New Accounting Standard: Accounting for Not-for-Profit Combinations

By Mohamed Hassanali, CPA, CA


Mohamed Hassanali, CPA, CA, is a Principal, Accounting Standards, with the Canadian Accounting Standards Board (AcSB). He focuses on domestic accounting standards and is leading the Accounting Standards Board’s project on Accounting for Not-for-Profit Combinations.

 In March 2021, the Accounting Standards Board (AcSB) will release Section 4449, Combinations by Not-for-Profit Organizations, in Part III of the CPA Canada Handbook – Accounting. Prior to this, no guidance was available in the Handbook. Therefore, combinations by not-for-profits were accounted for using different frameworks or with superseded guidance. This resulted in lack of comparability and consistency throughout private NFPO combinations. 

Project History

In June 2018, the AcSB approved a project to explore the accounting for the initial measurement of a combination. From November 2018 to January 2019, the AcSB developed criteria to determine whether a combination should be accounted for as a merger or an acquisition.

These criteria were applied against different types of NFPO combinations and, in limited circumstances, to private enterprise combinations that exhibited similar characteristics to an NFPO combination. As a result of this testing, the AcSB determined that the proposed criteria could not be applied to such a wide range of combinations. Therefore, the board limited the scope of its project to private NFPO combinations.

In January 2020, the AcSB issued its Exposure Draft, "Combinations – Initial Measurement and Related Disclosures." In developing the proposals, the board considered the feedback of its Advisory Committee, other private sector NFPO stakeholders and participants in its field testing of the draft proposals.

In the second half of 2020, the AcSB deliberated the feedback it received before finalizing its proposals. 

What Does the Standard Cover?

The main features of the new standard include:

  • a set of criteria to determine when a combination is accounted for as a merger or as an acquisition; 
  • initial measurement, recognition and disclosure guidance on how to account for a merger or an acquisition; and
  • transition guidance on how to apply the new standard.

While the standard focuses on the accounting for a combination of not-for-profit organizations, it acknowledges that other types of combinations can also occur. For example, a not-for-profit organization may acquire or be gifted a for-profit enterprise. The new standard provides direction on where to go for guidance in other standards in the Handbook to address other types of combinations. 

During the development of its proposals, the AcSB heard that all not-for-profit combinations should default to merger accounting. The AcSB considered this view and held additional consultations in this area prior to releasing the Exposure Draft. The Board heard that, while most NFPO combinations would more appropriately be accounted for as mergers, the substance of some transactions recognizes an acquirer, even if it is not communicated publicly.

Impact on Stakeholder Accounting

The AcSB anticipates that many combinations of not-for-profit organizations will continue to be accounted for as mergers. It acknowledges, however, that based on their nature and substance, some combinations will be accounted for as acquisitions. When that happens, additional costs may need to be incurred to value the assets and liabilities in the acquiree and to have these valuations audited.

In these situations, the AcSB did think that applying the acquisition method will provide more decision-useful information to the financial statement users than if the combination were accounted for as a merger. 

When is the Standard Effective? 

The new standard applies prospectively to combinations occurring on or after January 1, 2022. If a not-for-profit is looking for guidance prior to that date, the standard can be applied as soon as it is issued in the Handbook.  

What’s Next in the World of NFPO Accounting?

The AcSB is actively working on projects for the accounting for Contributions and Cloud Computing Arrangements. It will also be releasing its Strategic Plan in the second quarter of 2021. For more information visit their website at