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Application of Financial Instruments for Not-for-Profit Organizations


In September 2008, the Accounting Standards Board (AcSB) announced that non-publicly accountable enterprises (NPAEs) are exempt from mandatory adoption of the current financial instruments (FI) standards – i.e., Sections 1530 Comprehensive Income, 1651 Foreign Currency Translation, 3051 Investments, 3251 Equity, 3855 Financial Instruments – Recognition and Measurement, 3862 Financial Instruments – Disclosures, 3863 Financial Instruments – Presentation and 3865 Hedges. In October 2008, the AcSB released a decision to allow not-for-profit entities (NPOs) to defer adoption of Sections 3862 and 3863. Following these announcements, financial reporting inconsistencies have arisen relating to the application of the FI standards by NPOs.

Are NPOs required to apply the current FI standards related to recognition and measurement (i.e., Sections 1530, 1651, 3051, 3251 and 3855)? Yes, NPOs are required to adopt these FI standards, with the exception of Section 1530 as it is not applicable for NPOs. The CICA Handbook indicates that only NPAEs are exempt from mandatory adoption of the current FI standards, and explicitly states that the exemption is not applicable to NPOs.

Confusion regarding proper application of this exemption roots from an inappropriate interpretation of the definition of a NPAE. In April 2009, the AcSB issued an FYI article advising which FI standards apply to whom. The article clarifies that NPAEs always exclude NPOs on the basis that any reference to the term “enterprise” in the CICA Handbook refers to entities with a profit motive.

Are NPOs required to apply the current FI standards related to presentation and disclosure (i.e., Sections 3862 and 3863)? No, adoption of these sections is not required for NPOs. The CICA Handbook states that NPOs may choose to apply the presentation and disclosure requirements in Section 3861 Financial Instruments – Presentation and Disclosure in place of Sections 3862 and 3863. Therefore, NPOs can apply either Section 3861 or Sections 3862 and 3863.

The AcSB’s initial announcement only permitted NPOs to defer these sections until interim and annual financial statements relating to fiscal years beginning on or after October 1, 2008. However, as it became clear that NPOs may never have to apply these sections due to upcoming changes in Canadian standards, the deferral became a complete exemption.

For more information on the application of the FI standards, refer to the April 2009 FYI Accounting Standards article issued by the AcSB.