Not-for-profit organizations I: ASNPO and contributions

We now turn from governments to private sector not-for-profit organizations. Canada has more than 85,000 registered charities and many more non-profit organizations that are not registered, from food banks and arts groups to sports associations and private schools. Most prepare statements under ASNPO, Part III of the CPA Canada Handbook, which combines the not-for-profit sections in the 4400 series with the Part II standards for private enterprises (ASPE) for matters they do not address. This lesson covers the defining issue of not-for-profit accounting, contributions, and the two methods ASNPO allows for restricted contributions, using Riverbend Community Pantry's 2027 transactions.

What a contribution is

Section 4410 Contributions: Revenue Recognition defines a contribution as a non-reciprocal transfer to a not-for-profit organization of cash or other assets, or a non-reciprocal settlement or cancellation of its liabilities. Government funding is a contribution under ASNPO, unlike under PSAS, where it is a government transfer to a government. Contributions are classified as restricted, when externally imposed stipulations specify the purpose for which they must be used, or unrestricted. Endowment contributions are a special kind of restricted contribution that must be maintained permanently. Restrictions imposed by the board, called internal restrictions, do not make a contribution restricted; they are allocations of net assets.

Contributions receivable are recognized if the amount can be reasonably estimated and ultimate collection is reasonably assured; pledges are often not recognized until received because collection is not assured. Contributed materials and services may be recognized at fair value, as an accounting policy choice, but only when fair value can be reasonably estimated and when they are used in the normal course of operations and would otherwise have been purchased. Many organizations do not recognize volunteer services at all because they would not otherwise be purchased. Food banks differ in practice; Riverbend recognizes donated food at estimated fair value because it buys food when donations fall short and its funders want to see the full scale of its operations.

Two methods for restricted contributions

ASNPO allows a choice of two methods for restricted contributions, and the choice shapes the statements. Under the deferral method, restricted contributions are recognized as revenue in the period in which the related expenses are incurred. Restricted contributions for future expenses are deferred contributions, a liability; contributions for the purchase of capital assets that will be amortized are deferred and recognized as revenue at the same rate as the amortization; and endowment contributions are recognized as direct increases in net assets, never as revenue. Unrestricted contributions are revenue when received or receivable.

Under the restricted fund method, an organization reports a general fund and one or more restricted funds, and endowment funds, on the face of its statements, usually in columns. Restricted contributions for which a corresponding restricted fund is presented are recognized as revenue of that fund when received or receivable; restricted contributions for which no restricted fund is presented are recognized in the general fund using the deferral method. Endowment contributions are revenue of the endowment fund. The method shows clearly which resources are restricted, but the total excess of revenue over expenses can be hard to interpret because it includes restricted resources not yet used.

# Riverbend Community Pantry (invented registered charity), year ended
# 31 December 2027: the same contributions under the deferral method and the
# restricted fund method of ASNPO Section 4410 (thousands of dollars).
unrestricted_donations = 1_200
donated_food = 2_400                 # contributed materials, fair value
breakfast_grant, breakfast_spent = 250, 210   # restricted for a school breakfast program
truck_grant, truck_life = 184, 8     # restricted for a refrigerated truck bought 1 January
endowment_gift = 100                 # to be held permanently
endowment_income = 4                 # restricted for programs, not yet spent
expenses = 2_400 + 950 + 180 + 140 + truck_grant / truck_life   # food, programs, fundraising, admin, amortization

# Deferral method: restricted contributions match the related expenses
deferral_rev = (unrestricted_donations + donated_food + breakfast_spent
                + truck_grant / truck_life)
print("DEFERRAL METHOD")
print(f"  Revenue {deferral_rev:,.0f}  Expenses {expenses:,.0f}  Excess {deferral_rev - expenses:,.0f}")
print(f"  Deferred contributions: breakfast {breakfast_grant - breakfast_spent}, endowment income {endowment_income}, "
      f"capital {truck_grant - truck_grant / truck_life:.0f}")
print(f"  Endowment gift {endowment_gift} goes directly to net assets")

# Restricted fund method: restricted contributions are revenue of the restricted fund
general = unrestricted_donations + donated_food - (2_400 + 950 + 180 + 140 - breakfast_spent)
restricted = breakfast_grant - breakfast_spent
capital_fund = truck_grant - truck_grant / truck_life
endow_fund = endowment_gift + endowment_income
print("\nRESTRICTED FUND METHOD (excess of revenue over expenses by fund)")
for k, v in (("General fund", general), ("Restricted program fund", restricted),
             ("Capital asset fund", capital_fund), ("Endowment fund", endow_fund)):
    print(f"  {k:26}{v:>7,.0f}")
print(f"  {'Total':26}{general + restricted + capital_fund + endow_fund:>7,.0f}")

DEFERRAL METHOD
  Revenue 3,833  Expenses 3,693  Excess 140
  Deferred contributions: breakfast 40, endowment income 4, capital 161
  Endowment gift 100 goes directly to net assets

RESTRICTED FUND METHOD (excess of revenue over expenses by fund)
  General fund                  140
  Restricted program fund        40
  Capital asset fund            161
  Endowment fund                104
  Total                         445

The program applies both methods to Riverbend's 2027 contributions: $1.2 million of unrestricted donations, $2.4 million of donated food, a $250,000 provincial grant restricted to the school breakfast program of which $210,000 was spent, a $184,000 grant restricted to a refrigerated truck amortized over eight years, a $100,000 endowment gift and $4,000 of endowment income restricted to programs and not yet spent. Under the deferral method, revenue is $3,833,000 and expenses $3,693,000, an excess of $140,000; $205,000 of restricted contributions are deferred, and the endowment gift goes directly to net assets. Under the restricted fund method, all restricted inflows are revenue of their funds, and the excess totals $445,000: $140,000 in the general fund, $40,000 in the restricted program fund, $161,000 in the capital asset fund and $104,000 in the endowment fund.

Comparing the methods

The difference of $205,000 between the two totals is exactly the restricted contributions deferred under the deferral method: $40,000 for the breakfast program, $4,000 of endowment income and $161,000 for the truck. The general fund result is $140,000 under both methods, because unrestricted resources are treated the same way. Which method is better? The deferral method matches restricted revenue with the expenses it pays for, so the statement of operations shows whether the organization covered its costs; it is simpler for organizations with few restricted contributions. The restricted fund method shows restricted and unrestricted activity separately, which suits organizations with large endowments or many restricted programs, but it requires fund-by-fund presentation and its total is less meaningful. An organization may also present funds under the deferral method, for example internally restricted funds, as long as it presents the required information.

The AcSB has studied changes to the contribution standards for years. A 2023 exposure draft proposed replacing the choice between the two methods with a single approach, but after reviewing feedback the board changed direction and is now exploring ways to improve both existing methods: clarifying key definitions, improving the accounting for special types of contributions and enhancing presentation and disclosure. Field testing took place in 2025, and the timing of a new exposure draft has not been set. A narrow amendment to Section 4410, effective in 2026, addresses contributions of life insurance policies with a cash surrender value, which are measured at that value when the organization becomes both owner and beneficiary.

Pledges, bequests and multi-year grants

Timing questions are common. A pledge is a promise to give; ASNPO requires a contribution receivable only if the amount can be reasonably estimated and ultimate collection is reasonably assured, and because pledges to charities are generally not legally enforceable, most organizations recognize them only when received, disclosing significant outstanding pledges. Bequests are recognized when the estate's executor confirms the amount and collection is reasonably assured, which may be long after the donor's death. Multi-year grants from governments and foundations are recognized as each year's funding becomes receivable and, under the deferral method, matched with the related expenses. Riverbend received a three-year commitment from a regional foundation in late 2027 for $60,000 a year starting in 2028; it recognizes nothing in 2027 and discloses the commitment.

Contributions in kind other than food also need judgment. Riverbend receives donated warehouse shelving worth about $15,000 and free use of office space from a church. The shelving is a contributed capital asset that may be recognized at fair value, as an accounting policy choice, if fair value can be reasonably estimated; under the deferral method, it is recognized with a deferred capital contribution amortized over its life. The free office space is a contributed service that Riverbend would otherwise have purchased; it may choose to recognize it, but like most charities it does not, and it discloses the arrangement. Consistency matters: once a policy is chosen, it should be applied to similar items in each period.

Contributions also bring obligations to donors beyond accounting. A charity that accepts a restricted gift must use it as the donor specified; if the purpose becomes impossible, it may need the donor's consent or a court order to vary the restriction. The accounting records, by tracking restricted contributions and their use, provide the evidence that the charity has honoured its commitments, which matters to donors, funders and, for registered charities, the CRA.

Disclosures about contributions complete the picture. Organizations disclose their method of accounting for contributions, the policy for contributed materials and services, the nature of restrictions on deferred contributions and net assets, and changes in deferred contribution balances during the year. Riverbend's note shows deferred contributions rising from nil to $205,000 in 2027 as the breakfast grant, endowment income and truck grant were received but not yet fully used.