraînerait une complexité additionnelle non souhaitée dans un contexte où les OSBL ont des ressources limitées en interne. Ils se sont demandé, par exemple, comment répartir un apport entre diverses composantes. Les membres se questionnent donc, sur l ajout de cette exigence, dans un contexte où son application est rare actuellement en pratique et forcerait chaque professionnel à exercer son jugement pour déterminer son applicabilité. Ils ont également indiqué que la ventilation des composantes des immobilisations n a pas d impact sur la capacité à rendre des services et qu elle devrait être réexaminée dans ce contexte. Ils auraient aimé que le CNC justifie en quoi cette proposition serait intéressante pour les OSBL, car selon eux les coûts d application de cette disposition surpasseraient les avantages qui pourraient être procurés.

39 37 Si le CNC va de l avant avec ses propositions, ils ont conclu que des dispositions transitoires devraient être prévues lors de l application initiale, comme cela a été le cas avec l introduction de cette exigence dans les IFRS ou avec l introduction de la Partie III ( ). 4. Êtes-vous d accord que les collections devraient être comptabilisées dans l état de la situation financière au coût ou pour une valeur symbolique (voir le paragraphe )? Dans la négative, pourquoi? Les membres sont majoritairement d accord avec cette proposition. Par contre, pour certains membres, le coût des items d une collection n est pas nécessairement pertinent. Pour eux, dans plusieurs situations, la juste valeur à la date de l apport ne peut pas être évaluée de façon fiable. Ainsi, toutes les collections devraient être comptabilisées à une valeur symbolique, car elles ne servent pas au maintien des services, ne peuvent souvent pas être vendues et que le produit de la vente doit être réinvesti dans la collection. L information sur la nature des collections permettrait de répondre aux besoins des utilisateurs des états financiers. Les membres ont aussi manifesté le désir que le paragraphe soit formulé d une façon différente. Selon les membres, seules les premières et dernières phrases du paragraphe devraient être conservées au paragraphe.06 en italique, car elles sont les seules qui présentent les recommandations en lien avec la base d évaluation. Le reste du texte qui vient clarifier les méthodes devrait plutôt apparaître dans les modalités d application et non dans l exigence de base. Ils aimeraient également que soit clarifiée la phrase suivante «Lorsque la juste valeur ne peut être déterminée au prix d un effort raisonnable, les pièces d une collection reçues en apport doivent être comptabilisées pour une valeur symbolique», à savoir si toutes les pièces de la collection doivent être comptabilisées à la valeur symbolique ou seule la pièce pour laquelle la juste valeur ne peut être établie au prix d un effort raisonnable.

40 38 Ils ont indiqué que l utilisation du pluriel et du singulier dans la rédaction des paragraphes du chapitre 4441 devrait être révisée afin d éviter des erreurs dans l application et favoriser une application plus uniforme. Par exemple au paragraphe.13, l utilisation du singulier pourrait amener à penser que les informations doivent être fournies séparément pour chacune des collections. Il n est pas clair pour les membres quelle est l intention du normalisateur à cet égard. 5. Croyez-vous que les propositions énoncées au chapitre 4441 feraient que les OSBL présenteraient plusieurs collections? Dans l affirmative, qu est-ce qui justifierait de présenter plusieurs collections? Le texte utilisé pourrait porter à confusion avec l utilisation du pluriel et du singulier à travers le chapitre. Il n est pas clair qu on parle d une seule collection ou de plusieurs et dans quelles circonstances les exigences s appliquent à l ensemble de la collection ou aux types de collections. Les membres favorisent la présentation d un poste distinct au bilan, regroupant toutes les collections, et l ajout d un détail dans les notes complémentaires. 6. Croyez-vous que les OSBL qui détiennent plusieurs collections devraient être autorisés à évaluer chaque collection différemment (voir le paragraphe )? Pourquoi? Une majorité de membres est d avis qu il devrait y avoir une seule méthode permise pour les collections. Par contre, certains membres sont d avis qu une entité pourrait détenir plusieurs types de collections et que les méthodes comptables choisies devraient être cohérentes avec la nature de chacune de ces collections. Ainsi, ils proposent que si des collections de nature différente sont comptabilisées différemment, il faille présenter plus d un type de collection au bilan (donc sur les lignes séparées au bilan), comme c est le cas avec les placements dans le chapitre 1521 Bilan de la Partie II, ou encore dans les notes complémentaires.

41 39 7. D après la définition des collections énoncée au chapitre 4441, le produit de la sortie de pièces d une collection doit être utilisé pour l acquisition d autres pièces qui s ajouteront à la collection, ou pour le maintien de la collection existante. a) Êtes-vous d accord que lors de la sortie d une ou de plusieurs pièces d une collection que ce soit par vente, destruction, perte, abandon ou expropriation, la différence entre le produit net de la sortie et la valeur comptable nette devrait être comptabilisée : i) conformément au chapitre 4410, Apports Comptabilisation des produits, pour les pièces de la collection qui ont été reçues en apport et qui sont grevées d affectations externes (voir le paragraphe ); ii) dans l état des résultats pour les pièces de la collection qui ne sont pas grevées d affectations externes (voir le paragraphe )? Dans la négative, comment devrait-elle être comptabilisée? Les membres sont unanimement d accord avec cette proposition. b) Comment devrait être présentée la trésorerie reçue lors de la sortie de pièces d une collection avant son utilisation pour l acquisition de nouvelles pièces ou le maintien de la collection existante? (En d autres mots, la trésorerie dont l utilisation est grevée d une affectation devrait-elle être présentée dans un poste distinct dans l état de la situation financière ou indiquée dans les notes complémentaires?) Les membres sont d avis que les exigences du paragraphe de la Partie II devraient être maintenues. c) Le paragraphe.44 du chapitre 1540 de la Partie II, État des flux de trésorerie, exige qu il soit fait mention du montant de la trésorerie et des équivalents de trésorerie dont l utilisation est grevée d une affectation. Les obligations d information énoncées au paragraphe et à l alinéa e) suffisentelles à informer les utilisateurs lorsque le produit de la sortie de pièces d une collection est grevé d une affectation interne (c est-à-dire qu il doit être utilisé

42 40 pour l acquisition de nouvelles pièces ou le maintien de la collection existante) ou externe (c est-à-dire que les pièces reçues en apport sont visées par des stipulations prescrites par le donateur)? Dans la négative, quelles exigences supplémentaires sont nécessaires? Les membres sont d avis que les obligations d information sont adéquates, sauf en ce qui concerne le paragraphe e). En effet, comme la définition d une collection au paragraphe.03 b) prévoit que le produit de la vente doit obligatoirement faire l objet d une politique interne exigeant que le produit de la vente des pièces de collection serve à l ajout ou au maintien de la collection existante, ils se sont questionnés sur la pertinence d ajouter dans les exigences «l utilisation qui a été faite de ce produit». 8. Il est proposé que les chapitres 4433 et 4434 s appliquent prospectivement, conformément au chapitre 1506 de la Partie II, Modifications comptables, et à des dispositions transitoires spéciales. Êtes-vous en accord avec les énoncés suivants? a) Les chapitres 4433 et 4434 devraient s appliquer prospectivement (voir les paragraphes et ). Dans la négative, pourquoi? Les membres sont d accord avec cette proposition, sauf en ce qui a trait au paragraphe Ils suggèrent de le retirer pour être cohérent avec leur proposition de retrait de l exigence de décomposition du coût des immobilisations. b) Les OSBL devraient être autorisés à apporter un ajustement au solde d ouverture de l actif net à la date de première application des chapitres 4433 et 4434 afin de tenir compte des dépréciations partielles des immobilisations corporelles et des actifs incorporels qui existent à cette date (voir les paragraphes et ). Dans la négative, pourquoi? Les membres sont d avis que les paragraphes et ne sont pas clairs, car ils utilisent une expression qui porte à confusion soit «l organisme est autorisé à apporter». Ils suggèrent d utiliser un libellé plus clair sur la façon d apporter les ajustements, comme celui utilisé au paragraphe , soit «C est pourquoi

43 41 l organisme doit les comptabiliser directement à l actif net à cette date.» Il n est pas clair pour les membres si l expression utilisée laisse une latitude aux organismes ou non. Aussi, l utilisation de l expression «date de première application du présent chapitre» devrait également être précisée. En effet, il n est pas clair si l on fait référence à la première date d application du chapitre pour l exercice où le nouveau chapitre entre en vigueur ou au premier exercice touché par ce chapitre (qui pourrait être postérieur à la date d entrée en vigueur du nouveau chapitre). Ils ont référé au paragraphe De plus, au sujet du paragraphe , les membres se questionnent sur l ajustement au solde d ouverture de l actif net des dépréciations existantes à la date d application du chapitre, car une certaine portion devrait plutôt paraître aux résultats de l exercice comparatif. c) Les OSBL devraient être autorisés à attribuer les coûts de leurs immobilisations corporelles à leurs composants en fonction soit du coût ou de la juste valeur à la date d acquisition, soit de la juste valeur ou du coût de remplacement à la date de première application du chapitre (voir le paragraphe ). Dans la négative, pourquoi? Les membres ont indiqué, dans la mesure où leur proposition de retrait de l exigence de décomptabilisation n était pas retenue, qu ils sont d accord avec cette proposition. 9. Il est proposé que le chapitre 4441 s applique rétrospectivement, conformément au chapitre 1506 de la Partie II, Modifications comptables, et à des dispositions transitoires spéciales. a) Êtes-vous d accord que le chapitre 4441 devrait s appliquer rétrospectivement (voir le paragraphe )? Dans la négative, pourquoi? Les membres entrevoient des problèmes d application importants, notamment la recherche d information nécessaire à l application des dispositions transitoires. Ils préfèrent une application prospective.

44 42 Si le CNC va de l avant avec cette proposition, les membres aimeraient que soit définies ou clarifiées les expressions suivantes «date d application du présent chapitre», «date d entrée en vigueur du présent chapitre», «première application du présent chapitre» et «date d adoption anticipée». De plus, ils sont d avis qu un lien devrait être fait avec le chapitre 1501 Application initiale des normes pour les OSBL. Également, ils ont noté que les organismes qui appliquent initialement la Partie III auront les mêmes difficultés d application que ceux qui appliquent les dispositions du nouveau chapitre, mais qui ne sont pas en situation d application initiale de la Partie III. Ils se sont questionnés, par exemple, sur le traitement à accorder à des éléments d une collection, qui étaient détenus en 2018, mais qui ont été vendus par la suite en 2019 et souhaiteraient des éclaircissements au sujet d une telle situation. Les membres ont demandé des éclaircissements et se sont montrés préoccupés au sujet de la contrepartie à comptabiliser lorsqu un OSBL qui ne comptabilisait pas les collections antérieurement décide de les comptabiliser en vertu du chapitre proposé. Ainsi, lorsque l organisme ne présente pas les actifs nets investis en immobilisations et qu aucun actif net investi sous forme de collection n est présenté au bilan, l impact de la comptabilisation d un montant additionnel dans les actifs nets non affectés risque d être incompris et mal interprété par les bailleurs de fonds ou les utilisateurs qui souvent n ont pas les connaissances nécessaires pour analyser adéquatement les états financiers de telles entités. Les membres ont suggéré de créer un poste à l actif net pour présenter les actifs nets investis sous forme de collection (pour présenter la correction), en plus de ramener l obligation de présenter les actifs nets investis en immobilisations. b) Êtes-vous pour l allégement transitoire proposé relativement à l évaluation des collections au coût (voir les paragraphes et )? Dans la négative, pourquoi? Les membres sont d avis que le dernier alinéa du paragraphe devrait être inséré ailleurs que dans les dispositions transitoires, car il a trait à la méthode de

45 43 comptabilisation des collections et sera applicable à toute situation et non uniquement lors de l application des dispositions transitoires. c) Croyez-vous que l allégement transitoire proposé relativement à l évaluation des collections au coût incitera davantage d OSBL à utiliser la méthode de la comptabilisation au coût d acquisition? Dans la négative, comment faciliter le passage à cette méthode? Les membres favorisent plutôt l utilisation de la valeur symbolique. 10. Êtes-vous pour la date d entrée en vigueur proposée (les nouveaux chapitres s appliqueraient aux exercices ouverts à compter du 1er janvier 2019) (voir les paragraphes , et )? Dans la négative, pourquoi? Les membres sont d avis qu une application rétrospective ne saurait être mise en application dans un délai inférieur à 18 mois de la date de publication des nouvelles exigences. La publication prévue pour décembre 2017 devrait permettre une application pour les exercices ouverts à compter du 1 er avril 2020 au plus tôt, afin de permettre l évaluation des nouvelles exigences et l obtention des informations requises à l application de celles-ci, de même que les explications nécessaires à l analyse des états financiers aux utilisateurs. De plus, les membres auditeurs ont indiqué que ce délai ne leur permettrait pas d informer et de former les clients et les professionnels en exercice dans les délais requis, activité qu ils devront mettre en place en sus de la recherche d information et de son analyse. Ils sont d avis que la date proposée du 1 er janvier 2019 serait possible si une application prospective était proposée. 11. Étant donné que l exercice de beaucoup d OSBL se termine le 31 mars, seraitil préférable que la date d entrée en vigueur de ces propositions et des propositions futures soit le 1er avril? Pourquoi?

46 44 Les membres sont d avis qu une application aux exercices débutant le 1 er avril 2020 serait idéale. 12. Les OSBL ont-ils besoin de plus d une année pour mettre en oeuvre les modifications proposées dans les chapitres 4433, 4434 et 4441? Dans l affirmative, combien de temps faudrait-il (veuillez motiver votre réponse)? Oui, les membres sont d avis qu ils ont besoin de plus d une année pour former le personnel et les clients, de même que pour la recherche d information. Ils proposent une période de 18 mois. AUTRES COMMENTAIRES Terminologie Les membres ont relevé certaines erreurs dans le choix des mots utilisés dans certains paragraphes et ont fait les suggestions suivantes de remplacement : Texte suggéré par le CNC L organisme doit indiquer si la réduction de valeur comptabilisée selon le paragraphe est évaluée à la juste valeur de l immobilisation ou à son coût de remplacement. Texte suggéré par le groupe de travail de l ordre L organisme doit indiquer si la réduction de valeur comptabilisée selon le paragraphe est évaluée fondée à sur la juste valeur de l immobilisation ou à son coût de remplacement. Ce commentaire est également applicable au paragraphe Les membres ont précisé avoir révisé la version anglaise et que le commentaire s applique à cette version également. Ils ont précisé que cela ne correspond pas à une erreur de traduction. Exemption pour les petits OSBL

47 45 Certains membres sont d avis que l exemption citée au paragraphe.03 du chapitre 4433 proposé devrait être retirée. Ceux-ci sont néanmoins d avis que le CNC reviendra sur des propositions à cet égard dans une prochaine étape. Il pourrait être intéressant d ajouter une mention dans le document intitulé «Historique et fondement des conclusions», au sujet du plan d action envisagé par le CNC.

48 46 Montreal, May 30, 2017 Rebecca Villmann, CPA, CA, CPA (Illinois) Director, Accounting Standards Accounting Standards Board 277 Wellington Street West Toronto, Ontario M5V 3H2 Dear Ms. Villmann: Please find enclosed the comments of the Technical working group on NFPO Financial Accounting Part III of the Ordre des comptables professionnels agréés du Québec on the Exposure Draft entitled Accounting Standards Improvements for Not-for-Profit Organizations. We would appreciate receiving a copy of the English translation of our comments. Please note that neither the Ordre des comptables professionnels agréés du Québec nor any of the persons involved in preparing the comments shall have any liability in relation to their use and no guarantee whatsoever shall be provided regarding these comments, as specified in the following disclaimer. Yours truly, Annie Smargiassi, CPA auditor, CA Representative of the Technical working group on NFPO Financial Accounting Part III Encl. Disclaimer and comments

49 47 DISCLAIMER Subject to the conditions described herein, the documents prepared by the working groups of the Ordre des comptables professionnels agréés du Québec (the Order), hereinafter referred to as the comments, provide the opinion of members on statements of principles, documents for comment, associates drafts and final exposure drafts published by the Accounting Standards Board, Auditing and Assurance Standards Board, Public Sector Accounting Board, Risk Management and Governance Board, and other organizations. The comments submitted by the working groups should not be relied upon as a substitute for engagements entrusted to professionals with specialized knowledge in their field. It is important to note that the legislation, standards and rules on which the comments are based may change at any time and that, in some cases, the comments may be controversial. Neither the Order nor any person involved in preparing these comments shall have any liability in relation to their use, and no guarantee whatsoever shall be provided regarding these comments. These comments are not binding on the Order s working groups, or the Office of the syndic in particular. Users of the comments shall take full responsibility for, and assume all risks relating to, the use of the comments. They agree to release the Order from any claim for damages that could result from a decision they made based on these comments. They also agree not to mention the comments in the opinions they express or the positions they take.

50 48 TERMS OF REFERENCE OF THE WORKING GROUP The terms of reference of the working group of the Ordre des comptables professionnels agréés du Québec are to collect and channel the views of practitioners and members in business, industry, government and education, as well as those of other persons working in related areas of expertise. For each exposure draft or other document reviewed, the working group members share the results of their analysis. Consequently, the comments below reflect the views expressed and, unless otherwise specified, all of the working group members agree on these comments. The Order does not act upon and is not responsible for the comments made.

51 49 GENERAL COMMENTS Revision of the conceptual framework The members expressed concerns about the fragmentation of the proposed revision to accounting standards for not-for-profit organizations (NFPOs). They understand that the AcSB wants to move forward quickly with certain changes proposed in the first phase of the revision project (hereinafter referred to as the revision ) that represent a consensus. The disadvantage of this approach, however, is that it does not allow for a revision of the conceptual framework for NFPOs to be completed first. For them, the conceptual framework is the cornerstone of the accounting standards that apply to NFPOs. The members are also concerned that the asset and liability model, originally put forward in the revision, was not discussed before the changes were proposed in the Exposure Draft. The members recognize that this model would not have any impact on this Exposure Draft, but they feel that it should have been discussed at the beginning of the NFPO accounting standards improvement process. They therefore reiterate their request to the AcSB that the conceptual framework for NFPO accounting standards s be revised. Most of the members feel that the conceptual framework for private enterprises is not necessarily applicable to NFPOs since the purpose of these entities is not to make a profit and generate value for shareholders but to achieve their mission while optimizing their resources. User needs are thus more focused on the statement of operations than the balance sheet. Net assets invested in capital assets Members also expressed concerns about the removal of the requirement to present net assets invested in capital assets on the face of the statement of financial position. According to them, even though many NFPOs present this information as an internal restriction, many users now mistakenly believe that net assets invested in capital assets are available for future projects when presented as a component of unrestricted net assets. The lack of understanding of this situation means that funders, who are less informed about accounting standards, may tend to reduce funding provided to NFPOs or to question their funding needs. In addition, they believe that multiplying the reporting

52 50 options and even allowing this information not to be presented weakens the comparability of financial statements in the not-for-profit sector. Several members consider that the relevancy of not separately identifying net assets invested in capital assets on the statement of financial position should be revised. These members feel that if asset impairment requirements are revised, reporting requirements for net assets invested in capital assets should also be revised. Distinction between Part II and Part III Certain members suggested that the AcSB develop complete and separate Parts II and III. According to these members, it is not always clear whether Part II applies and in what context it applies. In addition, many professionals usually do not consult Part II if Part III is silent on a topic. Some members suggested adding a clear table of concordance. Others suggested a complete Part III that is separate from Part II with a table of contents including all sections that could apply to an NFPO and references to sections of Part II, as appropriate. For example, it is not clear in Economic Dependence, Section 3841, that it does not apply to NFPOs and that the last sentence of paragraph addresses the issue. A separate Part III would mean that a section could be included in Part III with references to Part II for similar requirements, as is currently the case in Sections 3032 and In addition, the members recommend that the AcSB develop a mechanism for systematically analyzing Part II standards when issued or amended. They suggest a mechanism that would determine the applicability to NFPOs of requirements established by all new sections or amendments to existing sections of Part II. A separate Part III would also allow for more comprehensive accounting revision releases regarding the sections applicable to each type of entity. RESPONSES TO THE ACSB S SPECIFIC QUESTIONS 1. Do you agree that NFPOs should be directed to follow Property, Plant and Equipment, Section 3061, Impairment of Long Lived Assets, Section 3063,

53 51 Goodwill and Intangible Assets, Section 3064, and Asset Retirement Obligations, Section 3110 in Part II of the Handbook for tangible capital assets and intangible assets held by NFPOs, except for the guidance included in Sections 4433 and 4434 (see paragraphs and )? If not, why not? The members are not in agreement on this subject. Some members agree with the proposals regarding Property, Plant and Equipment, Section 3061, and Impairment of Long Lived Assets, Section Other members, however, believe that Parts II and III should be separate and different in their requirements regarding assets and their amortization and impairment. In their opinion, the conceptual framework should be revised. This could clearly highlight major differences in the applicable core principles. The members who disagree with the proposals believe that what NFPO financial statement users need is to understand how amounts received are spent based on the organization s goals and to evaluate its capacity to provide services. In their opinion, amortization (as well as impairment) is not an expense related to providing services, and therefore not useful for users. According to them, it would be better to have separate and different proposals for NFPOs and private entities. Indeed, certain NFPOs prepare their statement of operations by first indicating an excess of revenue over expenses before amortization and impairment and then showing their net surplus or deficit for the period. All members are concerned about the applicability of Goodwill and Intangible Assets, Section 3064, because Business Combinations, Section 1582, which results in the recognition of goodwill, does not apply to NFPOs (ref A). In light of current requirements, the members therefore do not agree with the proposals presented. It would be more relevant to have a different section in Part III that addresses intangible assets only in an NFPO context. The more-detailed Section 4434 could be used to meet this objective. 2. Tangible capital assets, intangible assets and collections would be written down to their fair value or replacement cost to reflect partial impairments. Do you agree with the following:

54 52 a) Tangible capital assets, intangible assets and collections should be written down to reflect partial impairments (see paragraphs , and ). If not, why not? Members agree with the general principles of these proposals, except for those regarding collections. They believe, however, that write-downs should be related to a reduction in the service potential associated with an asset and not to the fair value of tangible capital assets and intangible assets. The members do not agree on the recognition of impairments for collections. They believe that collections are held for purposes other than the provision of services, such as the safeguarding of assets. The members concluded that partial impairment could be applicable to collections, but only for those recorded at cost. For collections recorded at nominal value, no write-down would be applicable. They proposed that the wording be clarified accordingly (...collections recorded at cost should be written down...) if the AcSB decides to apply partial impairment to collections instead of no amortization at all. Members suggest that the AcSB look into the impairment of certain intangible assets that influence an organization s ability to provide services and ability to raise funds to provide these services, such as acquired lists of donors. The members also have concerns about issues related to the recognition of impairments of tangible capital assets and intangible assets, in particular the potential loss of grants and the impact on deferred contributions related to written-down assets. In addition, it is not necessarily easy for readers to understand the scope of these changes. Members suggested combining paragraphs (c) and to avoid redundancies.

55 53 Finally, members indicated that they were concerned about the differences that these provisions would create compared to accounting standards for public sector NFPOs and requested that the relevancy of these differences be explored. b) Tangible capital assets, intangible assets and collections should be written down to their fair value or replacement cost (see paragraphs , and ). If not, what value? Members agree with the proposal, except for collections. c) The list of indicators, which provide examples of conditions that may indicate impairment, would be helpful (see paragraphs , and ). If not, why not? The members unanimously agreed that the examples are helpful and necessary for them to exercise their judgment. They also mentioned that clarifications are required regarding the fact that the lists of examples are not exhaustive. 3. Do you foresee issues specific to NFPOs being required to consider the guidance in Property, Plant and Equipment, paragraph in Part II on componentization for tangible capital assets? If so, what are they? Yes, the members foresee issues with this proposal, summarized below. The members stated that, in practice, there are few private enterprises that allocate the cost of tangible capital assets to their component parts, and therefore this situation is fairly rare. The main reason for this is the insignificant impact on amortization. In addition, for practitioners, this principle requires a great deal of work. Members are also concerned about the impact on amortization of deferred contributions related to these assets and their components. Tracking deferred contributions per component would add an undesirable level of complexity in a context where NFPOs

56 54 have limited internal resources. Members asked themselves, for example, how a contribution would be allocated between several component parts. The members therefore question the addition of this requirement in a context where its application is currently rare in practice and where practitioners would have to use their judgment to determine its applicability. They also noted that the componentization of tangible capital assets has no impact on an organization s service potential, and that it should be re-examined in this context. As they believe that the costs of applying this provision would be greater than its benefits, they would have preferred that the AcSB justify why this proposal would be beneficial for NFPOs. If the AcSB moves forward with its proposals, the members believe that transitional provisions should be specified for initial application, as was the case when this requirement was introduced in IFRSs, or with the introduction of Part III ( ). 4. Do you agree that collections should be recorded on the statement of financial position at cost or nominal value (see paragraph )? If not, why not? The majority of members agree with this proposal. For some members, however, the cost of the items in a collection is not necessarily relevant. These members believe that the fair value at the date of contribution cannot be reliably measured in many situations. Consequently, all collections should be recorded at nominal value because they are not used to sustain services, often they cannot be sold, and the proceeds from the sale must be reinvested in the collection. Information on the nature of collections would address the needs of financial statement users. Members also wished for paragraph to be worded differently. They believe that only the first and last sentences should be kept in paragraph.06 in italics, as they are the only ones that specify the recommendations in relation to the basis of measurement.

57 55 The rest of the text that explains the policies should appear instead in the application guidance and not in the basic requirement. They would also like the following sentence to be clarified, When fair value cannot be reasonably determined, the items contributed to a collection shall be recorded at nominal value, as it is unclear whether all of the items in the collection must be recorded at nominal value, or only the item for which the fair value cannot be reasonably determined. The members mentioned that the use of the plural and singular in the paragraphs of Section 4441 should be revised to avoid application errors and foster more consistent application. For example, in paragraph.13, the use of the singular could lead to the interpretation that information must be disclosed separately for each collection. The members are unclear about the standard-setter s intention in this regard. 5. Do you think the proposals in Section 4441 would result in NFPOs reporting multiple collections? If so, what would be the rationale for reporting multiple collections? The use of the plural and singular throughout the section could lead to confusion. It is not clear whether the section is referring to a single collection or multiple collections and under what circumstances the requirements apply to the whole collection or to types of collections. The members support the presentation of a separate line item on the balance sheet, which would include all collections, with additional details in the notes to the financial statements. 6. Do you think that NFPOs with multiple collections should be permitted to value each collection differently (see paragraph )? Why? The majority of the members believe that only one accounting policy should be permitted for collections.

58 56 According to some members, however, an entity could hold several types of collections, and the chosen accounting policies should be coherent with the nature of each collection. They therefore propose that if collections of different natures are recorded differently, more than one type of collection must be presented on the balance sheet (on separate lines of the balance sheet), as is the case with investments in Balance Sheet, Section 1521, of Part II, or in the notes to the financial statements. 7. In accordance with the definition of a collection in Section 4441, the proceeds on disposal of items in a collection must be used to acquire more items in the collection or maintain the existing collection. a) Do you agree that on disposal of one or more items in a collection, whether by sale, destruction, loss or expropriation, the difference between the net proceeds on disposal and the net carrying amount should be recognized: i) in accordance with Contributions Revenue Recognition, Section 4410 for items contributed to a collection that are subject to external restrictions (see paragraph ); or ii) in the statement of operations for items in a collection that are not subject to external restrictions (see paragraph )? If not, how should it be recognized? The members unanimously agree with this proposal. b) How do you report cash received on disposal of items in a collection prior to acquiring more items or maintaining the existing collection (i.e., is the restricted cash separately identified on the statement of financial position or disclosed in the notes)? The members believe that the requirements in paragraph of Part II should be maintained. c) Cash Flow Statement, paragraph in Part II, requires disclosure of the amount of cash and cash equivalents for which the use is restricted. Are the disclosure requirements in paragraphs and (e) adequate to inform

59 57 users when the proceeds on disposal of items in a collection are internally restricted (i.e., must be used to acquire more items or maintain the existing collection) or externally restricted (i.e., donor stipulations on contributed items?) If not, what additional requirements are needed? The members believe that the disclosure requirements are adequate, except for paragraph (e). As the definition of a collection in paragraph.03(b) provides that proceeds must be subject to an internal policy that requires any proceeds from the sale of the items in a collection to be used to acquire more items or maintain the existing collection, the members questioned the relevance of adding how the proceeds were used to the requirements. 8. It is proposed that Sections 4433 and 4434 be applied prospectively in accordance with Accounting Changes, Section 1506 in Part II and with special transitional provisions. Do you agree with the following: a) Sections 4433 and 4434 should be applied prospectively (see paragraphs and ). If not, why not? The members agree with this proposal, except for paragraph They suggest removing the paragraph to be consistent with their proposal to remove the requirement for componentization of capital assets. b) NFPOs should be permitted to recognize an adjustment to opening net assets at the date Sections 4433 and 4434 are first applied, to reflect partial impairments of tangible capital assets and intangible assets existing at that date (see paragraphs and ). If not, why not? The members believe that paragraphs and are not clear as they use wording that causes confusion: a not-for-profit organization...is permitted to recognize. They suggest using clearer wording to explain how adjustments should be made, such as that used in paragraph : An organization shall recognize such adjustments directly in net assets at the date of transition to accounting standards for

60 58 not-for-profit organizations. It is not clear for members whether the proposed wording allows organizations any latitude. In addition, the use of the wording date this Section is first applied should also be clarified. It is not clear whether it is referring to the date the section is first applied for the fiscal year in which the new section becomes effective or to the first fiscal year affected by the section (which could be subsequent to the effective date of the new section). The members referred to paragraph Regarding paragraph [Translator s note: error in French section number], the members question the adjustment to opening net assets to reflect impairments of assets existing at the date the section is first applied, as a certain portion should appear in the statement of operations of the comparative year. c) NFPOs should be permitted to allocate the costs of tangible capital assets to their component parts based on: cost or fair value at the date of acquisition, or fair value or replacement cost at the date the Section is first applied (see paragraph ). If not, why not? The members reported that they agree with this proposal, insofar as their proposal to remove the derecognition requirement is not retained. 9. It is proposed that Section 4441 be applied retrospectively in accordance with Accounting Changes, Section 1506 in Part II and with special transitional provisions. a) Do you agree that Section 4441 should be applied retrospectively (see paragraph )? If not, why not? The members foresee significant application issues, especially as regards the search for information required for the application of the transitional provisions. They prefer a prospective application.

61 59 If the AcSB moves forward with this proposal, the members would like the following wording to be defined or clarified: date this Section is applied, effective date of this Section, date this Section is first applied, and early adoption date. In addition, they believe a link should be made with First-Time Adoption by Not-For-Profit Organizations, Section The members also noted that organizations applying Part III for the first time will have the same application issues as those that are applying the provisions of the new Section but not applying Part III for the first time. They had questions, for example, about the proper treatment for items in a collection that were held in 2018 and then sold in 2019, and would like clarification to be provided on such a situation. The members asked for clarification and expressed concern about the consideration to be recorded when an NFPO that was not previously recording collections decides to record them under the proposed section. Thus, when the organization does not report net assets invested in capital assets, and no net assets invested as a collection are presented on the balance sheet, the impact of recognizing an additional amount in unrestricted net assets may be misunderstood and misinterpreted by funders or users, who often do not have the knowledge required to adequately analyze the financial statements of such entities. The members suggested that a net asset item be created to disclose net assets invested as a collection (to present the correction), besides reestablishing the requirement of presenting net assets invested in capital assets. b) Do you agree with the proposed transition relief for measuring collections at cost (see paragraphs )? If not, why not? The members believe that the last subparagraph of paragraph should be inserted elsewhere than in the transitional provisions as it addresses the accounting policy for collections and will be applicable to all situations and not only for the application of the transitional provisions.

62 60 c) Do you think the proposed transition relief for measuring collections at cost will encourage more NFPOs to use the cost method? If not, what would make a transition to the cost method easier? The members are more supportive of the use of the nominal value. 10. Do you agree with the proposed effective date (i.e., fiscal years beginning on or after January 1, 2019) (see paragraphs , , and )? If not, why not? According to the members, a retrospective application could not be applied less than 18 months from the date the new requirements are issued. The proposed issuance of December 2017 should allow for application in the fiscal years beginning on or after April 1, 2020, at the earliest, so that the new requirements can be evaluated, the information required for their application can be obtained, and the explanations required for financial statement analysis can be provided to users. In addition, auditor members reported that this time frame did not give them enough time to inform and train clients and practitioners by the required date as it would have to be done in addition to searching for information and analyzing it. They believe that the proposed date of January 1, 2019, would be possible if a prospective application were proposed. 11. Given that many NFPOs have March 31st fiscal year ends, would an effective date of April 1st be preferable for these and future proposals? Why? The members consider that an application effective for fiscal years beginning on April 1, 2020, would be ideal. 12. Do NFPOs need more than one year to implement the proposed changes in Sections 4433, 4434 and 4441? If so, how long and why?

63 61 Yes, the members believe that NFPOs need more than one year to train staff and clients and search for information. They propose a period of 18 months. OTHER COMMENTS Terminology The members identified errors in the choice of words used in certain paragraphs and provided the following replacement suggestions: Text proposed by the AcSB An organization shall disclose whether the write down recognized in accordance with paragraph is measured at the asset s fair value or replacement cost. Text proposed by the Order s working group An organization shall disclose whether the write down recognized in accordance with paragraph is measured at based on the asset s fair value or replacement cost. This comment also applies to paragraph The members said that they reviewed the English version and that the comment also applies to it. They specified that it is not due to a translation error. Exemption for small NFPOs Some members believe that the exemption mentioned in paragraph.03 of proposed Section 4433 should be removed. They feel, however, that the AcSB will reconsider these proposals as a next step. It could be worthwhile to add an indication regarding the AcSB s proposed action plan in the document entitled Background Information and Basis for Conclusions.

64 62 =: ~~~ COLLINS ~ BARROW CoiUns Barrow NaUonal CooperaUve Incorporated 11 King Street West Suite 700. PO Box 27 Toronto ON MSH 4C7 Canada T: F: ; jking@cothnsbarrow.com WNW.CQI!!nsbarrow.com May-a1.,2017- Ms. Rebecca Villman, CPA, CA, CPA (Illinois) Director, Accounting Standards Accounting Standards Board 277 Wellington Street West Toronto, Ontario M5V 3H2 Dear Ms. Villman, ED - Accountlna stanclarde Improvements for Not-for-Profit Oraanlzatlone We are pleased to have this opportunity to comment on the AcSB Exposure Draft - Accounting Standards Improvements for Not-for-Profit Organizations dated February I am submitting the following comments on behalf of the 26 member firms of Collins Barrow National Cooperative Incorporated. We are the eighth largest group of chartered professional accountants in Canada providing a full-range of services to our clients including assurance, taxation and management advisory. We take a special interest in this Exposure Draft as several of our member firms provide various services to entities operating in the private not-for-profit sector. While we generally support the proposed changes in this Exposure Draft, we do have comments for the Board's consideration with respect to the proposed change that permits for a partial impairment writedown of tangible capital and intangible assets. While the theory for recognizing partial impairments is sound, we believe that the cost of implementing this standard for organizations in the private not-for-profit sector will exceed the benefit users of the financial statements will derive from the recognition of partial impairments. SpecifiCally, our primary concern is with respect to paragraphs and which requires that when a condition exists that causes one to believe that there may be an impairment of either a tangible capital asset or an intangible asset. we are concerned as to how the organization will determine the amount of the write-down, if any. To illustrate our point. consider the following examples: (a) An organization operates a shelter for homeless people. The organization owns the building used for the shelter operations. The government provides funding for the ongoing operations of the shelter. One year. the funding is significantly reduced to such an extent that part of the building that has been used for the shelter is closed. Per paragraph , this would be a condition that would indicate impairment in the carrying value of the building. As required by paragraph , the organization needs to determine the fair value of the building. To do this, an organization would need to hire an appraiser. For many not-for-profit organizations, this expenditure would be unfunded since it was not in their original request for funding in which case they would need to draw from other programs or services to pay for an appraiser or the organization would have to forego hiring an appraiser and accept a modification to their auditor's report. Further, the benefit to the funder, who is probably the primary user of the financial statements, would be minimal since the write-down is a non-cash transaction that has no bearing on their funding. EaCh Collins Barrow oftlce Is independenhy owned and operated The COllins Barrow traelemat11s ere owned by Collins Balrow Na~onal Coopera~ll9 1ncorpo rated and are used under license. ~A~('i'RTi'u; INTfR.NATIONAL

65 63 (b) An organization decides to custom build a membership database because they are unable to find an Moff-the-shelr software program that will meet their needs with respect to the membership data that needs to be recorded. The organization develops a budget and hires a programmer to build the database. Unfortunately, due to poor initial design and/or inexperience of the programmer, the project ends up costing more than budgeted. Per paragraph , the accumulation of costs in excess of the amount originally expected for its construction would be a condition that would indicate impairment in the cost of the membership _JI_~t~b_ase. Determining fair value would be difficult due to the lack of a market-read~ com_parable and there are no cash flows directly associated with the membership database. Accordingly, the organization would need to determine replacement cost. The problem for many organizations will be how to determine such a replacement cost. Do they hire someone to prepare an estimate of what it should have cost the organization to custom build the database? If so, then they need to expend funds to pay someone to do this for them. For many organizations, it may be onerous for them to come up with the funds to pay for this. Alternatively, the original budget could be considered as the basis of what it should have cost, but that will require further investigation to ensure that it was not inadequate to start with and the cause of the over expenditure. Again, if the organization does not have the in-house expertise to do this investigation, then they would need to pay for someone outside of the organization to determine the viability of the original budget. Under either scenario, we would question how useful the write-down would be to the members of the organization given the subjectivity that is inherent in such an estimate. Due to the implementation difficulties inherent in the process of providing for partial impairments of tangible capital and intangible assets, as illustrated above, we do have a couple of alternative recommendations for the Accounting Standards Board to consider. One alternative is to permit an organization to provide an estimate of the partial impairment for tangible capital or intangible assets based on a rational and supportable basis. As an illustration using the shelter example above where a portion of the building used for the shelter is closed, management may be able to estimate the partial impairment based on square footage or the number of beds available and applying that ratio to the carrying value of the building. Either of these measures provides an objective supportable basis for determining the impairment. Similarly, using the illustration above for a membership database, a partial impairment of an intangible asset could be based on a proportionate drop in membership data or some other indicator/metric like relative on-line generated revenue over several years. We believe that this could be easily incorporated into the proposed material as additional guidance to the proposed standard. Another alternative to consider is whether the current paragraphs and should be retained. These paragraphs provide for the write-down of tangible capital and intangible assets no longer contribute to any long-term service potential to the organization. We believe that the identification of such impairment is much easier to identify at a cost that would be significantly less than what would be incurred to determine fair value or replacement cost. We do acknowledge that this alternative ignores the concept of partial impairments, and a result, we would only support this alternative if it is not possible to develop a standard and related guidance that is practical to implement. We would be pleased to provide any further assistance on this matter that you may require. Yours truly, ;2~ Jim King, CPA, CA National Director of Professional Practice ~r t~ collins ~ BARROW

66 64 Rebecca Villmann, CPA, CA, CPA (Illinois) Director, Accounting Standards Accounting Standards Board 277 Wellington Street West Toronto, Ontario M5V 3H2 May 31, 2017 Dear Ms. Villmann: Ernst & Young LLP ("EY" or "we") welcomes the opportunity to provide comments to the Accounting Standards Board ("AcSB") on its exposure draft on Accounting Standards Improvements for Not-for-Profit Organizations (the Exposure Draft ). Our responses to the specific questions posed in the Exposure Draft are included below. Comments on Specific Questions Requested by the AcSB 1. Do you agree that NFPOs should be directed to follow PROPERTY, PLANT AND EQUIPMENT, Section 3061, IMPAIRMENT OF LONG LIVED ASSETS, Section 3063, GOODWILL AND INTANGIBLE ASSETS, Section 3064, and ASSET RETIREMENT OBIGATIONS, Section 3110 in Part II of the Handbook for tangible capitals and intangible assets held by NFPOs, except for the guidance included in Sections 4433 and 4434 (see paragraphs and )? If not, why not? Yes, we agree with these proposed amendments. We believe that streamlining guidance in Part III of the Handbook will eliminate redundancies between Part II and Part III and improve comparability in financial reporting. 2. Tangible capital assets, intangible assets and collections would be written down to their fair value or replacement cost to reflect partial impairments. Do you agree with the following: (a) Tangible capital assets, intangible assets and collections should be written down to reflect partial impairments (see paragraphs , and ). If not, why not? Yes, we agree that tangible capital assets, intangible assets and collections should be written down to reflect partial impairment. However, we are concerned about new terminology proposed paragraphs and with respect to future economic benefits in reference to write downs. We believe that future economic benefits are not applicable in this context for NFPOs. Rather, as highlighted in current sections 4431 and 4432, value in use and service potential are the relevant measures. We are concerned the wording proposed paragraphs and suggests that future economic benefits or service potential of assets for an NFPO are represented by the amount the organization would need to pay to acquire such economic benefits or service potential, and further, that paragraphs and require that if this amount is less than an asset s net carrying value, it should be written down. This could be interpreted as requiring NFPOs to annually test a newly constructed building, for example, to determine whether that space or service potential could have been achieved less expensively through rental of space or purchase of a different building. As a result, we recommend the AcSB clarify the proposed wording in paragraphs and

67 65 (b) Tangible capital assets, intangible assets and collections should be written down to their fair value or replacement cost (see paragraphs , and ). If not, what value? Yes, we agree, that tangible capital assets, intangible assets and collections should be written down to their fair value or replacement cost. (c) The list of indicators, which provide examples of conditions that may indicate impairment, would be helpful (see paragraphs , and ). If not, why not? We believe a list of indicators will be helpful to NFPOs in applying the guidance on partial impairments. That said, we believe that some of the indicators proposed do not appear to be as relevant to NFPOs as they would be for profit oriented businesses, and thus, we believe such indicators should be removed from the list. Paragraphs (c), (d) and (f), (c), (d) and (f), and 4441 (b) and (c) do not appear to be relevant for NFPOs given the unique attributes of NFPOs discussed in the Basis for Conclusions. In particular, we believe that paragraphs like (f) and (f), which refer to a significant decrease in market price, may cause undue burden for NFPOs where the value of an asset is tied more to its service potential and continued use in providing services than to market price. While the Basis for Conclusions indicates that the list of indicators is not meant to be a list of requirements for impairment, there is danger that some may interpret this list as a benchmark to evaluate impairment (i.e. a requirement for an entity to support that there was no significant decrease in market price in assessing whether there were any indicators of impairment). We do not believe a significant decline in market price is an indicator of impairment for an NFPO if the entity still plans on using the asset in providing its goods or services and the asset s service potential has not deteriorated. As a result, we recommend that the list of indicators in these sections be tailored for relevance in the context of an NFPO to ensure there is no misinterpretation or misapplication of the standard. 3. Do you foresee issues specific to NFPOs being required to consider the guidance in PROPERTY, PLANT AND EQUIPMENT, paragraph on componentization for tangible capital assets? If so, what are they? We do not foresee any significant issues with regard to componentization of tangible capital assets. 4. Do you agree that collections should be recorded on the statement of financial position at cost or nominal value (see paragraph )? If not, why not? We agree that collections should be recorded at cost or nominal value. However, we do not agree that this necessitates presentation on the statement of financial position when collections are recorded at a nominal value as proposed in paragraph Rather, given that notes are an integral part of financial statements, we believe that NFPOs should be given the option of disclosing collections recorded at a nominal value in the notes to the financial statements based on the relevance of collections to the primary purpose of the entity. Such disclosure would highlight the existence of collections and, thus, have the same effect as presenting them on the statement of financial position. Presentation of collections recorded at nominal value on the statement of financial position when they do not relate to the entity s primary purpose or what the entity is organized to do could pose an issue for NFPOs who round their financial statements, for example, to the nearest thousand dollars. Collections may be less relevant to such an entity, and thus, a better option in such cases would be to allow a note reference, rather than requiring full presentation on the statement of financial position, to highlight note disclosure on the existence of such collections. This would be similar to a note reference on the statement of financial position to commitments and contingencies disclosure. 5. Do you think the proposals in Section 4441 would result in NFPOs reporting multiple collections? If so, what would be the rationale for reporting multiple collections?

68 66 Yes, we think that the proposals in Section 4441 could result in the reporting of multiple collections if an NFPO had multiple collections; however, we see nothing in the current standard that would prevent an NFPO from presenting multiple collections. The rationale for reporting multiple collections would relate to the unique attributes of each collection. For example, consider a museum that has both a collection of art and a collection of books. There would be unique attributes that would distinguish each collection. 6. Do you think that NFPOs with multiple collections should be permitted to value each collection differently (see paragraph )? Why or why not? Yes, we think that NFPOs with multiple collections should be permitted to value each collection differently in accordance with paragraph This enables NFPOs to value each collection giving consideration to its particular attributes and the information available on cost (or fair value for contributed items). Further, where determining cost of collections would be onerous and costly to NFPOs, the choice to record at nominal value provides appropriate relief. As highlighted in paragraph 51 of the Basis for Conclusions, requiring the same policy choice to be applied for all collections may deter NFPOs from using cost, particularly where doing so would be onerous for one of the multiple collections. 7. In accordance with the definition of a collection in Section 4441, the proceeds on disposal of items in a collection must be used to acquire more items in the collection or maintain the existing collection. (a) Do you agree that on disposal of one or more items in a collection, whether by sale, destruction, loss or expropriation, the difference between the net proceeds on disposal and the net carrying amount should be recognized: (i) (ii) In accordance with CONTRIBUTIONS REVENUE RECOGNITION, Section 4410 for items contributed to a collection that are subject to external restrictions (see paragraph ); or In the statement of operations for items in a collection that are not subject to external restrictions (see paragraph )? If not, how should it be recognized? We agree that disposals of items in a collection should be accounted for in accordance with Section 4410 CONTRIBUTIONS REVENUE RECOGNITION. However, we believe that it is the proceeds on disposal (net of any disposal costs) rather than the difference between the net proceeds on disposal and the net carrying amount as noted in paragraph that are restricted based on the definition of a collection. Paragraph (b) (iii) defines collections as being 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. Thus, it is the proceeds on disposal, not the difference between net proceeds and net carrying amount, which should be subject to the guidance on contributions in Section Both paragraphs (e) and in the proposed guidance on collections use the term proceeds and require that such proceeds be either used to acquire new items for the collection or used in the direct care of the collection. As such, these proceeds (net of any disposal costs) are subject to restrictions (whether implicit or explicit, see below), and therefore, they should be subject to the recognition guidance on contributions in Section We believe the terminology in Section 4441 needs to be clarified to avoid confusion. Terminology such as proceeds and net proceeds are used throughout the proposed guidance with no corresponding term in Section As above, paragraph indicates that it is the difference between the net proceeds on disposal and net carrying amount that should be subject to the guidance on contributions in Section Paragraph

69 67 57 of the Basis for Conclusions in the Exposure Draft terms this difference as a gain or loss. The only gains or losses referred to in Section 4410 are gains or losses on investments as opposed to gains or losses on disposal of collections or other assets. Further, the definition of contributions in Section 4410 does not appear to encompass a calculated gain or loss on such a transaction. Thus, we believe the AcSB needs to clarify its terms and definitions in Section 4441 to be clear and avoid inconsistencies in application. Further, we believe that paragraphs (e) and should be clarified to make it clear that the proceeds from disposal that must be used to acquire new items for the collection or used in the direct care of the collection are net of any disposal costs. As noted above, paragraphs and prescribe implicit (if not explicitly stated by the original contributor) restrictions on the use of proceeds on disposal of collections. The guidance on restricted contributions in Section 4410 addresses such implicit restrictions. One example of implicit restrictions we regularly see in practice is a charity holding an event in support of a specific cause or purpose. The contributions or funds raised by that event would be restricted for that specific cause or purpose under paragraph based upon how the charity has advertised the event. Similarly, another example is a gallery that has a publicized policy on its collection stating that the proceeds from any sale of art must be reinvested into the collection. The proceeds received on a sale of art within the collection would therefore be restricted for reinvestment into the collection under Section 4410 based upon the gallery s publicized policy to this effect. For this latter example, the AcSB may want to consider seeking legal advice as to whether an internal policy that is publicly advertised is sufficient to constitute an implicit external restriction without any other restrictions being specified by the contributor. This clarity would be helpful to avoid confusion in practice and misapplication of the standard. The distinction in terms discussed above can have a significant effect on accounting for disposals by NFPOs depending on the policies chosen by the organization. The following two scenarios illustrate the impact under Section 4410 assuming the deferral method: (1) Charity A records its collection at nominal value. During the year, Charity A sells an item in its collection for $500,000. This results in a gain of $500,000 (which just happens to equal proceeds ). Under proposed paragraph , this gain would be accounted for in accordance with Section Thus, the full proceeds (which equal the gain on the transaction) would be deferred until used to acquire or maintain the collection in the future (assuming they meet the definition of an external restriction). (2) Charity B records its collection at cost. Contributions to the collection are recorded at their fair value at the time of contribution. During the year, Charity B sells an item in its collection for $500,000. The item was contributed in a previous year and is recorded at its fair value at that time of $250,000. This would result in a gain of $250,000 (which is different than proceeds ) upon disposal. Under proposed paragraph , this gain would be accounted for in accordance with Section Thus, in this scenario, only the gain on disposal (not the full proceeds) would be deferred until used to acquire or maintain the collection in the future, which does not appear to be consistent with the requirements of paragraphs (b) (iii) and of the Exposure Draft. Further, if the proceeds rather than the gain on disposal should be deferred under Section 4410, clarification on how one would account for the difference would be helpful - i.e. if the full $500,000 should be deferred (assuming an implicit external restriction), then how would the cost of the asset be removed from the statement of financial position? Would it be offset by a debit to net assets (where the original contribution was recorded) or would it be expensed in the statement of operations?

70 68 One additional matter we would like to raise relates to accounting for contributions in situations such as the two scenarios described above. Current paragraphs refer to contributed materials and services with paragraph specifically referring to contributed materials and services that are part of a constructed or developed tangible capital asset or intangible asset. However, there is no reference in Section 4410 to items contributed to a collection. Paragraphs provide measurement guidance for a contribution of assets other than cash, but there is no specific reference to collections. Guidance on disclosure of collections in current paragraph states that accounting policies may vary by organization, and organizations should disclose their policies. As a result, currently, under section 4440, some NFPOs that recognize collections at nominal value on their statement of financial position choose to recognize contributions revenue and a corresponding expense for the fair value of items contributed to collections. Other NFPOs, however, choose not to recognize contributions revenue and expense in the same situation. Is it the AcSB s intention to allow such variation in accounting for contributions under the new standards? Proposed paragraph retains similar wording to paragraph with regard to disclosure; however, paragraphs add recognition and measurement guidance for collections. Paragraph makes reference to items of a collection purchased below fair value and requires the difference between consideration paid and fair value to be reported as a contribution. Further, as discussed above, paragraph requires the recognition of contributions revenue pursuant to Section 4410 with regard to proceeds on disposal of items in a collection. As a result, we request clarification with regard to recognition of contributions revenue on collections regardless of the originating transaction (i.e. whether upon disposal, upon purchase below fair value, upon donation or contribution of items, etc.). For consistency, should all such contributions be recognized in accordance with CONTRIBUTIONS REVENUE RECOGNITION, Section 4410? If so, we recommend that the AcSB clarify this in the guidance on recognition in Section 4441 and consider whether any amendments need to be made in Section 4410 to clarify how this would apply to collections. (b) How do you report cash received on disposal of items in a collection prior to acquiring more items or maintaining the existing collection (i.e. is the restricted cash separately identified on the statement of financial position or disclosed in the notes)? Sections 1510 and 1540 define restricted cash as cash subject to restrictions that prevent its use for current purposes. Paragraph (b) (iii) does not speak to cash received on disposal. Rather, it gives guidance on how the proceeds on disposal must ultimately be used. Proceeds on disposal could include cash, receivables, other contributed assets, etc. If, in accordance with paragraph , such proceeds were accounted for in accordance with CONTRIBUTIONS REVENUE RECOGNITION, Section 4410, the recognition criteria in Section 4410, whether using the deferral method or restricted fund method, would address reporting of implicit and/or explicit restrictions on such proceeds as a restricted contribution. Further, the proposed guidance in paragraphs (e) and would require disclosure in the notes of how such restricted proceeds were used and, further, when not all proceeds have been used by the reporting date, how they will be used in the future. From our experience, there are usually no explicit external restrictions on the cash received on such transactions that would require an entity to separately track such cash. Doing so would be an administrative burden to NFPOs in situations where there are a high volume of such transactions. (c) CASH FLOW STATEMENT, paragraph in Part II, requires disclosure of the amount of cash and cash equivalents for which the use is restricted. Are the disclosure requirements in paragraphs and adequate to inform users when the proceeds of disposal of

71 69 items in a collection are internally restricted (i.e., must be used to acquire more items or maintain the existing collection) or externally restricted (i.e., donor stipulations on contributed items?) If not, what additional requirements are needed? As discussed above, paragraph (b) (iii) does not speak to cash received on disposal. Rather, it gives guidance on how proceeds on disposal must ultimately be used. Proceeds on disposal could include cash, receivables, other contributed assets, etc. Thus, the disclosure requirements in paragraph do not address the matter of informing users of the restriction on use of proceeds. However, the disclosure requirements in proposed paragraphs and do inform users of such restrictions appropriately. As noted in point 7 (b) above, we have rarely noted restricted cash as a result of disposal of a collection in an NFPO as there is usually no stipulation or agreement that cash from disposal cannot be comingled with other cash of the entity. Rather, the restriction in the case of collections is on the use of proceeds on disposal as discussed above. Requiring that such cash be recorded separately from other cash when there is no explicit restriction or direction to do so, may be onerous for many NFPOs and may infringe on their organization s cash management policies when there is nothing restricting the comingling of such cash. Generally, in practice, we see restricted cash where there is a trust relationship or explicit restriction of cash in a contract or agreement. For example, in a home for seniors, resident trust accounts are restricted cash. The entity cannot legally touch the money in such accounts for other purposes, thus it is restricted. However, with other grants or contributions, which may meet the definition of restricted contributions in Section 4410, there generally is no restriction that requires the entity to set aside the cash and not comingle it with its other accounts. 8. It is proposed that Sections 4433 and 4434 be applied prospectively in accordance with ACCOUNTING CHANGES, Section 1506 in Part II and with special transitional provisions. Do you agree with the following: (a) Sections 4433 and 4434 should be applied prospectively (see paragraphs and ). If not, why not? Yes, we agree that Sections 4433 and 4434 should be applied prospectively with special transitional provisions as proposed. (b) NFPOs should be permitted to recognize an adjustment to opening net assets at the date Sections 4433 and 4434 are first applied, to reflect partial impairments of tangible capital assets and intangible assets existing at that date (see paragraphs and ). If not, why not? Yes, we agree that NFPOs should be permitted to recognize an adjustment to opening net assets as at the date Sections 4433 and 4434 are first applied to reflect partial impairments at that date. (c) NFPOs should be permitted to allocate the costs of tangible capital assets to their component parts based on: cost or fair value at the date of acquisition, or fair value or replacement cost at the date the Section is first applied (see paragraph ). If not, why not? Yes, we agree with the proposed transition guidance in paragraph with regard to the allocation of costs of tangible capital assets to their component parts at the date the Section is first applied. The proposal provides helpful practical guidance upon transition for componentization which will be necessary for NFPOs as changes in classification within tangible capital assets as a result of componentization will potentially impact amortization of such assets prospectively as well.

72 70 9. It is proposed that Section 4441 be applied retrospectively in accordance with ACCOUNTING CHANGES, Section 1506 in Part II with special transitional provisions. (a) Do you agree that Section 4441 should be applied retrospectively (see paragraph )? If not, why not? Yes, we agree that Section 4441 should be applied retrospectively with transition relief on measurement as proposed in paragraphs and.22. (b) Do you agree with the proposed transition relief for measuring collections at cost (see paragraphs )? If not, why not? Yes, we agree with the proposed transition relief for measuring collections at cost. (c) Do you think the proposed transition relief for measuring collections at cost will encourage more NFPOs to use the cost method? If not, what would make a transition to the cost method easier? We don t believe that the relief provided in paragraph will alter the choice previously made by most NFPOs, but we do agree that it is a good alternative to provide. 10. Do you agree with the proposed effective date (i.e., fiscal years beginning on or after January 1, 2019) (see paragraphs , , and ? If not, why not? We agree with an effective date in 2019 assuming the proposed standards are approved on a timely basis. That being said, as discussed in point 11 below, we believe that an effective date of April 1, 2019 may be more appropriate for changes to NFPO standards. 11. Given that many NFPOs have March 31 st fiscal year ends, would an effective date of April 1 st be preferable for these and future proposals? Why or why not? An effective date of April 1 st for these and future proposals would seem appropriate given that many NFPOs have March 31 st fiscal year ends. An effective date of April 1 st would allow more time for due diligence upon transition. 12. Do NFPOs need more than one year to implement the proposed changes in section 4433, 4434 and 4441? If so, how long and why? We do not believe that NFPOs need more than one year to implement the proposed changes We would be pleased to discuss our comments with members of the AcSB or its staff. If you wish to do so, please contact Sherri Brophy, Senior Manager, National Accounting and Assurance, at (Sherri.Brophy@ca.ey.com) or Eric Spiekman, Partner - Professional Practice Director, at (Eric.Spiekman@ca.ey.com). Yours sincerely, ERNST & YOUNG LLP Chartered Professional Accountants Licensed Public Accountants

73 71 May 31, 2017 Rebecca Villmann, CPA, CA, CPA (Illinois) Director, Accounting Standards Accounting Standards Board 277 Wellington Street West Toronto, Ontario M5V 3H2 Via: Dear Ms. Villmann: Re: Exposure Draft Accounting Standards Improvements for Not-for-Profit Organizations Grant Thornton LLP and Raymond Chabot Grant Thornton LLP (hereinafter we ) would like to thank you for the opportunity to provide comments on the Accounting Standards Board ( AcSB ) Exposure Draft on Accounting Standards Improvements for Not-for-Profit Organizations, applicable to Not-for-Profit Organizations ( NPOs ) which use Part III of the CPA Canada Handbook - Accounting Standards for Not-for-Profit Organizations ( ASNPO ) as their primary source of generally accepted accounting principles. Overall, we support the AcSB s program of major improvements to ASNPO and the changes proposed in the Exposure Draft; however, we have certain comments and a request for additional guidance, which are described in our responses to the questions as outlined below. Question 1 Do you agree that NFPOs should be directed to follow PROPERTY, PLANT AND EQUIPMENT, Section 3061, IMPAIRMENT OF LONG LIVED ASSETS, Section 3063, GOODWILL AND INTANGIBLE ASSETS, Section 3064, and ASSET RETIREMENT OBLIGATIONS, Section 3110 in Part II of the Handbook for tangible capital assets and intangible assets held by NFPOs, except for the guidance included in Sections 4433 and 4434 (see paragraphs and )? If not, why not?

74 72 We agree; however, we propose a wording modification to paragraph (b) as explained in the following paragraph. Paragraph.01(b) in proposed section 4433 Tangible Capital Assets Held by Not-for-Profit Organizations states that disclosures for impairments of tangible capital assets are accounted for in accordance with IMPAIRMENT OF LONG-LIVED ASSETS, Section 3063 in Part II (emphasis added). We suggest that the wording should be changed to an organization shall provide the disclosures for impairments of tangible capital assets required by IMPAIRMENT OF LONG-LIVED ASSETS, Section 3063 in Part II because accounted for may be confusing given the intent is to refer to disclosures. In fact, we suggest that this proposed revised paragraph.01(b) be moved or repeated after the title PRESENTATION AND DISCLOSURE (before paragraph ) to ensure that all the disclosure requirements are in one place. Question 2 Tangible capital assets, intangible assets and collections would be written down to their fair value or replacement cost to reflect partial impairments. Do you agree with the following: (a) Tangible capital assets, intangible assets and collections should be written down to reflect partial impairments (see paragraphs , and ). If not, why not? We strongly believe that the AcSB should clarify the wording in paragraphs , and because we have noted differing interpretations of how to apply these paragraphs. The first interpretation is that when the future economic benefits or service potential of the asset is less than its carrying amount, then as long as the asset remains in service there is no need to record an impairment. The second interpretation is that the NPO must consider both factors separately (i.e., no longer contributes to the NPO s ability to provide services or its future economic benefits or service potential are less than its carrying amount) such that either condition would result in a write-down. If the second interpretation reflects the AcSB s intent, then we think this proposal adds additional costs for NPOs. The rest of our discussion will focus on our concerns with the second interpretation. In this case, we believe that the AcSB should clarify whether paragraphs , and are intended to contain a one-step or two-step test impairment test. We will focus our response on how paragraph may be applied, however our comments are relevant to paragraphs , and Under ASPE Section 3063 Impairment of Long-Lived Assets, a long-lived asset is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. If this situation is the case, the private enterprise recognizes an impairment loss in accordance with paragraph as the excess of the carrying amount of the long-lived asset over its fair value. In practice, this requirement is often described as a two-step impairment test. Under proposed paragraph an organization would look for conditions that indicate that a tangible capital asset no longer contributes to [its] ability to provide goods or services, or that the value of future economic benefits or service potential associated with the tangible capital asset is less than its net carrying amount before writing the tangible capital asset down to its fair value or replacement cost. At first glance, this appears to be a two-step test similar to that contained in Section 3063 in ASPE. However, paragraph then states: A not-for-profit organization may hold tangible capital assets whose future economic benefits or service potential are not directly related to their ability to generate net cash flows. In these cases,

75 73 the future economic benefits or service potential of the tangible capital assets for financial reporting purposes is represented by the amount the organization would need to pay to acquire the economic benefits or service potential if this was necessary to achieve the objectives of the organization. We expect many NPOs will have assets with future economic benefits or service potential not directly linked to their ability to generate cash flows; as a result, per paragraph , an organization will estimate future economic benefits or service potential based on what they would pay to acquire the economic benefits or service potential. It is unclear to us whether a NPO will have to obtain the replacement cost as part of step 1 of this test in order to estimate future economic benefits or service potential. If, as part of step one, an organization is required to determine whether replacement cost is less than the net carrying amount, we believe that NPOs may be forced to obtain replacement costs yearly to confirm these tangible capital assets are not impaired under proposed Section This seems more costly than the two-step recoverability method under Section 3063 in ASPE and could result in impairment recognition by NPOs earlier than private enterprises. This issue is demonstrated by the example below that includes a decrease in market price as the condition indicating a possible impairment. In both cases, the entities are selling goods, one forprofit and one as a NPO. It appears that since the cash flows for the NPO are not directly related to the asset s ability to generate cash flows, the decline in replacement cost of the capital asset may require the NPO to recognize an impairment even though they have no plans to dispose of the asset. Meanwhile, the for-profit counterpart would not recognize an impairment in these circumstances. Example Entity A (for-profit) Entity A operates a second hand clothing retail store out of a building they own. Entity A reports under ASPE and concludes it has encountered events or changes in circumstances that may indicate that the $2M carrying amount of its building may not be recoverable as a result of a recession occurring in the business climate in which the entity is operating and a decline in the market prices of certain real estate. Under Section 3063, the entity performs a recoverability test utilizing estimates of undiscounted future cash flows to test the recoverability of the building. Since the entity operates a second hand retail store in the building, the recession has actually caused an increase in its revenues and the entity projects significant positive net cash flows in its forecast. Based on recent real estate sales of comparable buildings, the entity knows that the current market price for their building would likely be approximately $1.8M. However, given their recoverability test has produced undiscounted cash flows that are significantly in excess of the building s $2M carrying amount, the entity has passed the recoverability test, does not move onto an assessment of fair value and does not impair their long-lived asset even though the fair value of the building is expected to be less than its carrying amount. Example - NPO A Now consider NPO A, which operates substantially the same operation and reports under ASNPO. To test impairment, the organization looks to paragraph They conclude that the building is still contributing to the organization s ability to provide goods and services, but they also need to determine whether the value of future economic benefits or service potential associated with the building is less than the net carrying amount of the building. The entity concludes that the future economic benefits or service potential of the building is not entirely directly related to its ability to generate cash flows because, in addition to operating a non-profit second hand clothing store (which has shown an increase in revenues due to the recession), the NPO provides other non-revenue generating activities within the property including employment opportunities for certain at risk youths within the community and the property houses the

76 74 organization s head office operation. Proposed paragraph appears to direct the organization to then assess the future economic benefits or service potential of the building as the amount it would need to pay to acquire the economic benefits or service potential if this was necessary to achieve the objectives of the organization. With no other guidance or examples provided in proposed Section 4433 to explain how to determine the amount needed to acquire the economic benefits or service potential, the NPO would have to determine the replacement cost of the building or a comparable building to acquire the economic benefits or service potential associated with their building, which is $1.8M. The NPO may then conclude they have not passed the first step of the impairment test and must write the building down to the building s fair value or replacement cost, that likely being $1.8M. The NPO would recognize an impairment loss of $200K. Regardless of the interpretation, we believe the standards require further clarification to ensure consistent application. Furthermore, if the second interpretation is what the AcSB intended, then they should consider including guidance and illustrative examples to help not-for-profit organizations who have tangible capital assets that do not generate direct cash flows determine the future economic benefits or service potential of those tangible capital assets without undue effort or cost. The timing of recognition of impairments under 4433 should be comparable between NPO and their for-profit counterparts. (b) Tangible capital assets, intangible assets and collections should be written down to their fair value or replacement cost (see paragraphs , and ). If not, what value? We agree that the choice of fair value or replacement cost is useful and may reduce the costs of having to fair value tangible capital assets that do not have direct cash flows. However, as stated in our response to Question 2(a), we believe that additional clarification and guidance is needed in applying the requirements in determining the value of future economic benefits or service potential for tangible capital assets that do not generate direct cash flows. (c) The list of indicators, which provide examples of conditions that may indicate impairment, would be helpful (see paragraphs , and ). If not, why not? Overall, we agree the list is helpful and should be included. We suggest adding the following to the examples provided: A significant change in the entity s operating purpose or mandate. Question 3 Do you foresee issues specific to NFPOs being required to consider the guidance in PROPERTY, PLANT AND EQUIPMENT, paragraph in Part II on componentization for tangible capital assets? If so, what are they? We foresee no NPO-specific issues in the application of this requirement. Question 4 Do you agree that collections should be recorded on the statement of financial position at cost or nominal value (see paragraph )? If not, why not? We agree.

77 75 Question 5 Do you think the proposals in Section 4441 would result in NFPOs reporting multiple collections? If so, what would be the rationale for reporting multiple collections? In our experience, the reporting of collections, yet alone multiple collections, under existing ASNPO is rare. We do not expect to see a significant change in that assessment. Question 6 Do you think that NFPOs with multiple collections should be permitted to value each collection differently (see paragraph )? Why or why not? We believe that there should be one consistent accounting policy for all collections as proposed in paragraph In accordance with the definition of a collection in Section 4441, the proceeds on disposal of items in a collection must be used to acquire more items in the collection or maintain the existing collection. (a) Do you agree that on disposal of one or more items in a collection, whether by sale, destruction, loss or expropriation, the difference between the net proceeds on disposal and the net carrying amount should be recognized: (i) in accordance with CONTRIBUTIONS REVENUE RECOGNITION, Section 4410 for items contributed to a collection that are subject to external restrictions (see paragraph ); or (ii) in the statement of operations for items in a collection that are not subject to external restrictions (see paragraph )? If not, how should it be recognized? Yes, we agree. However, we suggest that the wording in paragraph specify that the excess of the net proceeds over the net carrying amount that are externally restricted must be accounted for in accordance with Section 4410 Contributions Revenue. We suggest the wording excess rather than difference because the wording proposed in the Exposure Draft may be mistakenly interpreted as requiring that losses also be deferred, whereas the intention of the Exposure Draft is to only defer gains. (b) How do you report cash received on disposal of items in a collection prior to acquiring more items or maintaining the existing collection (i.e., is the restricted cash separately identified on the statement of financial position or disclosed in the notes)? We do not have any examples of this situation given that, in our experience, it is rare that NPOs account for their assets as collections. However, we would expect the cash to be disclosed as restricted cash if the requirement to spend on additional items in the collection comes from an external third party. If the restriction is only internally placed, then the cash would be included in the total cash figure. However, it is not clear from Section if restricted cash only applies to externally restricted cash or also includes internally restricted cash.

78 76 (c) CASH FLOW STATEMENT, paragraph in Part II, requires disclosure of the amount of cash and cash equivalents for which the use is restricted. Are the disclosure requirements in paragraphs and (e) adequate to inform users when the proceeds on disposal of items in a collection are internally restricted (i.e., must be used to acquire more items or maintain the existing collection) or externally restricted (i.e., donor stipulations on contributed items?) If not, what additional requirements are needed? We do not believe the disclosure requirements are clear, specifically as to whether internally restricted cash should be separately disclosed. We would suggest that the guidance would only apply to proceeds that are externally restricted as opposed to internally imposed restrictions. If the AcSB wants NPOs to separate out the net proceeds as restricted cash on the statement of financial position, we believe additional requirements are needed in ASNPO. The proposed disclosures in paragraph (e) will convey how the proceeds of any current disposals were used in the period (i.e. spent during the period or held in the organization to be spent on future collections as required by the external third party or internal policy), but it does not appear to require the disclosure of how proceeds were used from disposals in the prior period that were not used until the current period. Question 8 It is proposed that Sections 4433 and 4434 be applied prospectively in accordance with ACCOUNTING CHANGES, Section 1506 in Part II and with special transitional provisions. Do you agree with the following: (a) Sections 4433 and 4434 should be applied prospectively (see paragraphs and ). If not, why not? We agree. (b) NFPOs should be permitted to recognize an adjustment to opening net assets at the date Sections 4433 and 4434 are first applied, to reflect partial impairments of tangible capital assets and intangible assets existing at that date (see paragraphs and ). If not, why not? We agree. (c) NFPOs should be permitted to allocate the costs of tangible capital assets to their component parts based on: cost or fair value at the date of acquisition, or fair value or replacement cost at the date the Section is first applied (see paragraph ). If not, why not? We agree.

79 77 Question 9 It is proposed that Section 4441 be applied retrospectively in accordance with ACCOUNTING CHANGES, Section 1506 in Part II and with special transitional provisions. (a) Do you agree that Section 4441 should be applied retrospectively (see paragraph )? If not, why not? We agree. (b) Do you agree with the proposed transition relief for measuring collections at cost (see paragraphs )? If not, why not? We agree. We believe the proposed transitional relief will be useful to reduce the cost of conversion to Section 4441 for those few NPOs that account for their collections in accordance with that standard. (c) Do you think the proposed transition relief for measuring collections at cost will encourage more NFPOs to use the cost method? If not, what would make a transition to the cost method easier? We do not know whether the transition relief will encourage more NPOs to use the cost method, but we believe it does provides incentive for them to move to that method. Question 10 Do you agree with the proposed effective date (i.e., fiscal years beginning on or after January 1, 2019) (see paragraphs , , and )? If not, why not? No, we think NPOs need more time. Please see our answer to Question 12. Question 11 Given that many NFPOs have March 31st fiscal year ends, would an effective date of April 1st be preferable for these and future proposals? Why or why not? Overall, we do not have a strong view concerning the effective date for these proposed changes as long as NPOs are given sufficient time to implement the standard. Question 12 Do NFPOs need more than one year to implement the proposed changes in Section 4433, 4434 and 4441? If so, how long and why? We believe one year is sufficient time to adopt the changes proposed in this Exposure Draft. However, given that the AcSB plans to issue the new Sections by the second quarter of 2018, a NPO with a December 31 year end will apply the new standards effective January 1, 2019, which will allow only six months to implement the proposed changes from the expected date of publication of the Sections. We believe six months is not sufficient time to implement the proposed changes.

80 78 If you which to discuss our comments or concerns, please contact Rinna Sak, CPA, CA (at or ) or Gilles Henley, CPA, CA (at or ). Yours sincerely, Rinna Sak, CPA, CA Grant Thornton LLP Gilles Henley, CPA, CA Raymond Chabot Grant Thornton LLP

81 PROVINCIAL AUDITOR of Saskatchewan 79 May30, 2017 Ms Rebecca Villmann, CPA, CA, CPA (Illinois) Director, Accounting Standards Accounting Standards Board Chartered Professional Accountants of Canada 277 Wellington Street West TORONTO, ON M5V 3H2 Dear Ms Villmann: Re: Exposure Draft Accounting Standards Improvements for Not-for-Profit Organizations We support the proposed Standards as outlined in the exposure draft Accounting Standards Improvements for Not-for-Profit Organizations. The attachment sets out our responses to the specific questions listed in the exposure draft. Yours truly, Judy Ferguson, FCPA, FCA Provincial Auditor mh/gb Attachment lso() Chateau Tower - f ) 192() Broad Street Reghia. Saskatchewan S4P 3V2 e info@auditor.sk.ca

82 Accounting 80 Ms R. ViIImann May30, 2017 Responses to Specific Questions Provincial Auditor Saskatchewan Exposure Draft Standards Improvements for Not-for-Profit Organizations Page 1 Question Response Do you agree that NEPOs should be directed to follow Yes, we agree that NFPOs should be directed to follow Section 3061, Section PROPERTY, PLANTAND EQUIPMENT, Section 3061, 3063, Section 3064, and Section 3110 in Part II fortangible capital assets and IMPAIRMENT OF LONG LIVED ASSETS, Section 3063, intangible assets held by NFPOs, except for the guidance included in Sections GOODWILL AND INTANGIBLE ASSETS, Section 3064, and 4433 and ASSET RETIREMENT OBLIGATIONS, Section in Part II of the Handbook for tangible capital assets and intangible assets While this avoids duplication in the standards and promotes greater held by NFPOs, except for the guidance included in Sections consistency in accounting treatment, as the basis for conclusions 4433 and 4434 (see paragraphs and )? If not, acknowledge, the inconsistent treatment of accounting for intangible assets why not? between the private and public sector would continue. 2 Tangible capital assets, intangible assets and collections would Yes given current exemption permitted for small NFPOs, we agree that: be written down to their fair value or replacement cost to reflect partial impairments. Do you agree with the following: (a) Tangible capital assets, intangible assets and collections should be written down to reflect partial impairments. (a) Tangible capital assets, intangible assets and collections should be written down to reflect partial (b) Tangible capital assets, intangible assets, and collections should be impairments (see paragraphs , and written down to their fair value or replacement cost. However, there ). If not, why not? should be guidance on whether the greater of the two should be used, (b) Tangible capital assets, intangible assets and collections should be written down to their fair value or (c) The list of indicators is helpful. replacement cost (see paragraphs , and ). If not, what value? or whether they should use whichever value is deemed most practical. If exemption was removed and even though partial impairments may be infrequent, we encourage careful considerations if fair value or replacement (c) The list of indicators, which provide examples of cost at each reporting period end would be too onerous on small NFPOs. conditions that may indicate impairment, would be helpful (see paragraphs , and ). If not, why not? 3 Do you foresee issues specific to NFPOs being required to Other than the need for support in understanding componentization (e.g., consider the guidance in PROPERTY, PLANT AND EQUIPMENT, paragraph in Part II on componentization processes to adopt the use of componentization, we do not foresee any for tangible capital assets? If so, what are they? issues specific to NFPOs being required to considerthe guidance in Section 3061 regarding componentization for tangible capital assets. webinars, articles...) for certain NFPOs and the costs related to adjusting their

83 Accounting Provincial REVENUE we 81 Ms R. ViIImann May 30, 2017 Responses to Specific Questions Auditor Saskatchewan Exposure Draft Standards Improvements for Not-for-Profit Organizations Page 2 Question Response 4 Do you agree that collections should be recorded on the Yes, we agree with recording collections at cost or nominal value but we think statement of financial position at cost or nominal value (see NFPOs should have the discretion as to whether a collection appears as a paragraph )? II not, why not? separate line on the statement of financial position. We note that this accounting will create financial statement comparability issues between private sector NFPOs and those following Public Sector Accounting Standards. 5 Do you think the proposals in Section 4441 would result in Yes it may result in NFPOs reporting multiple collections given the proposed NFPOs reporting multiple collections? If so, what would be the wording of the following sections when taken together: rationale for reporting multiple collections? The use of or in the proposed definition of collections in proposed.03(b) are works of art, historical treasures or similar assets... The use of a and all in proposed.06 that states collection shall..., and A not-for-profit organization shall accounts for am collections using the same method. The use of a in proposed.13 that says the amount recognized as collection... 6 Do you think that NFPOs with multiple collections should be We support using the same method to account for all collections in that it permitted to value each collection differently (see paragraph promotes consistency in accounting treatment for assets with the same )? Why or why not? underlying characteristics. 7 In accordance with the definition of a collection in Section 4441, (a) Yes, we agree that that the difference between the net proceeds on the proceeds on disposal of items in a collection must be used disposal and the net carrying amount should be recognized: to acquire more items in the collection or maintain the existing collection. (i) In accordance with Section for items contributed to a collection that are subject to external restrictions. (a) Do you agree that on disposal of one or more items in a collection, whether by sale, destruction, loss or (ii) In the statement of operations for items in a collection that are not expropriation, the difference between the net proceeds subject to external restrictions. on disposal and the net carrying amount should be recognized: (b) N/A are not subject to accounting standards for NFPOs. (i) in accordance with CONTRIBUTIONS (c) Yes, the disclosure requirements in and (e) are RECOGNITION, Section 4410 for items contributed adequate. to a collection that are subject to external restrictions (see paragraph ); or Other: We also think that the inclusion in the proposed definition in.03(b) of having a policy that requires any proceeds from their sale to be used to

84 Accounting Provincial 82 Ms R. ViIImann May 30, 2017 Responses to Specific Questions Auditor Saskatchewan Exposure Draft Standards Improvements for Not-for-Profit Organizations Page 3 (b) (c) (ii) Question in the statement of operations for items in a collection that are not subject to external restrictions (see paragraph )? If not, how should it be recognized? How do you report cash received on disposal of items in a collection prior to acquiring more items or maintaining the existing collection (i.e., is the restricted cash separately identified on the statement of financial position or disclosed in the notes)? CASH FLOW STATEMENT, paragraph in Part II, requires disclosure of the amount of cash and cash equivalents for which the use is restricted. Are the disclosure requirements in paragraphs and (e) adequate to inform users when the proceeds on disposal of items in a collection are internally restricted (i.e., must be used to acquire more items or maintain the existing collection) or externally restricted (i.e., donor stipulations on contributed items?) If not, what additional requirements are needed? Response acquire other items to be added to collection or for the direct care of the existing collection may reduce the application of this section. It also raises the question about the accounting treatment for the collection if an NFPO decides to downsize a collection would such a decision taint the accounting for the all assets in the collection so that they no longer qualify as being defined as a collection. We encourage the Board to provide further guidance in this area. 8 It is proposed that Sections 4433 and 4434 be applied prospectively in accordance with ACCOUNTING CHANGES, Section 1506 in Part II and with special transitional provisions. Do you agree with the following: (a) Sections 4433 and 4434 should be applied prospectively (see paragraphs and ). If not, why not? Yes we agree that: (a) (b) Sections 4433 and 4434 should be applied prospectively. NFPOs should be permitted to recognize an adjustment to opening net assets at the date Sections 4433 and 4434 are first applied, to reflect partial impairments of tangible capital assets and intangible capital assets existing at that date. (b) NFPOs should be permitted to recognize an adjustment to opening net assets at the date Sections 4433 and 4434 are first applied, to reflect partial impairments of tangible capital assets and intangible assets existing at that date (see paragraphs and ). If not, why not? (c) NFPOs should be permitted to allocate the costs of tangible capital assets to their component parts based on: cost or fair value at the date of acquisition, or fair value or replacement cost at the date the Section is first applied.

85 Accounting (c) 83 Ms R. ViIImann May 30, 2017 Responses to Specific Questions Provincial Auditor Saskatchewan Exposure Draft Standards Improvements for Not-for-Profit Organizations Page 4 Question Response (c) NFPOs should be permitted to allocate the costs of tangible capital assets to their component parts based on: cost or fair value at the date of acquisition, or fair value or replacement cost at the date the Section is first applied (see paragraph ). If not, why not? 9 It is proposed that Section 4441 be applied retrospectively in (a) No. We think transition requirements for Section 4433 and Section accordance with ACCOUNTING CHANGES, Section in 4441 should be the same. Having the same transition provisions Part II and with special transitional provisions. would be less confusing for both preparers and readers of the statements given both sections have the same effective date and (a) Do you agree that Section 4441 should be applied relate to accounting and disclosure of non-financial assets. retrospectively (see paragraph )? If not, why not? (b) Yes, we agree with the proposed transition relief for measuring collections at cost. (b) Do you agree with the proposed transition relief for measuring collections at cost (see paragraphs NFPOs will likely apply whichever method is most practical..22)? If not, why not? Determining cost for items in a collection may take time and resources for NFPOs. Actively making preparers aware of the standards and (c) Do you think the proposed transition relief for what the changes mean and sufficient time between the date the new measuring collections at cost will encourage more Section is published and the effective date may encourage more NFPOs to use the cost method? If not, what would NFPOs to use the cost method. make a transition to the cost method easier? 10 Do you agree with the proposed effective date (i.e., fiscal years Not sure given that we interact with a limited number of organizations who beginning on or after January 1, 201 9) (see paragraphs , would use these standards. We encourage the AcSB to actively seek the , and )? If not, why not? views of NFPOs on whether the proposed effective date would give them sufficient time to implement the proposals, particularly related to Section Given that many NFPOs have March 31 st fiscal year ends, Given wording of effective date is for annual financial statements relating to would an effective date of April 1 st be preferable for these and fiscal years beginning on or after whether effective date is January 1 st or April future proposals? Why or why not? 1 st is irrelevant. The important consideration is the year. See response to # Do NEPOs need more than one year to implement the proposed See response to #10. changes in Section 4433, 4434 and 4441? If so, how long and why?

86 84 May 31, 2017 Rebecca Villmann, CPA, CA, CPA Director, Accounting Standards Accounting Standards Board Re: Response to Exposure Draft on Proposed Accounting Standards Improvements for Not-for-Profit Organizations This letter is in response to the exposure draft released in relation to Accounting Standards Improvements for Not-for-Profit Organizations. We appreciate the opportunity to provide input on such an important proposal. In general, we are in agreement with the changes outlined in the exposure draft. The proposal to eliminate duplicated guidance within the standards is a reasonable one which would allow for easier understanding and interpretation of information across industries. It should be noted that we have elected to respond only to the changes with respect to tangible assets as we do not hold any significant collections and felt we were not in a position to offer comment on a subject unrelated to our organization. There are two areas of concern from our perspective with the proposed changes: Section Partial Impairment and Indicators of Impairment The proposal to allow for partial impairments is a reasonable one and including a list of indicators of impairment would be helpful. Given that the measure of the economic benefit to a not for profit organization is not generally judged based on future cash flows, but instead based on future service potential, some of the indicators noted in proposed section 4433 are not necessarily a good reflection of potential impairment. It would be helpful if these indicators provided a clearer picture when to trigger an impairment as it relates to a not for profit organization. We offer the following comments with respect to specific indicators listed in proposed section : 1. A significant decrease in, or cessation of, the need for the services provided by the tangible capital asset An organization s need for the asset should not be tied to the asset s overall fair market value. Assuming that reasonable estimates have been made to determine the appropriate depreciation amounts, the net book value at the time such a decision is made should be an accurate representation of the value of the asset, therefore this in theory should not trigger the need for an impairment.

87 85 2. An accumulation of costs significantly in excess of the amount originally expected for its acquisition or construction It is not clear how this indicator would trigger an impairment in instances where the future economic benefit of an asset is not tied to its ability to generate cash flows. This statement should either be modified to provide further explanation or removed from the section. 3. A current expectation that, more likely than not, it will be sold or otherwise disposed of significantly before the end of its previously estimated useful life If a decision has been made to dispose of an asset but it is being held pending sale, would a write down be required at the time in which the decision to sell had been made if the fair value cannot be reasonably assessed until the sale takes place? This is an issue of concern in instances where a unique property is held in low demand areas. The assessment of value does not always equate to ultimate sale price, and therefore fair market value, in these instances so impairment is not necessarily evident at the time the decision is made. 4. A significant decrease in its market price It is not clear when an impairment should be triggered with this particular indicator. Our organization owns a significant number of real estate assets. In the current real estate market prices are significantly over inflated. For assets acquired under these conditions, at what point in a case of market correction would it be appropriate to write down the asset value? It would be helpful if this point was clarified. Section Componentization of Tangible Capital Assets Given that followers of Part II are required to follow componentization it is reasonable to expect NPOs to follow the same guidance. It would ultimately allow for greater accuracy as it relates to asset management, specifically when the time comes for replacement or maintenance of the component parts of a larger asset. There are some concerns with the proposal that we would like to see addressed, and it is our opinion that organizations should apply the change prospectively to future transactions only and not to existing assets. Our concern with respect to the componentization approach is twofold. Firstly, the resources required to assess the value of existing assets in order to componentize them appropriately per the transitional provision could be significant and an appropriate assessment may be difficult to determine. According to feedback provided by our auditors componentization has not been widely put into practice for those currently following ASPE, so there is no test of the cost associated with moving to such a method for NPOs who are much more limited in terms of resources. Secondly, a concern in relation both existing and future assets is that the guidance says where practicable ; however, there is no further test as to how to determine whether a situation is practicable. If the cost of doing so does not justify the benefit of providing the information is it safe to assume that it is not practicable to do so? At what point would an NPO be safe to

88 86 assume this while still adhering to the spirit of the guidance? To what level is it expected that an organization would componentize? To offer an example, our organization owns a significant number of real estate assets, which can arguably be broken down into a variety of component parts. To what level should a building be componentized? We would suggest that further clarity needs to be provided on this issue in order to provide appropriate guidance to users. Section We are in agreement that the changes outlined in section 4433 should be applied prospectively and also with the timing of implementing these changes as outlined in section If the changes with respect to componentization must be applied to all existing tangible assets, then we agree with the special transitional provision allowing NFPOs the option to select whether to value the component parts as of the date of acquisition or date in which the section is applied. The nature of extent of assets held will vary greatly between organizations and the cost of valuing these component parts can be significant depending upon the method used to obtain this value. This option allows NFPOs some flexibility to allocate resources accordingly. Should any questions regarding this submission arise, please contact the undersigned via at Samantha_Moss@can.salvationarmy.org. Regards, Samantha Moss, CPA, CMA Assistant Financial Secretary

89 McMaster University Deidre ("Dee") L. Henne AVP (Administration) & CFO OJN, Room James Street North Hamilton. Ontario, Canada L8R 2K3 87 Phone , Ext Mob1te Fax E-matl hennedt@mcmaster.ca May 25,2017 Ms. Rebecca Villmann, CPA, CA, CPA (Illinois) Director, Accounting Standards Accounting Standards Board 277 Wellington Street West Toronto, Ontario M5V 3H2 ed.accounting@cpacanada.ca Dear Ms. Villmann: McMaster University is pleased to provide you with feedback on the Exposure Draft for Accounting Standards Improvements for Not-for-Profit Organizations. McMaster University is a comprehensive, research-intensive institution offering a broad range of undergraduate, graduate and continuing education programs in Hamilton, Ontario. In fiscal 2015/2016, McMaster's audited financial statements reported assets of $2.38 billion, revenues of $954.4 million and expenses of $925.3 million. McMaster is a member of the Council of Ontario Universities, including its Council of Ontario Finance Officers. McMaster University supports the Accounting Standards Board's strategy to retain and improve accounting standards for not-for-profit organizations (NFPOs), and the objective of removing duplicative guidance in Parts II and III of the handbook. Feedback on the Exposure Draft is grouped by topic below. Tangible capital assets and intangible assets McMaster University has significant capital infrastructure and comprehensive processes exist to inform maintenance plans and stakeholder reporting. Timely and useful financial information regarding tangible capital assets and intangible assets is not attainable through historical cost information alone; consequently, information presented in financial statements must be reviewed in conjunction with other financial information such as budgets, capital projections and other financial reporting. The University does not agree with the proposal to allocate costs of tangible assets to their component parts based on their relative cost or fair value at the date the assets were acquired. The University recommends the approach be amended to remove the concept of componentization and encourages the Accounting Standards Board to evaluate the extent to which componentization is currently applied in practice by organizations following Part II of the Handbook. Both the practice of componentization and the usefulness of this information should be considered before imposing this requirement on NFPOs. Overall, the changes introduced should deliver greater information value than the cost associated with the change. In the instance of componentization the cost is considered to exceed the information value.

90 88 The Accounting Standards Board is encouraged to review the language in the proposed standard to ensure the transitional requirements reflect prospective application in all cases. The University would have significant concerns and difficulty if required to apply retrospective application. Particularly in the case of componentization, if not eliminated from the proposal, the information required to adjust existing assets is not available and therefore the requirement is not practicable. Collections Collections are an important part of many universities across Ontario, including McMaster, as they are essential in helping institutions carry out and achieve their objectives. McMaster holds multiple collections in support of academic and research objectives. McMaster agrees that recording collections on the statement of financial position provides useful information to financial statement readers and helps in promoting awareness of their existence and the resources available to contribute to the overall student experience. Due to the many qualitative and quantitative considerations around the value of a collection, the University agrees that providing a choice between nominal value and cost is appropriate and important. Lastly, the University concurs that all collections within an institution should be measured using the same approach. Other Matters The introduction of greenhouse gas emissions tax, or Cap and Trade, has created an urgent need to obtain accounting guidance in relation to the acquisition, holding, and use of Cap and Trade credits that will be obtained through auction and publicly traded. There is no specific guidance on this matter currently available. The acquisition of credits will be an asset initially recorded at cost, however since the credits will be publicly traded assets it is uncertain if these assets will need to be held at market. Guidance regarding the accounting application to be used is needed; consideration may include whether the assets are held for sale (adjusted to market at each reporting period end) or held for use (held at cost). Overall, McMaster University would like to thank the Accounting Standards Board and Not-for Profit Advisory Committee for its continued work on the improvement of accounting standards. If you have any questions, please do not hesitate to contact me. Yours sincerely, Deidre (Dee) Henne, CPA, MBA, CA AVP (Administration) & ChiefFinancial Officer

91 89 May 31, 2017 Rebecca Villmann, CPA, CA, CPA (Illinois) Director, Accounting Standards Accounting Standards Board 277 Wellington Street West Toronto, Ontario M5V 3H2 Re: Exposure Draft: Accounting Standards Improvements for Not-for-Profit Organizations February 2017 Dear Ms. Villmann: We are writing in support of Imagine Canada s submission to the Accounting Standards Board (AcSB). We agree with all of their comments and responses to the questions posed in the Exposure Draft with the exceptions of their position on Accounting Standards for Not-for-profit Organizations (ASNFPO) and Public Sector Accounting Standards (PSAS) harmonization. Imagine Canada writes: (italics added) Differences with PSAB: The Basis of Conclusions highlights that the AcSB is committed to continue to work with PSAB with the objective of achieving consistency between private and public sector standards for NFPOs when appropriate. We believe strongly that accounting standards for similar organizations in the public and private sectors should be consistent. We are concerned that some of the changes proposed in the Exposure Draft will create further differences between Part II of the Handbook and the standards used by public sector NFPOs. ONN holds the position that consistent accounting standards between public sector and private NFPOs are not always desirable. The NFPOs using Part ll and lll of the Handbook have very different needs for financial reporting and would not be well served by PSAB accounting standards. We can also appreciate that the interests of the Public Sector may differ from the private NFPO sector. Consistency in reporting may not be possible or practical. If, as suggested in this Exposure Draft, PSAB adopts standards contained in Part ll and lll of the Handbook we have no objection to harmonization. However we do have concerns if PSAS standards are adopted for private NFPOs. Current differences in

92 90 PSAS related to cash and debt presentation are not helpful for private NFPOs. The PSAS cash and debt positions are blended and so it would be unclear to a NFPO Board of directors or funder for example, how much they have in the bank currently and how much debt they are currently carrying. PSAB standards would make it very difficult for the majority of small to medium sized organizations to easily understand their financial position. The average small or mid-sized nonprofit may have several different funders, much of it short term project funding in addition to earned revenues. These highly variable revenue streams and the pressures that all of this creates requires active monitoring and planning by the organization. It is vital for NFPs and their funders to understand the current cash/assets and debt/liabilities position for effective management. As we explained in our submission to AcSB in 2009, we advise against harmonizing Part ll and lll of the Handbook with the PSAS where such harmonization will create additional difficulties for the vast majority of NFPOs. Government and the nonprofit sector's needs are sometimes different and the number of NFPOs using PSAS are a very small percentage of the NFP sector (>1%) 1. As the AcSB states in the Basis for Conclusion 2, it is committed to updating accounting standards for not-for-profit organizations, as necessary, to ensure these standards continue to meet the needs of users of private sector NFPO financial statements. Part of this process is to understand the differing needs of these users. Based on that understanding, the AcSB decides, on a case-by-case basis, the extent to which a standard that is being improved should align with or differ from the corresponding public sector NFPO standard (issued in the CPA Canada Public Sector Accounting (PSA) Handbook). We support this approach. ONN is the independent nonprofit network, for the 55,000 nonprofits and charities in Ontario, focused on policy, advocacy, and services to strengthen Ontario s nonprofit sector as a key pillar of our society and economy. We welcome this opportunity to provide comments to the Accounting Standards Board (AcSB) on the accounting standards improvements for Not-for-Profit Organizations (the Exposure Draft). Sincerely, 1 Cornerstones of Community: Highlights of the National Survey of Nonprofit and Voluntary Organizations, Statistics Canada catalogue no xpe. 2 Disclosure Draft, Accounting Standards for Not-for-profit organizations, Basis for Conclusion, pg 19.

93 91 Cathy Taylor, Executive Director Ontario Nonprofit Network The Ontario Nonprofit Network (ONN) is a 7,500-strong provincial network for the 55,000 nonprofit organizations across Ontario that make communities more vibrant, innovative and inclusive. We bring the diverse voices of Ontario s nonprofit sector to government, funders, and the private sector to influence systemic change. Our work is guided by the vision that a strong nonprofit sector leads to thriving communities, and in turn, a dynamic province.

94 92 Jesse McLinton From: Sent: To: Cc: Subject: Attachments: Tom Gillespie Wednesday, May 31, :42 PM Ed.accounting B Noonan ED Comment Letter CC Response to ED.PDF; CC Response to ED.DOCX Good day, Please see attached for our comment letter (in both PDF and word format) in response to the exposure draft titled Accounting Standards Improvements for Not for Profit Organizations. We appreciate the opportunity to provide our comments for your consideration. Please acknowledge receipt of this . Kind regards, Tom Gillespie W Pender Street, Vancouver, BC Tom Gillespie, CPA, CA Director tgillespie@clearlineconsulting.ca (778) (604) (cell) Sign up for Clearline Consulting s monthly newsletter by clicking here. 1

95 93 May 31, 2017 Rebecca Villmann, CPA, CA, CPA (Illinois) Director, Accounting Standards Accounting Standards Board 277 Wellington Street West Toronto, Ontario M5V 3H2 Dear Ms. Villmann, Re: Comments on the Accounting Standards Improvements for Not-for-Profit Organizations Exposure Draft We appreciate this opportunity to provide our comments on the exposure draft on Accounting Standards Improvements for Not-for-Profit Organizations. In addition to being public practitioners ourselves our consulting business provides a range of services to other public practitioners and their staff. We provide monitoring and related compliance services, training and technical advice to over one hundred small to mid-sized CPA firms in western Canada. We feel this provides us with an opportunity to share with you not only our viewpoint, but also those of our clients, who tend to have limited time and/or technical resources to dedicate to an exposure draft response. Our comments with respect to the questions posed by the AcSB in the exposure draft are as follows: 1. Do you agree that NFPOs should be directed to follow PROPERTY, PLANT AND EQUIPMENT, Section 3061, IMPAIRMENT OF LONG LIVED ASSETS, Section 3063, GOODWILL AND INTANGIBLE ASSETS, Section 3064, and ASSET RETIREMENT OBLIGATIONS, Section 3110 in Part II of the Handbook for tangible capital assets and intangible assets held by NFPOs, except for the guidance included in Sections 4433 and 4434 (see paragraphs and )? If not, why not? Yes, we agree with the proposal. We are also supportive of the AcSB s general approach of eliminating redundancies between Part II and Part III. 2. Tangible capital assets, intangible assets and collections would be written down to their fair value or replacement cost to reflect partial impairments. Do you agree with the following:

96 94 a. Tangible capital assets, intangible assets and collections should be written down to reflect partial impairments (see paragraphs , and ). If not, why not? Yes, we agree with the proposal. We have seen in several cases, such as in affordable housing organizations, where the inability for a NFPO to recognize a partial impairment on a building has caused significant issues. Furthermore, we agree that permitting a NFPO to choose between fair value and replacement cost is a reasonable approach to help NFPOs manage the cost of financial reporting. b. Tangible capital assets, intangible assets and collections should be written down to their fair value or replacement cost (see paragraphs , and ). If not, what value? Yes, we agree with the proposal. c. The list of indicators, which provide examples of conditions that may indicate impairment, would be helpful (see paragraphs , and ). If not, why not? Yes, we believe the guidance will be helpful. 3. Do you foresee issues specific to NFPOs being required to consider the guidance in PROPERTY, PLANT AND EQUIPMENT, paragraph in Part II on componentization for tangible capital assets? If so, what are they? In our opinion, componentization has not been applied appropriately in most private enterprises and is not well known to many practitioners or their clients. In examining engagement files, we rarely see any contemplation of the requirement to, or benefits from, the application of componentization. The requirement to componentize items of property, plant and equipment when practicable appears to have been interpreted to be when desired. Part of the compliance issue is awareness of the requirement. We believe that the current standard in Part II contains insufficient guidance on the matter of componentization. The standard does not emphasize the concept as it provides only one paragraph ( ) and there is no application guidance on the subject. Thus, if componentization is a concept that the AcSB wants both NFPOs and private enterprises to apply the guidance should be amended. We do believe that some NFPOs will benefit from the ability to apply componentization of tangible capital assets but we foresee similar application issues to those observed in private enterprises for the reasons outlined above. Page 2 6

97 95 4. Do you agree that collections should be recorded on the statement of financial position at cost or nominal value (see paragraph )? If not, why not? We believe the only meaningful balance sheet representation of a collection would be its fair value but understand and agree that the cost of such a requirement may be too onerous for many NFPOs. Furthermore, an understanding of the collection and its ongoing maintenance costs may be the most important information and this is not one by fair value, cost or a nominal amount. We disagree with the proposal to permit a policy of recording a nominal amount on the balance sheet for collections. As proponents for financial reporting that is both meaningful and understandable we question the value that such boilerplate presentation would offer. We also suspect that it will be confusing to board members and users and that the time and effort used to explain the presentation could be counterproductive. If it is the existence of the collection that nominal value presentation is hoping to achieve, this could be achieved in a more meaningful why through inclusion of a note reference on the statement of financial position directing users to either disclosures related to the collection or perhaps more importantly the disclosures related to the future commitments to maintain the collection in perpetuity. In some instances, (i.e. donated collections currently recognized as an expense generally in the restricted fund), the cost of a collection may be meaningful, but not always, and as such the value of the application of the cost method is also questionable. In lieu of fair market value we find the cost method preferable to the nominal value approach. However, we believe that information regarding collections is best addressed via disclosure. Therefore, in addition to the proposed disclosure requirements we believe that qualitative disclosure about the size and nature of the collection as well as information about any associated or anticipated future maintenance costs would add to the quality of the disclosures. 5. Do you think the proposals in Section 4441 would result in NFPOs reporting multiple collections? If so, what would be the rationale for reporting multiple collections? No, we don t see this as a significant issue. 6. Do you think that NFPOs with multiple collections should be permitted to value each collection differently (see paragraph )? Why or why not? As discussed above we are supportive of the option to record collections at cost but do not agree with the proposal of an option at nominal value. Rather we would be supportive of an option to value the collection at cost or to report its existence via qualitative disclosure. We agree with the proposal that the option selection should be used for all collections. Page 3 6

98 96 7. In accordance with the definition of a collection in Section 4441, the proceeds on disposal of items in a collection must be used to acquire more items in the collection or maintain the existing collection. a. Do you agree that on disposal of one or more items in a collection, whether by sale, destruction, loss or expropriation, the difference between the net proceeds on disposal and the net carrying amount should be recognized: i. in accordance with CONTRIBUTIONS REVENUE RECOGNITION, Section 4410 for items contributed to a collection that are subject to external restrictions (see paragraph ); or Yes. ii. in the statement of operations for items in a collection that are not subject to external restrictions (see paragraph )? If not, how should it be recognized? Yes. b. How do you report cash received on disposal of items in a collection prior to acquiring more items or maintaining the existing collection (i.e., is the restricted cash separately identified on the statement of financial position or disclosed in the notes)? The cash should be presented separately as restricted cash. c. CASH FLOW STATEMENT, paragraph in Part II, requires disclosure of the amount of cash and cash equivalents for which the use is restricted. Are the disclosure requirements in paragraphs and (e) adequate to inform users when the proceeds on disposal of items in a collection are internally restricted (i.e., must be used to acquire more items or maintain the existing collection) or externally restricted (i.e., donor stipulations on contributed items?) If not, what additional requirements are needed? No, we believe that the cash should be presented separately as restricted cash. 8. It is proposed that Sections 4433 and 4434 be applied prospectively in accordance with ACCOUNTING CHANGES, Section 1506 in Part II and with special transitional provisions. Do you agree with the following: a. Sections 4433 and 4434 should be applied prospectively (see paragraphs and ). If not, why not? Yes. Page 4 6

99 97 b. NFPOs should be permitted to recognize an adjustment to opening net assets at the date Sections 4433 and 4434 are first applied, to reflect partial impairments of tangible capital assets and intangible assets existing at that date (see paragraphs and ). If not, why not? Yes. c. NFPOs should be permitted to allocate the costs of tangible capital assets to their component parts based on: cost or fair value at the date of acquisition, or fair value or replacement cost at the date the Section is first applied (see paragraph ). If not, why not? Yes. 9. It is proposed that Section 4441 be applied retrospectively in accordance with ACCOUNTING CHANGES, Section 1506 in Part II and with special transitional provisions. a. Do you agree that Section 4441 should be applied retrospectively (see paragraph )? If not, why not? Yes. In general, we agree with retrospective application when applying the cost method. However, if the amount is nominal then the benefit of a retrospective application is not clear. b. Do you agree with the proposed transition relief for measuring collections at cost (see paragraphs )? If not, why not? Yes, we agree with the proposal. c. Do you think the proposed transition relief for measuring collections at cost will encourage more NFPOs to use the cost method? If not, what would make a transition to the cost method easier? We believe that if given the choice most NFPOs will select the nominal value for which we see little value. If cost is the AcSB s desired accounting treatment than perhaps it should not be optional. 10. Do you agree with the proposed effective date (i.e., fiscal years beginning on or after January 1, 2019) (see paragraphs , , and )? If not, why not? No, we disagree with the proposed effective date. See 11 below. 11. Given that many NFPOs have March 31st fiscal year ends, would an effective date of April 1st be preferable for these and future proposals? Why or why not? Page 5 6

100 98 No. While we appreciate the effort to make compliance with Part III easier for NFPOs we are not certain that such a policy would do so. While there are many NFPOs that do have March 31 st fiscal year ends there are many still that do not. We conducted a quick review of a few dozen NFPO financial statements and found that only about one third of the organizations had March 31 st fiscal year ends. Furthermore, we found that almost as many had December 31 st year ends. Implementing an April 1st effective date would increase compliance efforts when there are both ASNFPO and ASPE changes affect the organization. Thus, we do not feel that the benefit of trying to align effective dates to fiscal year ends to assist in their compliance with financial reporting standards will have the desired effect. 12. Do NFPOs need more than one year to implement the proposed changes in Section 4433, 4434 and 4441? If so, how long and why? Yes. NFPOs are often strapped for resources. In many instances, small to medium sized NFPOs have very few opportunities for their boards to meet to discuss financial reporting issues with their external accountants. With only a twelve-month period between issuance of a standard and its effective date the window for this discussion is in our view too narrow. We believe that the minimum period to implement proposed changes should be no less than 18 months. Page 6 6

101 99 KPMG LLP Chartered Professional Accountants Bay Adelaide Centre Suite Bay Street Toronto ON M5H 2S5 Tel Fax Rebecca Villmann, CPA, CA, CPA (Illinois) Director, Accounting Standards Accounting Standards Board 277 Wellington Street West Toronto, ON M5V 3H2 By May 31, 2017 Dear Sirs: Re: Exposure Draft Accounting Standards Improvements for Not-for-Profit Organizations Thank you for the opportunity to provide our comments on the proposed changes to the accounting standards for Not-for-Profit Organizations (NFPOs) as published in the Exposure Draft Accounting Standards Improvements for Not-for-Profit Organizations. To support our response to the Exposure Draft, we surveyed interested Not-for-Profit Organizations. Our questionnaire was distributed throughout Canada to our contacts and those of Imagine Canada (the national umbrella for Canadian registered charities and public-benefit non-profits). We have answered your questions in the order provided. 1 Do you agree that NFPOs should be directed to follow PROPERTY, PLANT AND EQUIPMENT, Section 3061, IMPAIRMENT OF LONG LIVED ASSETS, Section 3063, GOODWILL AND INTANGIBLE ASSETS, Section 3064, and ASSET RETIREMENT OBLIGATIONS, Section 3110 in Part II of the Handbook for tangible capital assets and intangible assets held by NFPOs, except for the guidance included in Sections 4433 and 4434 (see paragraphs and )? If not, why not? a) Tangible capital assets, intangible assets and collections would be written down to their fair value or replacement cost to reflect partial impairments. Do you agree with the following: b) Tangible capital assets, intangible assets and collections should be written down to reflect partial impairments (see paragraphs , and ). If not, why not? KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. KPMG Canada provides services to KPMG LLP.

102 100 Accounting Standards Board May 31, 2017 c) Tangible capital assets, intangible assets and collections should be written down to their fair value or replacement cost (see paragraphs , and ). If not, what value? Yes, we agree that NFPOs should be directed to follow the ASPE Sections listed above. We also agree with the proposal to consider assets for a partial write down if they are no longer able to contribute to the NFPOs ability to provide a service. We concur that being written down to fair value or replacement cost is appropriate. 2 The list of indicators, which provide examples of conditions that may indicate impairment, would be helpful (see paragraphs , and ). If not, why not? We agree with including in the standards indicators that may indicate impairment and, in general we agree with the indicators. As the mandate of NFPOs is the ability to provide a service, the assets should be subject to consideration of impairment based on that ability. As the value of capital assets, intangibles and collections relate to whether those assets continue to provide long term service potential, we believe the two indicators that relate to the fair value of the assets and cost overruns could be misinterpreted. Specifically the indicator which relates to cost in excess of the amounts original expected would be interpreted as amounts over their budget, which in unlikely to indicate whether the asset provides service potential. We suggest that the following indicators should be deleted from the standard: From Section and Section d) an accumulation of costs significantly in excess of the amount originally expected for its acquisition or construction; f) a significant decrease in its market price. From Section c) an accumulation of costs significantly in excess of the amount originally expected for its acquisition or construction; and d) a significant decrease in its market price when readily determinable. 3 Do you foresee issues specific to NFPOs being required to consider the guidance in PROPERTY, PLANT AND EQUIPMENT, paragraph in Part II on componentization for tangible capital assets? If so, what are they? The standard indicates that cost would be allocated to separate component parts when practical and useful life can be determined. We noted that the basis of conclusion provided with the exposure draft indicated that it was unlikely that NFPOs would apply componentization to their assets. Based on our experience with ASPE clients who follow the standards in Part II, we agree with that componentization is not often applied. We have heard from the NFPO community that some organizations plan to apply componentization as they believe it will assist in managing costs and communication with their Board about the timing and cost of replacement of the component assets. Others are concerned that some organizations may interpret the Section to require componentization as the term practical is not defined. 2

103 101 Accounting Standards Board May 31, 2017 We suggest that componentization is an excellent option, but the standards should indicate that it is an option or provide a definition of practical in this standard. 4 Do you agree that collections should be recorded on the statement of financial position at cost or nominal value (see paragraph )? If not, why not? We agree that NFPOs should record collections on the statement of financial position at either cost or nominal value. 5 Do you think the proposals in Section 4441 would result in NFPOs reporting multiple collections? If so, what would be the rationale for reporting multiple collections? We are aware that NFPOs with collections, often have a multiple collections. Our survey supported that comment as 55% of those organizations surveyed with collections had two or more collections. The nature and use of these collections are often quite different. For example, a higher education institution may have collections of art, rare books, artifacts etc. and a private membership organization may have collections of art and artifacts. These collections may have very different purposes and be managed in different ways. As a result they would result in an NFPO reporting multiple collections. 6 Do you think that NFPOs with multiple collections should be permitted to value each collection differently (see paragraph )? Why or why not? We believe that NFPOs with multiple collections should be permitted to value each collection differently, selecting between cost or nominal value, but maintain the same selection for each item within that collection. 7 In accordance with the definition of a collection in Section 4441, the proceeds on disposal of items in a collection must be used to acquire more items in the collection or maintain the existing collection. a) Do you agree that on disposal of one or more items in a collection, whether by sale, destruction, loss or expropriation, the difference between the net proceeds on disposal and the net carrying amount should be recognized: i. in accordance with CONTRIBUTIONS REVENUE RECOGNITION, Section 4410 for items contributed to a collection that are subject to external restrictions (see paragraph ); or ii. in the statement of operations for items in a collection that are not subject to external restrictions (see paragraph )? If not, how should it be recognized? We agree that the disposition of collections with external restrictions would be recorded under Section 4410 and that those not subject to external restrictions be recorded in operations. The NFPOs we surveyed also supported with this treatment. The Handbook definition of collections indicates that proceeds on disposal of a collection must be used to acquire more items in the collection or maintain the existing collection Some NFPOs may interpret that as an external restriction on the proceeds for all dispositions of collections and defer all proceeds until they are appropriately spent. We suggest that a clarification in the standard would be beneficial. 3

104 102 Accounting Standards Board May 31, 2017 b) How do you report cash received on disposal of items in a collection prior to acquiring more items or maintaining the existing collection (i.e., is the restricted cash separately identified on the statement of financial position or disclosed in the notes)? We believe that the inclusion in deferred revenue, for those with external restrictions, combined with the requirement of the statement of cash flow provide sufficient disclosure. With respect to those collections that are not subject to external restrictions, we believe that disclosure in the notes would be sufficient. c) CASH FLOW STATEMENT, paragraph in Part II, requires disclosure of the amount of cash and cash equivalents for which the use is restricted. Are the disclosure requirements in paragraphs and (e) adequate to inform users when the proceeds on disposal of items in a collection are internally restricted (i.e., must be used to acquire more items or maintain the existing collection) or externally restricted (i.e., donor stipulations on contributed items?) If not, what additional requirements are needed? We believe the disclosure is sufficient and no additional requirements are needed. 8 It is proposed that Sections 4433 and 4434 be applied prospectively in accordance with ACCOUNTING CHANGES, Section 1506 in Part II and with special transitional provisions. Do you agree with the following: a) Sections 4433 and 4434 should be applied prospectively (see paragraphs and ). If not, why not? b) NFPOs should be permitted to recognize an adjustment to opening net assets at the date Sections 4433 and 4434 are first applied, to reflect partial impairments of tangible capital assets and intangible assets existing at that date (see paragraphs and ). If not, why not? c) NFPOs should be permitted to allocate the costs of tangible capital assets to their component parts based on: cost or fair value at the date of acquisition, or fair value or replacement cost at the date the Section is first applied (see paragraph ). If not, why not? We agree with the transition standards as included in Sections 4433 and It is proposed that Section 4441 be applied retrospectively in accordance with ACCOUNTING CHANGES, Section 1506 in Part II and with special transitional provisions. a) Do you agree that Section 4441 should be applied retrospectively (see paragraph )? If not, why not? b) Do you agree with the proposed transition relief for measuring collections at cost (see paragraphs )? If not, why not? c) Do you think the proposed transition relief for measuring collections at cost will encourage more NFPOs to use the cost method? If not, what would make a transition to the cost method easier? 4

105 103 Accounting Standards Board May 31, 2017 We agree with the transition standards as included in Section We are aware that many organizations have held the same collections for a significant length of time and the cost value may not be available. We believe that the option to record them at fair value at the date of transition, similar to the option provided for tangible capital assets on transition to Part III, will encourage more NFPOs to use the cost method. 10 Do you agree with the proposed effective date (i.e., fiscal years beginning on or after January 1, 2019) (see paragraphs , , and )? If not, why not? We agree with the transition date of fiscal years beginning on or after January 1, Given that many NFPOs have March 31st fiscal year ends, would an effective date of April 1st be preferable for these and future proposals? Why or why not? We surveyed our clients who believe that an effective date of April 1 would be preferable. 12 Do NFPOs need more than one year to implement the proposed changes in Section 4433, 4434 and 4441? If so, how long and why? Providing a longer period to implement may encourage more NFPOs to record their collections at cost. We do not believe that the other standards will require additional time. We understand this exposure draft represents phase 1 of a 3 phase implementation of changes to the standards for not-for-profit organizations who report under Part III. Our clients have informed us that, after a period of minimal change in the standards, this will result of a period of constant change. They informed us that their user group (including management, board members, membership and donors) have varied financial expertise and they worry that constant change will be disruptive to their organization. We believe that simultaneous adoption of all three phases would be preferable. Thank you for this opportunity to provide our comments. If you require any further clarification of our comments, please contact Janet Allan at Yours very truly, KPMG LLP Chartered Professional Accountants 5

106 104 June 5, 2017 Ms. Rebecca Villmann, CPA, CA Director, Accounting Standards Accounting Standards Board 277 Wellington Street West Toronto, ON M5V 3H2 Dear Ms Villmann: Re: Accounting Standards Improvements for Not-for-Profit Organizations ( the Exposure Draft ) We are pleased to comment on the exposure draft, Accounting Standards Improvements for Not-for- Profit Organizations. We support the Accounting Standards Board ( AcSB or the Board ) in their initiative to consider how not-for-profit accounting can be improved and aligned more closely with Accounting Standards for Private Enterprises (ASPE) which are the Reference Standards (as defined in the joint statement of principles issued by the AcSB and the Public Sector Accounting Board in 2013) for Part III of the CPA Canada Handbook - Accounting. Please find responses to your specific questions below. 1. Do you agree that NFPOs should be directed to follow PROPERTY, PLANT AND EQUIPMENT, Section 3061, IMPAIRMENT OF LONG LIVED ASSETS, Section 3063, GOODWILL AND INTANGIBLE ASSETS, Section 3064 and ASSET RETIREMENT OBLIGATIONS, Section 3110 in Part II of the Handbook for tangible capital assets and intangible assets held by NFPOs, except for the guidance included in Sections 4433 and 4434 (see paragraphs and )? If not, why not? We agree that NFPOs should be directed to follow Sections 3061, 3063, 3064 and 3110 in Part II, except for the guidance included in Sections 4433 and Please also see our response to Question 3 regarding componentization of items of property, plant and equipment. We note that paragraph (b) references Section 3063 for accounting for disclosures related to impairments. For clarity, we suggest the wording be updated to indicate the impairment disclosures should be prepared in accordance with Section Tangible capital assets, intangible assets and collections would be written down to their fair value or replacement cost to reflect partial impairments. Do you agree with the following: a. Tangible capital assets, intangible assets and collections should be written down to reflect partial impairments (see paragraphs , and ). If not, why not? PricewaterhouseCoopers LLP PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2 T: , F: , PwC refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.

107 105 Ms. Rebecca Villmann, CPA, CA Accounting Standards Board June 5, 2017 Tangible capital assets and intangible assets We agree that a partial impairment should be recognized when tangible capital assets and intangible assets have a demonstrable loss in the value of future economic benefits or service capacity associated with them. We believe that service capacity is a better concept than service potential for partial impairments, as service potential would include all potential services that could be supplied by the asset which may be in excess of the demand for that service by the NFPO. See further discussion in our response to Question 2(b). Collections We do not agree that partial impairments should be recognized for collections. If finalized as proposed, Section 4441 will permit an NFPO to record a collection at cost. In principle, we agree that organizations should consider whether the carrying amounts of assets recognized on their balance sheet are supportable in respect of future benefits for the organization. However, we do not believe that it is feasible to develop a robust standard for partial impairments of collections that meets the cost-benefit test for NFPOs. Collections, by their nature, have cultural, aesthetic and historical value that is worth preserving perpetually. The existence of this value is inherent in the definition of a collection, however it is not readily captured in the proposed measurement basis for partial impairments. A partial impairment measurement should capture all of the future benefits of a collection appropriately, including the service capacity that a collection may provide to support an organization s mandate and the cultural, aesthetic or historical value that is worth preserving. We do not believe that either replacement cost or fair value adequately capture these future benefits. A replacement cost measure may not be meaningful or determinable for a collection that has items that cannot be replaced as they are unique or have a specific historical context. Further, even if a replacement cost can be identified for the individual pieces it would not capture the replacement cost of the collection as a whole, which would include a significant cost for the collecting effort of finding and obtaining the various pieces that make up a particular collection. That collection effort may not be reproducible and therefore may not be measurable. Similarly, fair value the price that a market participant may pay for a collection may not reflect the value that the organization can obtain from the collection from education or research service capacity, as market participants for a particular collection may be extremely scarce or may not exist at all, particularly when considering market participants for the collection as a whole rather than for individual items. The basis of conclusions to the proposed standard acknowledges this by noting Any attempt to ascertain current market values for many collections, comprising thousands of unique items, may be impracticable or the costs would exceed the benefit of doing so (Basis of Conclusions paragraph 48). 2

108 106 Ms. Rebecca Villmann, CPA, CA Accounting Standards Board June 5, 2017 Further, proposed Section indicates that a collection is measured as one unit of account for impairment purposes as the net carrying amount of the collection shall be written down to its fair value of replacement cost. Indeed, the value of a collection as a whole may be significantly greater than the sum of its parts. However, this premium may be extremely difficult to value appropriately from either a replacement cost or fair value perspective. Because of the measurement difficulties noted above we do not believe that either replacement cost or fair value is an appropriate measurement basis for partial impairments of collections. NFPOs would face significant costs in measuring a partial impairment for a collection or may not be able to develop a reliable estimate of either fair value or replacement cost. Further, given that a collection must be, by definition, protected, cared for and preserved in perpetuity we do not believe that the current value of a collection is meaningful information to users of the financial statements of an NFPO, even if that current value is lower than historical cost, as long as the collection continues to be protected, cared for and preserved by the organization. For these reasons, we believe that the proposed requirements of Section do not pass a cost-benefit test for NFPOs. Instead of a partial impairment test, we believe it would be more appropriate to take an approach similar to that taken for tangible capital assets under the existing Section That is, a write-down is recognized when a tangible capital asset no longer has any long-term service potential to the organization. When applied to items in a collection, this approach would treat each individual item as a unit of account (see also our response to Question 4). An item in a collection would not have any long-term service potential when it becomes no longer worth preserving as part of the collection, for example, when the item has been irreparably damaged. If an individual item is still considered to be worthy of preservation as part of the collection, this supports that there are continued future benefits of that item. We suggest that an item that is no longer worth preserving as part of the collection would be accounted for in a similar manner to a disposal for nil proceeds, and therefore that the proposed guidance in Section could be applied to account for the derecognition of the item. (See also our response to Question 7). b. Tangible capital assets, intangible assets and collections should be written down to their fair value or replacement cost (see paragraphs , and ). If not, what value? Tangible capital assets and intangible assets As noted in our response to part (a) to this question, we agree that a partial impairment should be recognized when tangible capital assets and intangible assets have a demonstrable loss in the value of future economic benefits or service capacity associated with them. The proposed use of fair value as a measurement of partial impairment is appropriate when measuring a loss in future economic (cash flow) benefits. We believe that an alternative measure should also be provided to measure a loss of service capacity. However, the proposed definition of replacement cost as the amount that would be needed currently to acquire an equivalent asset is too broad to ensure that it is a reasonable measure of loss of service capacity. 3

109 107 Ms. Rebecca Villmann, CPA, CA Accounting Standards Board June 5, 2017 A standard that lacks a robust approach to measuring the loss of service capacity may be applied in a way that means NFPOs never recognize partial impairments. This would result in costs to NFPOs to apply the indicators of impairment to assets and obtain support for their value, but with little benefit to users in communicating a loss of service capacity. For example, some might interpret an equivalent asset to be a new asset of the same type, if only a new asset can actually be purchased. For some assets such as buildings it is not possible to replace a building on the same land without it being a new building. However, the cost of a new building (or other asset) would typically exceed the carrying amount of the existing building (or other asset) and therefore no impairment would be recognized in these circumstances. Similarly, another interpretation could be that an equivalent asset is the depreciated replacement cost (asset with the same capacity of the same age), however this would not capture the decline in service capacity that is due to a loss of demand for the services rather than the ability of the asset to supply the services. Under the proposed indicators of impairment, a number relate to a loss of demand, such as a significant decrease in the need for the services provided by the tangible capital asset (paragraph (a)), a change in the extent or manner in which it is used (paragraph (b)) or potentially due to a regulatory change (paragraph (c)). We believe that if such interpretations of equivalent assets develop in practice, entities would avoid recognizing partial impairments. In this circumstance, the partial impairment test would not meet the cost-benefit test for not-for-profit organizations. We consider that service capacity of an asset or group of assets can be viewed as T x Q, where T is a number of time periods and Q is the number of service units provided. The following examples illustrate this concept: A nursing home (building) is expected to provide 100 beds for 30 years (remaining useful life). A change in the regulatory environment means that the same building can now only provide 80 beds for its remaining useful life. The regulatory change would be an indicator of impairment under proposed paragraph (c). The loss of service capacity is from 3,000 bed-years to 2,400. A van is expected to be used to transport volunteers for a women s shelter three days a week for 5 years with regular maintenance. However, due to a change in the organization s operations and funding, volunteers will only require transporting 2 days a week and the program is expected to be stopped after 2 years. This significant decrease in the need for the service provided by the tangible capital asset would be an indicator of impairment under proposed paragraph (a). The loss of service capacity is from 780 trips to 208 trips. An appropriate measure of partial impairment for the above assets should reflect a measure of this loss of service capacity. We agree that replacement cost can capture this loss of service capacity, but to ensure that it is appropriately applied in practice we suggest that more guidance is provided as to the definition of an equivalent asset. A definition such as Replacement cost is the amount that would be needed currently to acquire an asset, group of assets or purchased services that provide the same remaining service capacity would be useful. This definition applied to the examples above would provide a framework to assessing replacement value. For example, the nursing home might determine that replacement cost can be readily determined by reference to a new asset with a 40 4

110 108 Ms. Rebecca Villmann, CPA, CA Accounting Standards Board June 5, 2017 year useful life that has a 60 bed capacity. The women s shelter may determine that replacement cost can be readily determined by reference to the cost of hiring a van for 208 trips. We agree that tangible capital assets and intangible assets should be written down to either their fair value or their replacement cost depending on the nature of the asset and the information that is most readily available to the NFPO at the time. For practical purposes, we believe that it is appropriate to select fair value or replacement cost on a case-by-case basis (as opposed to being an accounting policy choice or the higher of fair value or replacement cost). The proposed wording implies this is the intent of the standard, but we suggest this intent could be made clearer by adding wording similar to that found in the transition guidance as follows to (similar wording could be added to ): When conditions indicate that a tangible capital asset no longer contributes to an organization s ability to provide goods and services, or that the value of future economic benefits or service potential capacity associated with the tangible capital asset is less than its net carrying amount, the net carrying amount of the tangible capital asset shall be written down to the asset s fair value or replacement cost. A not-for-profit organization uses whichever value is deemed most practical, on an asset-by-asset basis. We note that the proposed wording for Sections and indicates that each tangible capital asset or intangible asset must be considered separately for impairment. We observe that this could be more onerous than the equivalent test applied by private enterprises following Section Section 3063 requires an enterprise to group assets into asset groups and an impairment is only recorded if the asset group fails a test based on undiscounted cash flows. This generally results in fewer impairments being recognized than when the impairment test is simply based on the fair value of the asset group. We agree that a threshold test based on undiscounted cash flows would be difficult to apply to NFPOs as not all tangible capital assets or intangible assets are held for the purpose of generating cash flows. However, we believe there may be circumstances when obtaining information on a fair value or replacement cost for each individual asset would be onerous compared to applying the asset group guidance in Section 3063 for the calculation of impairment loss and the allocation of any loss based on the relative carrying amounts of the longlived assets. In addition, an organization may be able to obtain a higher fair value or service capacity when assets are considered as a group rather than on an individual basis. This might be the case when a group of assets work together to provide future economic benefits or services. For this reason we suggest that NFPOs should be able to group tangible capital assets and intangible assets into asset groups when testing for impairment. For example, an asset group for NFPOs might be defined as: An asset group is the lowest level (smallest combination) of assets and liabilities that must be used together in order for the organization to provide distinct goods and services. The definition of asset group would also apply to accounting for partial impairments when an asset has an associated asset retirement obligation (ARO) as it may allow the ARO to be taken into 5

111 109 Ms. Rebecca Villmann, CPA, CA Accounting Standards Board June 5, 2017 account when assessing the fair value or replacement cost of the asset, consistent with the guidance for private enterprises in Section Collections Please see our comments on Question 2 part (a) above in respect of collections. c. The list of indicators, which provide examples of conditions that may indicate impairment, would be helpful (see paragraphs , and ). If not, why not? Tangible capital assets and intangible assets We agree that indicators provided in proposed Sections 4433 and 4434 are helpful. Collections Please refer to our comments in respect of partial impairments in Question 2 part (a) above. Collections, by definition, are protected, cared for and preserved and subject to an organizational policy that required 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. Organizations hold collections as custodians for the public interest. We believe that as long as a collection continues to meet the definition of a collection, and an item within the collection continues to be worthy of preservation as part of that collection, no impairment test should be required and therefore it is not necessary to provide indicators of impairment with respect to a collection. 3. Do you foresee issues specific to NFPOs being required to consider the guidance in PROPERTY, PLANT AND EQUIPMENT, paragraph in Part II on componentization for tangible capital assets? If so, what are they? Many NFPOs are not asset intensive and will not be significantly affected by the changes. However, there are a number of NFPOs that have significant assets (often land and buildings) and could potentially be affected by the change, for example, social housing organizations, long-term care organizations, churches, and educational organizations. However, we do not believe there are differences between NFPOs and their counterparts in the private sector that would justify different accounting standards in this area. Componentization should produce a more precise reflection of the useful life of assets held by an NFPO and the cost of capital maintenance of those assets which is as important for NFPOs as for private enterprises. We do not observe that the guidance in the standard is burdensome when applied by private companies, in part because Section requires cost to be allocated to component parts only when it is practicable and when estimates can be made of the component parts. Therefore, we believe that NFPOs should be able to apply the guidance in a similar manner to private enterprises. 4. Do you agree that collections should be recorded on the statement of financial position at cost or nominal value (see paragraph )? If not, why not? 6

112 110 Ms. Rebecca Villmann, CPA, CA Accounting Standards Board June 5, 2017 We agree that collections should be recorded on the statement of financial position at cost or nominal value. Below, we have suggested some additional guidance we believe will be helpful in applying certain aspects of the cost option. Proposed Section states An item of a collection purchased by a not-for-profit organization at substantially below fair value would be recognized at its fair value with the difference between the consideration paid for the item and fair value reported as a contribution. This requirement indicates that an NFPO would need to assess the fair value of an item purchased for a collection in order to determine whether it was purchased at substantially below fair value. Unlike items of tangible capital assets, it may be significantly harder or more expensive to independently determine the fair value of an item purchased for a collection. We suggest that paragraph 8 be amended to permit NFPOs to presume that the price they pay for an item of a collection approximates fair value unless the fair value of the item is readily determinable. The exposure draft is not clear on what the unit of account for a collection is - the collection as a whole or each individual item in a collection. For example, paragraph 7 indicates that the cost of a collection is made up of the cost of individual items purchased or contributed. Paragraph 10 indicates that the partial impairment test should be applied to the collection as a whole. Paragraph 12 requires that the net carrying amount of an individual item is determined, again indicating an individual item unit of account. We believe that the unit of account should be applied consistently in the recognition and measurement of an item or that a standard should explain when a different unit of account is to be used. We support a position that each individual item in a collection is a separate unit of account, as we believe that this model can be applied consistently for acquisitions and disposals of items within a collection. (See our comments regarding partial impairments in Question 2 part (a) above.) It is not clear in the proposed standard how the initial cost of a purchase or donation of a group of items should be allocated to individual items of a collection. For example, Section requires the price paid for a basket purchase to be allocated on the basis of relative fair values. While we believe that relative fair value is conceptually the best basis for allocating cost to a basket purchase, it may be practically challenging when applied to the purchase or donation of a large numbers of items such as a collection of coins or books, particularly if the fair value or cost of a collection as a whole exceeds the sum of the component parts of the collection. We support that NFPOs should allocate costs to a group of items added to a collection on a reasonable and supportable basis, applied consistently, considering any information on relative fair values that is available. 5. Do you think the proposals in Section 4441 would result in NFPOs reporting multiple collections? If so, what would be the rationale for reporting multiple collections? We understand that it is rare that NFPOs have more than one collection. 6. Do you think that NFPOs with multiple collections should be permitted to value each collection differently (see paragraph )? Why or why not? We understand that it is rare that NFPOs have more than one collection. 7

113 111 Ms. Rebecca Villmann, CPA, CA Accounting Standards Board June 5, In accordance with the definition of a collection in Section 4441, the proceeds on disposal of items in a collection must be used to acquire more items in the collection or maintain the existing collection. a. Do you agree that on disposal of one or more items in a collection, whether by sale, destruction, loss or expropriation, the difference between the net proceeds on disposal and the net carrying amount should be recognized: i. in accordance with CONTRIBUTIONS REVENUE RECOGNITION, Section 4410 for items contributed to a collection that are subject to external restrictions (see paragraph ); or ii. in the statement of operations for items in a collection that are not subject to external restrictions (see paragraph )? If not, how should it be recognized? Please refer to our response to Question 4 in respect of the allocation of cost to individual items in a collection which would determine the net carrying value on a disposal of an item within a collection. We find the proposed wording in Section to be unclear. Typically, proceeds from a sale of an asset would not be in scope of Section 4410, Contributions Revenue Recognition, because it is a sale and not a contribution. However, a donor may have stipulated that the proceeds from any sale of the contributed asset (or sale of assets purchased with the donor s contribution) be used to purchase assets in the collection - akin to an endowment contribution - or be used to maintain and preserve the collection. We agree that in these cases, where there are clear donor stipulations as to the use of any proceeds from the sale of contributed assets, it would be appropriate to account for the difference between the net proceeds on disposal and the net carrying amount in accordance with Section The wording proposed in the exposure draft, however, indicates Section 4410 is applied to the proceeds from sales of any asset that had been originally contributed to the collection or purchased with restricted contributions, even when there is no specific donor stipulations on the use of proceeds. We do not think this appropriately reflects the nature of the donor stipulations when the original donor restriction would have been met upon the purchase of assets (or contribution of assets) in the collection and there is no further donor stipulation. For these items it is an internal organizational policy that requires any proceeds from the sale of collection items to be used to acquire other items to be added to the collection or for the direct care of the existing collection. We suggest the following wording would add clarity on the application of this guidance: On disposal of items in contributed to a collection when the proceeds from disposal are subject to external restrictions that are subject to external restrictions, the difference between the net proceeds on disposal and the net carrying amount is recognized in accordance with CONTRIBUTIONS REVENUE RECOGNITION, Section When proceeds from the sale of For items in a collection that are not subject to external restrictions or items are and are disposed of, whether by sale, 8

114 112 Ms. Rebecca Villmann, CPA, CA Accounting Standards Board June 5, 2017 destruction, loss or expropriation, the difference between the net proceeds on disposal and the net carrying amount is recognized in the statement of operations. b. How do you report cash received on disposal of items in a collection prior to acquiring more items or maintaining the existing collection (i.e., is the restricted cash separately identified on the statement of financial position or disclosed in the notes)? In our experience we have not observed NFPOs that present cash received on disposal of items in a collection as restricted cash on the balance sheet. c. CASH FLOW STATEMENT, paragraph in Part II, requires disclosure of the amount of cash and cash equivalents for which the use is restricted. Are the disclosure requirements in paragraphs and (e) adequate to inform users when the proceeds on disposal of items in a collection are internally restricted (i.e., must be used to acquire more items or maintain the existing collection) or externally restricted (i.e., donor stipulations on contributed items)? If not, what additional requirements are needed? When disclosed in a robust manner, the requirements in paragraphs and (e) should produce adequate information on cash restrictions relating to collections. However, the minimum requirements of these paragraphs could be met while still not providing information to users on what the unspent balances are relating to internally and externally restricted cash held for collections or the line item(s) on the balance sheet in which they are recorded. We suggest that the disclosures in Section (e) are expanded to include such disclosures. 8. It is proposed that Sections 4433 and 4434 be applied prospectively in accordance with ACCOUNTING CHANGES, Section 1506 in Part II and with special transitional provisions. Do you agree with the following: a. Sections 4433 and 4434 should be applied prospectively (see paragraphs and ). If not, why not? Yes, we agree that Sections 4433 and 4434 be applied prospectively in accordance with Section 1506 and the special transitional provisions. b. NFPOs should be permitted to recognize an adjustment to opening net assets at the date Sections 4433 and 4434 are first applied, to reflect partial impairments of tangible capital assets and intangible assets existing at that date (see paragraphs and ). If not, why not? Yes, we agree with this proposal. c. NFPOs should be permitted to allocate the costs of tangible capital assets to their component parts based on: cost or fair value at the date of acquisition, or fair value or replacement cost at the date the Section is first applied (see paragraph ). If not, why not? 9

115 113 Ms. Rebecca Villmann, CPA, CA Accounting Standards Board June 5, 2017 Yes, we agree with this proposal. We believe it would be important to apply a consistent interpretation of equivalent asset to the different components if replacement cost is used. Our comments on replacement cost are discussed in Question 2(b) above. 9. It is proposed that Section 4441 be applied retrospectively in accordance with ACCOUNTING CHANGES, Section 1506 in Part II and with special transitional provisions. a. Do you agree that Section 4441 should be applied retrospectively (see paragraph )? If not, why not? b. Do you agree with the proposed transition relief for measuring collections at cost (see paragraphs )? If not, why not? c. Do you think the proposed transition relief for measuring collections at cost will encourage more NFPOs to use the cost method? If not, what would make a transition to the cost method easier? We agree that Section 4441 should be applied retrospectively, with special transitional provisions, as the retrospective application of proposed Section 4441 would provide consistency of information across all periods presented in the financial statements. We suggest that the following clarifications to the proposed special transitional provisions would make them more consistent with retrospective application. Specifically: The proposed transitional provisions permit fair value or replacement cost to be determined at the date this Section is first applied (expected to be January 1, 2019 for a calendar year-end organization). Retrospective application indicates these amounts provide the cost basis of a collection recorded at the beginning of the comparative period (i.e. January 1, 2018). It is not clear how an organization would account for any acquisitions or disposals of items within a collection that occurred in the comparative period. We suggest that the option to measure items in a collection at fair value or replacement cost at the date the Section is first applied is retained, but clarified that these amounts are used as the opening balances for the earliest comparative period by adjusting them for items acquired or items disposed of in the comparative period. The proposed transitional provisions permit that any partial impairments are reflected as an adjustment to opening net assets at the date the Section is first applied (January 1, 2019). If the collection is measured at the cost or fair value as at the date of acquisition any partial impairments noted as at January 1, 2019, would relate to events that occurred prior to this date. It would be inconsistent with retrospective application to record this in opening net assets for 2019 rather than in the comparative period, if the events that give rise to the impairment occurred then. 10

116 114 Ms. Rebecca Villmann, CPA, CA Accounting Standards Board June 5, 2017 If the Board proceeds with a standard as proposed to include a partial impairment requirement for collections (see our response to Question 2 part (a)), we suggest that the partial impairment may be measured at the date the section is applied (January 1, 2019), but recorded in opening net assets at the beginning of the earliest comparative period presented, adjusted for items acquired or items disposed of in the comparative period, unless the indicators of impairment relate to events occurring in the comparative period, in which case the impairment should be recognized in the period to which the indicators relate. Consistent with our comments in response to Question 4 we believe that the proposed standard requires an individual item in a collection to be a unit of account in order to determine what the net carrying amount of an item is on future disposal. We suggest the Board consider whether transitional provisions should include guidance on the allocation of both the cost or fair value of the collection at the date or acquisition and/or fair value or replacement cost at the date the Section is first applied to individual items of a collection for purposes of measuring gains and losses on disposals on transactions that may occur in the future. We also suggest the Board consider adding transition relief with respect to recognition of collections to Section 1501 First-time Adoption by Not-for-Profit Organizations. 10. Do you agree with the proposed effective date (i.e., fiscal years beginning on or after January 1, 2019) (see paragraphs , , and )? If not, why not? Yes, we agree with the proposed effective date as long as the final standard is released with sufficient time for NFPOs to put in place a process for transition, considering the requirements of the final standard on partial impairments. (See also our comments on Question 12 below). 11. Given that many NFPOs have March 31st fiscal year ends, would an effective date of April 1st be preferable for these and future proposals? Why or why not? We do not believe that it is preferable for these and future proposals to have an effective date of April 1 st. In our experience a slight majority of our private not-for-profit organizations have December year ends. There are significant minorities that have March year end and June year ends, with diversity in the remaining population. This diversity indicates that there is no significant benefit in applying new standards with an effective date of April 1 st rather than January 1 st. In addition, NFPOs are also often required to consider and apply changes to Part II, which generally take effect for fiscal years beginning on or after January 1 st. Having multiple effective dates could be confusing and would lead to some NFPOs adopting standards in different combinations than others. 12. Do NFPOs need more than one year to implement the proposed changes in Sections 4433, 4434 and 4441? If so, how long and why? If the Board confirms the proposed requirements for partial impairments are to be applied to individual assets, rather than to asset groups, we believe that asset-intensive NFPOs may need a 11

117 115 Ms. Rebecca Villmann, CPA, CA Accounting Standards Board June 5, 2017 longer implementation period in order to put in place a process for identifying tangible capital assets and intangible assets that are impaired on transition and for measuring any resulting impairments. We would be pleased to respond to any questions you might have. Questions can be addressed to Michael Walke (michael.walke@pwc.com or ), or Lucy Durocher (lucy.durocher@pwc.com or ). Yours very truly, Chartered Professional Accountants 12