We would appreciate receiving a copy of the English translation of our comments.

5, Place Ville Marie, bureau 800, Montréal (Québec) H3B 2G2 T. 514 288.3256 1 800 363.4688 Téléc. 514 843.8375 www.cpaquebec.ca 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

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. the Ordre des comptables professionnels agréés du Québec on the Exposure Draft entitled Accounting Standards Improvements for Not-for-Profit Organizations. 2

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. entitled Accounting Standards Improvements for Not-for-Profit Organizations. 3

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 entitled Accounting Standards Improvements for Not-for-Profit Organizations. 4

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 4450.13 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 4432. 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, entitled Accounting Standards Improvements for Not-for-Profit Organizations. 5

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 4433.01 and 4434.01)? 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 3063. 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. 4450.01A). 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: entitled Accounting Standards Improvements for Not-for-Profit Organizations. 6

a) Tangible capital assets, intangible assets and collections should be written down to reflect partial impairments (see paragraphs 4433.16, 4434.06 and 4441.10). 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 4433.06(c) and 4433.08 to avoid redundancies. entitled Accounting Standards Improvements for Not-for-Profit Organizations. 7

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 4433.16, 4434.06 and 4441.10). 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 4433.18, 4434.08 and 4441.11). 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 3061.18 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 entitled Accounting Standards Improvements for Not-for-Profit Organizations. 8

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 (1501.13). 4. Do you agree that collections should be recorded on the statement of financial position at cost or nominal value (see paragraph 4441.06)? 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 4441.06 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. entitled Accounting Standards Improvements for Not-for-Profit Organizations. 9

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 4441.06)? Why? The majority of the members believe that only one accounting policy should be permitted for collections. entitled Accounting Standards Improvements for Not-for-Profit Organizations. 10

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 4441.12); or ii) in the statement of operations for items in a collection that are not subject to external restrictions (see paragraph 4441.12)? 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 1540.07 of Part II should be maintained. c) Cash Flow Statement, paragraph 1540.44 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 1540.44 and 4441.14(e) adequate to inform entitled Accounting Standards Improvements for Not-for-Profit Organizations. 11

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 4441.14(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 4433.26 and 4434.15). If not, why not? The members agree with this proposal, except for paragraph 4433.28. 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 4433.29 and 4434.17). If not, why not? The members believe that paragraphs 4433.29 and 4434.17 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 1501.07: An organization shall recognize such adjustments directly in net assets at the date of transition to accounting standards for entitled Accounting Standards Improvements for Not-for-Profit Organizations. 12

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 1591.42. Regarding paragraph 4434.17 [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 4433.28). 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 4441.19)? 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. entitled Accounting Standards Improvements for Not-for-Profit Organizations. 13

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 1501. 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 4441.21-.22)? If not, why not? The members believe that the last subparagraph of paragraph 4441.21 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. entitled Accounting Standards Improvements for Not-for-Profit Organizations. 14

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 4433.26, 4434.15, and 4441.19)? 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? entitled Accounting Standards Improvements for Not-for-Profit Organizations. 15

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 4433.21 An organization shall disclose whether the write down recognized in accordance with paragraph 4433.16 is measured at the asset s fair value or replacement cost. Text proposed by the Order s working group 4433.21 An organization shall disclose whether the write down recognized in accordance with paragraph 4433.16 is measured at based on the asset s fair value or replacement cost. This comment also applies to paragraph 4434.11. 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. entitled Accounting Standards Improvements for Not-for-Profit Organizations. 16