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In January 2020, the Accounting Standards Board (AcSB) issued an exposure draft (ED) proposing a new Section to be included Part III of the CPA Canada Handbook - Accounting. The proposed Section 4449
Combinations by Not-for-Profit Organizations aims to provide guidance on accounting for a combination of not-for-profit organizations (NPOs) and specifically addresses combinations involving two or more related or unrelated NPOs. Currently, Part III does not contain guidance for NPO combinations, which has led to diversity in practice when accounting for NPO combinations.
To reduce this diversity, the proposed Section provides a model with a set of five criteria to determine when a combination is accounted for as a merger or as an acquisition. According to this model, all of the following criteria must be met to account for a combination as a merger:
If all of the above criteria are not met, the combination would be accounted for as an acquisition.
Accounting for a Combination as a Merger
Where a combination satisfies all criteria to be accounted for as a merger, the new Section proposes the following measurement, presentation and disclosure requirements that would result in accounting for the merger as if the combining entities have always been part of the same entity:
Accounting for a Combination as an Acquisition
If any of the five criteria are not met, the combination would be accounted for using the proposed acquisition method. This method is primarily consistent with the four-step acquisition method as detailed in ASPE 1582
Business Combinations in Part II of the Handbook, but contains some exceptions and guidance necessary to address the unique characteristics of NPOs:
Alternatively, if the reporting entity chooses to disclose its controlled NPOs in accordance with Section 4450, it would identify the acquirer and determine the combination date. Further, the reporting entity would provide disclosures as required by proposed Section 4449 and Section 4450 to enable users of the financial statements to evaluate the nature and financial effect of the combination.
The ED proposes that this new Section would be effective for combinations occurring on or after January 1, 2022, with earlier application permitted. The requirements of this Section would be applied prospectively.
Comments on the ED are to be received by April 14, 2020. The AcSB expects to issue the final standard in the second quarter of 2021 if no significant changes to the proposals are required as a result of comments received.
To access the ED and for more information on this project, including updates on the AcSB’s board deliberations and decisions, click
For more information on the financial reporting library, contact a local
MNP Assurance Professional, or
Jody MacKenzie, Director, Assurance Professional Standards.
This communication contains a general overview of the topic and is current as of February 29, 2020. The application of the principles addressed will depend upon the particular facts and circumstances of each individual case. Accordingly, this publication is not a substitute for professional advice and we recommend that any decisions you take about the application or not of any of the information presented be made in consultation with a qualified professional, who can address any variance that may be required to reflect your circumstances. Please contact your local MNP representative for customized assistance with the application of this material. MNP LLP accepts no responsibility or liability for any loss related to any person’s use of or reliance upon this material. © MNP LLP 2020. All rights reserved.
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