welch llp 2013 npo accounting updates seminar
DESCRIPTION
On Friday, Nov. 29, 2013, our experts presented our annual Not-For-Profit seminar where our professionals and special guests reviewed past, present and upcoming financial issues facing NPO's. Our speakers presented on the following topics: • Top technical skills needed to run a NPO • Important real estate updates & property tax credits and rebates for charities/NPO's • Tax Essentials: Key income tax & HST updates • Proposed controversial changes for NPO accounting standards: Debate & Polling sessionTRANSCRIPT
Annual Update for Not-for-Profits
Welcome to Welch LLP’s
2013 NPO Update Seminar
Moderator
Garth Steele, CPA, CAIndirect Tax [email protected]: @garthsteelehttp://ca.linkedin.com/in/garthsteele
Agenda
• Top Technical Skills Required to
run an NPO
• Real estate updates on the
market for space
• Income tax & HST updates
• 15 minute Break
• Possible upcoming NPO
updates; Pros/Cons
• Polling
A PRACTICAL PERSPECTIVE TO A NOT-FOR-PROFIT
Karen Meades CPA, CA CPA(USA)November 29, 2013
4
Not-For-Profit EnvironmentIn recent years Not-for-Profit organizations have undergone significant change
1- Accounting Changes
2- Income Tax Changes
3- On-going Operational Pressures to Change
5
» Now in a category of their own
» Separate and distinct from for-profit organizations
» What does this mean to a typical Not-for-Profit organization:
˃ Capital assets revaluation˃ Employee future benefits recognize gains and losses˃ Investment revaluation
6
Not-For-Profit Accounting Changes
Capital assets» Can elect to measure items of capital assets at fair value on date of
transition and use that as deemed cost.
Employee future benefits » Can elect to recognize all cumulative actuarial gains and losses at
the date of transition, including any transitional amounts.
Financial instruments» Can elect to record any previously unrecorded gains/losses at the
date of transition» Can designate any financial asset or liability to be measured at fair
value at the date of transition. 7
A Typical Not-For-Profit Organization
8
Notes to the Financial Statements
For the year ended December 31,
Tangible capital and intangible assets: 2012
Accumulated Net book
Cost amortization value
General
Tangible capital assets:
Land 625,000
- 625,000
Building 4,439,567
204,098 4,235,469
Furniture and equipment 1,835,561
1,247,203 588,358
Computer equipment 2,101,591
1,814,931 286,660
9,001,719
3,266,232 5,735,487
Capital Assets at Fair Value
9
Statement of Operations
For the year ended December 31,
2012 2011
Excess of revenue over expenses before undernoted 1,623,441 2,329,694
Valuation gain (loss) - pension 529,000 (545,000)
Unrealized gain (loss) on investments 787,595 78,706
Excess of revenue over expenses 2,940,036 1,863,400
Employee Future Benefits Recognize Gains/ LossesFinancial Instruments at Fair Value
CRA - Risk Identification Project (RIP)» Perceived abuse; increased audit activity
˃ 1,400 Not-for-Profits selected for audit˃ Educational letters issued
» Focus on “other” revenue generating activities˃ For-Profit activities˃ “Related” business activities
» Financial reserves
10
Not-For-Profit Income Tax Changes
Looking Forward
New tax legislation expected in 2015
11
Not-For-Profit Income Tax Changes
Industry Knowledge
Business Knowledge
12
On-Going Operational Pressures to Change
Technical Knowledge
Innovation
Key Activities13
Industry Knowledge
Strategic Planning
System & Issues
Security
Key Resources
Key Partners
Key Activities
14
Business Knowledge
A Documented Mission
15
Strategic Planning
Mission Statement
Core Values
Basic Service Goals
Legal
Legal Advice on Contracts and Employment Agreements
Conflict of Interest
Code of Conduct
Compliance with Applicable Laws and Regulations
Business Knowledge
Business KnowledgeEffective Governance
16
Infrastructure
Incorporate• Not-for-Profit• Charity
Committee and Board Structure
Terms of Reference
Liability Insurance
Finance Committee
Oversee Financial Activities
Terms of Reference
Risk Management
Organization’s Vulnerability
Security
Continuity of Operations Plan
OH&S and Fire Marshalls Committee
Business KnowledgeExcellent Record Keeping Practices
17
FinanceAccounting
Internal Control
Revenue Sources
Procurement
Processes and Procedures
Project Management
Facilities & Operations
Compliance with Applicable Laws &
Regulations
CRA
Compliance
Taxes
Filing
HR
Benefits,
Pension Plan
Statutory Deductions
IT
Tools
Data Security, Privacy, Cloud
Computing
Business Knowledge
18
Establish & Maintain Funding Sources
Economic Sustainability
Volunteers
Don’t Forget About Public Relations
Communications
Sustainability
Business Knowledge
AVOID FOUNDER’S SYNDROME
19
Before we talk space,We talk business.
Real Estate 101Not For Profit
Strategic Planning
Identify & evaluate needs early.
Ensure the most productive and cost-effective plan.
Transaction Management
Comprehensive data, objective counsel, and skillful negotiation.
Reduced operating costs, greater
flexibility, and stronger leverage.
Project Management
Unmatched expertise and the utmost attention to detail.
Minimize business disruption and
maximize return on investment.
Our Core Services
Not For ProfitChallenges
Funding
Struggle forRelevance
The Way Ahead Is Foggy
People
Obstacles
The Board
So What Do I Do?
Leverage The Market
Large Downtown Vacancies
Office space isn’t getting cheaper. So why pay for more than you need?
Is this a cafeteria,
meeting room or somewhere to
hold “all hands” sessions?
The answer is Yes!
200 square feet per person is no
longer the industry standard for office
space needs.
Flexibility
Get Unbiased Advice
NPO Update – Tax Changes
Rob Meers, CPA, CASenior Tax [email protected]://www.linkedin.com/pub/rob-meers/10/6b3/292
• What is it?• How does it work?• Will it work?
First-time Donor’s Super Credit
• What is it?– New non-refundable tax credit– Effectively adds 25% to the
existing donation credit on up to $1,000 of eligible donations
– Available to first-time donors (you or your spouse cannot have claimed a donation in past 5 years)
– Only available on cash donations from March 20, 2013 to 2017
First-time Donor’s Super Credit
• How does it work?– Regular Credit
• 15% x the first $200 of charitable donations• 29% x charitable donations in excess of $200
– First-time donor’s will receive an additional 25% credit on cash donations up to $1,000
• 40% x the first $200 of charitable donations• 54% x the donations in excess of $200 to max $1,000
First-time Donor’s Super Credit
• How does it work – example– $1,000 cash donation
• Non-eligible taxpayer would be entitled to a federal credit of $262:
$200 x 15% = $30 +
$800 x 29% = $232
• Eligible first-time donor would be entitled to a federal credit of $512:
$200 x 40% = $80 +
$800 x 54% = $432
First-time Donor’s Super Credit
• Will it work?– Designed to encourage
people who have not donated before (or in the past five years) to donate
– Marketing tool for charities to promote to potential donors
– Do you think the new credit will work?
First-time Donor’s Super Credit
Polling Question #1
Do you think the new first-time donor’s super credit will encourage
more people to donate?
#1 - RESULTS
A. Yes, definitely
B. Possibly, but not likely
C. Definitely not!
Yes, definite
ly
Possibly, b
ut not li
kely
Definitely not!
19%
2%
79%
• Currently first $400K of Ontario payroll is exempt from EHT and exemption is shared between associated employers
• Budget proposes 2 changes1. The exemption will be raised to $450K effective January 1,
2014 and inflation-adjusted every 5yrs (projected $500K in 2019)
2. Exemption will be eliminated for private-sector employers or associated groups with Ontario payroll in excess of $5M
• Registered charities will be exempt from this measure
• EHT and charities with multiple locations– Each location can claim its own exemption
Employer Health Tax (EHT)
GST / HST Update for Not-for-Profit Organizations
Mona Tessier, CPA, CASenior Manager, Indirect [email protected]://www.linkedin.com/pub/mona-tessier/30/a3b/98
• Charities with multiple locations treated as separate employer for purposes of exemption
• Eligibility Registered Charity Not under control of government
• Formalized evidence that location is separate Supporting evidence – i.e. lease or ownership documents in name
of charity Location advertised on letterhead, business cards etc.
• OR
Separate charity number• OR
Separate charity return
NPO Issues – EHT Separate Location
• Provincial Tax Roundup– Manitoba sales tax increase from
7% to 8% - effective July 1, 2013– PEI now an HST province rate of
14% - effective April 1, 2013– BC no longer an HST province –
effective April 1, 2013– QST rate 9.975%, GST no longer
included in base – effective January 1, 2013
What’s New
• Separate registration required for the following provinces– Quebec– Manitoba– Saskatchewan– British Columbia
• Requirement to register for out of province vendors– Solicits orders – Delivers taxable goods in to province– Goods are acquired for consumption
in Province, i.e. not for resale
Provincial Tax Round Up
• Changes enacted from Federal Budget 2013 - 2014– Health Care Services– Governor General– Business ID– Pension Plan Rules
Bill C-60
• Health Care Services– Health Care Services exemption expanded for home care services
• Bathing• Feeding • Assistance with dressing and taking medication• Household services such as;
– Cleaning– Laundering– Meal preparation– Child care
• Exemption only applies to publicly subsidized or funded personal care services rendered to an individual who, due to age, infirmity or disability requires such assistance at home
Bill C-60
• Time limits for claiming PSB rebate• Article in Excise GST/HST Tax News• Rebate calculated on a claim period by
claim period basis• If PSB registrant, claim period = regular
GST filing period• If PSB not registrant, claim period = first/last
six months of fiscal year• Must file rebate claim for each claim period
if eligible• Must be eligible on;
– last day of claim period, or– last day of fiscal year that includes the
claim period
NPO Issues – Rebate Claims
• Not all auditors assess correctly!• NPO client regularly offers conferences• GST/HST is collected on the conference fee• Conference brochure clearly indicates which meals are included in
the conference fee• NPO should be entitled to full ITC on food costs • Auditor assessed under section 236 of ETA• Section 236 based on 67.1(1) of the ITA• Exception in s.67.1(2)(a)• Ordinary course of business includes provision of meals for
compensation.
NPO Issues – Conference
Improvements to Not-for-Profit Standards
Christa Casey, CPA, CAPartner & Director of the Not-for-Profit [email protected]://www.linkedin.com/pub/christa-casey/1b/a16/439
Shawn Kelso, CPA, CAPartner & Director of Professional [email protected]://www.linkedin.com/pub/shawn-kelso/16/599/4a1
Presentation objectives:
• Outline key elements in the SOP
• Provide insight & perspective
• Obtain your input on key questions
Comments due December 15, 2013
Objective of Today’s Presentation
Promote consistency
• Address inconsistent recognition (or non-recognition) of
certain assets and liabilities
Enhance comparability
Address confusion amongst users regarding
differences amongst the different basis of
accounting
Reasons for the SOP Project
To review & amend, where appropriate, NFP
accounting standards to:
• eliminate guidance already included in the other (or reference) standards;
• conform guidance for consistency with the
other (or reference) standards;
• retain guidance to address transactions and circumstances unique to NFPOs; and
• include new or amended
guidance.
SOP Project Objectives
Review and analysis of SOP responses• The Boards will give
significant consideration to the impact or effect of the proposals on NFPOs.
Likely the development of separate Exposure Drafts for the public and private sectors.
Anticipated Next Steps
Contributions Size exemption – capital assets Controlled entities Presentation of expenses by nature and function
Analysis of Key Topics
Contribution Revenue
Existing StandardsContribution revenue should be recognized using either:• Deferral method• Restricted fund method
Proposed under SOPContribution revenue would be recognized:• When received or
receivable• Except when contribution
gives rise to an obligation that meets the definition of a liability
Deferral Method
Statement of Financial PositionAssets
Cash $ 100,000
Building 9,500,000
$ 9,600,000
Liabilities & Net AssetsA/P $ 25,000
Def. Contrib. 9,500,000
Net Assets 75,000
$ 9,600,000
Statement of Operations
Membership fees $300,000
Amort. of DC 500,000
Total revenue 800,000
Amort. of bldg. 500,000
Other expenses 225,000
Total expenses 725,000
Net revenue $ 75,000
Restricted Fund Method
General Fund Education Fund TotalMembership fees $ 1,000,000 0 $ 1,000,000
Government grants 500,000 2,000,000 2,500,000
Total revenue 1,500,000 2,000,000 3,500,000
Salaries & benefits 1,100,000 1,100,000
Rent 400,000 400,000
Education expenses 1,200,000 1,200,000
Total expenses 1,500,000 1,200,000 2,700,000
Net revenue $ 0
$ 800,000 $ 800,000
Recognize contributions that would be consistent with other revenue recognition standards
Eliminates credits on the balance sheet that don’t meet the definition of a liability (deferral method)
Eliminates revenue being recognized when stipulations have not been met (restricted fund method)
Positive Impact of Change
Eliminates common practices that are understood by the users of NPO statements (restricted fund and deferral methods)
Will cause swings in net revenue when timing of revenue and expenditures do not occur in the same period
May affect current funding models
Inconsistent with guidance in ASPE
Negative Impact of Change
Do you agree that a contribution should be revenue, except when the
contribution gives rise to an obligation that meets the definition of a liability
(i.e. eliminating the deferral & restricted fund methods)?
Polling Question #2
A. Yes – I agree
B. No – I disagree
C. Indifferent
Yes –
I agree
No – I disa
gree
Indiffere
nt
33%
7%
59%
#2 - RESULTS
Will the proposed principles on contributions have an impact on
your organization?
Polling Question #3
a. A significant negative effect
b. A significant positive effect
c. Inconsequential impact
d. Would not apply
A sign
ificant n
egative
effec
t
A sign
ificant p
ositive
Inconse
quential im
pact
Would not a
pply
23%28%
49%
0%
#3 - RESULTS
Capital Assets – Size Exemption
Existing StandardsNFPO’s with average annual revenues < $500,000 can choose to record their capital asset purchases as an expense instead of as a capital asset on the statement of financial position.
Proposed under SOPA capital asset would be recognized by a NFPO on its statement of financial position regardless of the size of the NFPO.
NFPOs capitalize and amortize capital assets
consistent with other entities
Enhances comparability between NFPOs
Promotes better accountability and stewardship
by NFPOs
Positive Impact of the Change
90% of NFPOs in Canada currently eligible for
exemption
Difficult and costly for small NFPOs to
implement
Key information about nature of assets are
already disclosed in the notes to the financial
statements
Negative Impact of the Change
Do you agree with eliminating the size test that currently permits qualifying
NFPOs to expense their capital assets?
Polling Question #4
A. Yes – I agree
B. No – I disagree
C. Indifferent
Yes –
I agree
No – I disa
gree
Indiffere
nt
42%
5%
53%
#4 - RESULTS
Will the proposed principle on the capital asset size exemption have an impact on your organization?
Polling Question #5
a. A significant negative effect
b. A significant positive effect
c. Inconsequential impact
d. Would not apply
A sign
ificant n
egative
effec
t
A sign
ificant p
ositive
Inconse
quential im
pact
Would not a
pply
2%
69%
25%
4%
#5 - RESULTS
Controlled NFPO’s
Existing StandardsA NFPO that controls another NFPO has a choice to:• Consolidate• Not consolidate – with
disclosure• Not consolidate – for large
number of individually immaterial NFPOs
Proposed under SOPA NFPO that controls another NFPO has a choice to:• Consolidate• Not consolidate – for large
number of individually immaterial NFPOs
Enhances comparability between NFPOs
Provides better big picture of the total assets,
liabilities, revenues, expenses and cash flows
controlled by the NFPO
Still have the option to not consolidate or
disclose for large number of individually
immaterial NFPOs
Positive Impact of the Change
Key information about controlled entities’ assets, liabilities, revenues, expenses and cash flows are already disclosed in the notes to the financial statements
Many users want to focus on the core activities
Negative Impact of the Change
Do you agree that controlled NFPOs should be consolidated (subject to an exclusion from consolidation of a large
number of individually immaterial organizations)?
Polling Question #6
a. Yes – I agree
b. No – I disagree
c. Indifferent
Yes –
I agree
No – I disa
gree
Indifferent
54%
14%
32%
#6 - RESULTS
Will the proposed principle on consolidating controlled NFPOs
have an impact on your organization?
Polling Question #7
a. A significant negative effect
b. A significant positive effect
c. Inconsequential impact
d. Would not apply
A sign
ificant n
egative
effec
t
A sign
ificant p
ositive
Inconse
quential im
pact
Would not a
pply
13%
73%
11%4%
#7 - RESULTS
Controlled Profit-Oriented Entities
Existing StandardsA NFPO that controls a profit-oriented enterprise has a choice to:• Consolidate• Use equity method
Proposed under SOPA NFPO that controls a profit-oriented enterprise will be required to:• Use equity method
Enhances comparability between NFPOs
Using equity method does not convolute the general operations of the NFPO with the ancillary for-profit activities
Positive Impact of the Change
Inconsistent treatment between controlled NFPOs and profit-oriented entities
ASPE permits an entity to apply “professional judgement” as to which methodology applies
Negative Impact of the Change
Do you agree with eliminating the option to consolidate controlled profit-
oriented enterprises (i.e. only use equity method)?
Polling Question #8
a. Yes – I agree
b. No – I disagree
c. Indifferent
Yes –
I agree
No – I disa
gree
Indiffere
nt
43%
25%
32%
#8 - RESULTS
Will the proposed principle on eliminating the consolidation option to account for
controlled profit-oriented entities have an impact on your organization?
Polling Question #9
a. A significant negative effect
b. A significant positive effect
c. Inconsequential impact
d. Would not apply
A sign
ificant n
egative
effec
t
A sign
ificant p
ositive
Inconse
quential im
pact
Would not a
pply
4%
73%
21%
2%
#9 - RESULTS
Presentation by Function & Nature
Existing StandardsOn the statement of operations, a NFPO can present its expenses by:• Function• Object (nature)
Proposed under SOPOn the statement of operations, a NFPO will present its expenses by:• FunctionAnd disclose them by object (nature) in the financial statement notes
Presentation by Function & Nature
Expenses by Function
Patient care $5,000,000Education 3,000,000Research 1,500,00Total expenses $9,500,000
Expenses by Object
Salaries $7,000,000Rent 1,000,000Travel 900,000Amortization 600,000Total expenses $9,500,000
This model is currently used by entities in the public sector (i.e. governments)
Provides meaningful information to users about the NFPO’s activities as well as types of expenditures incurred
Positive Impact of the Change
Increases administrative burden on NFPOs to meet proposed presentation and disclosure standards
Additional info is not useful to all users – if they want it, they will demand it
Negative Impact of the Change
Do you agree that information regarding expenses should be provided by function and by object (nature) in the
financial statements?
Polling Question #10
a. Yes – I agree
b. No – I disagree
c. Indifferent
Yes –
I agree
No – I disa
gree
Indiffere
nt
39%
0%
61%
#10 - RESULTS
Will the proposed principle on presenting expenses by function and
disclosing by object have an impact on your organization?
Polling Question #11
a. A significant negative effect
b. A significant positive effect
c. Inconsequential impact
d. Would not apply
A sign
ificant n
egative
effec
t
A sign
ificant p
ositive
Inconse
quential im
pact
Would not a
pply
55%
6%
25%
15%
#11 - RESULTS
Fundraising & General Support Expenses
Existing StandardsInformation regarding total fundraising and general support expenses is provided when they are allocated to other functions.• Accounting policy• Nature of expenses allocated• Basis of allocations
Proposed under SOPTotal fundraising expenses and general support expenses:• Presented as separate
functions on the statement of operations
OR• Disclose in the notes to the
financial statements
Improves transparency for expenses sensitive to public scrutiny
Improves comparability of such expenses between different NFPOs
Positive Impact of the Change
Increases administrative burden on NFPOs to meet proposed presentation and disclosure standards
Potential inconsistency among NFPOs as to what costs are considered to be fundraising and general support in nature
Too much variability & interpretation to make them truly comparable
Negative Impact of the Change
Do you agree that total fundraising expenses and general support expenses
should be presented separately in the statement of operations or disclosed in the
notes to the financial statements?
Polling Question #12
a. Yes – I agree
b. No – I disagree
c. Indifferent
Yes –
I agree
No – I disa
gree
Indiffere
nt
59%
8%
33%
#12 - RESULTS
Will the proposed principle on separately presenting or disclosing
fundraising and general support costs have an impact on your organization?
Polling Question #13
a. A significant negative effect
b. A significant positive effect
c. Inconsequential impact
d. Would not apply
A sign
ificant n
egative
effec
t
A sign
ificant p
ositive
Inconse
quential im
pact
Would not a
pply
33%
25%
35%
6%
#13 - RESULTS
Improvements to
Not-For-Profit Standards
Question & Answers
To be considered, written comments are to be received by December 15, 2013
Send written comments by e-mail in Word format to: [email protected]
Refer to the Accounting Standards website (NPO Section): http://www.frascanada.ca/
Correspondence to:
Peter Martin, Director, Accounting Standards
Tim Beauchamp, Director, Public Sector Accounting
277 Wellington St. W., Toronto, ON M5V 3H2
Provide your Comments
Watch for more information be provided soon:• Pension plans• Other matters from Statement of Principles
Coming Soon!
Special thanks to ClearPicture
for use of their polling system!
All event registrants will receive a
digital copy of the presentation via e-mail.
Video & Slide also content available soon at www.welchllp.com
Thank you.