On October 25, 2010, the Ontario Not-for-Profit Corporations Act, 2010 (the Act) received royal assent. The Act will come into force on a day to be named by proclamation; it is currently expected to be proclaimed into force in mid-2013. The Act will replace the Ontario Corporations Act and bring a modern legal framework to Ontario’s not-for-profit sector of roughly 46,000 corporations.

This update focuses on the new accounting requirements contained in the Act, which are meant to provide more flexibility for provincially incorporated not-for-profit corporations.

Subsections 68(1), 76(1), and 76(2) of the Act are the key provisions determining which accounting requirements apply to a given corporation. These provisions are structured such that they provide (i) a general default requirement that all corporations must have an audit and (ii) four exceptions to the default requirement.

As a result, for accounting purposes, all corporations to which the Act applies will fall into one of five categories: they will either be eligible for one of the four exceptions or for none at all. Which of the five categories a given corporation falls into will determine whether it must undergo a full audit, a review engagement, or a mere compilation. These provisions of the Act create rules similar to those contained in the new Canada Not-for-profit Corporations Act, the equivalent federal legislation, which has now been in force for over a year. Both pieces of legislation create five categories of corporations for accounting purposes, and the criteria used are broadly similar, although the Act is somewhat more lenient than the federal legislation.

The two criteria determining which, if any, of the four exceptions is available are: (i) whether or not the corporation is a “public benefit corporation”; and (ii) annual revenue for the most recently completed financial year of the corporation.

The Act defines a public benefit corporation as being either a charitable corporation, or a non-charitable corporation that receives more than $10,000 in a financial year in the form of donations or gifts (from persons who are not its members, directors, officers, or employees) or in the form of government grants or financial assistance.

The five categories for accounting purposes may be summarized as follows.

1. Public benefit corporation; annual revenue equal to or less than $100,000 (or such other amount as prescribed by regulation)

  • The default position is that such a corporation must conduct an audit.
  • Members of the corporation can pass an extraordinary resolution (requiring at least 80% of the votes cast at a special meeting of the members) to have a review engagement instead of an audit.
  • Alternatively, members of the corporation can pass an extraordinary resolution to not appoint an auditor and to not have an audit or a review engagement (s. 76(1)(b)). In such a case, a compilation would be performed.

2. Public benefit corporation; annual revenue above $100,000 but less than $500,000 (or such other amounts as prescribed by regulation)

  • The default position is that such a corporation must conduct an audit.
  • Members of the corporation can pass an extraordinary resolution (requiring at least 80% of the votes cast at a special meeting of the members) to have a review engagement instead of an audit (s. 76(1)(a)).
  • There is no possibility for members to dispense with the conducting of at least a review engagement.

3. Public benefit corporation; annual revenue of $500,000 or more (or such other amount as prescribed by regulation)

  • The default position is that such a corporation must conduct an audit, and none of the four exceptions to the general audit requirement is available.

4. Non-public benefit corporation; annual revenue equal to or less than $500,000 (or such other amount as prescribed by regulation)

  • The default position is that such a corporation must conduct an audit.
  • Members of the corporation can pass an extraordinary resolution (requiring at least 80% of the votes cast at a special meeting of the members) to have a review engagement instead of an audit.
  • Alternatively, members of the corporation can pass an extraordinary resolution to not appoint an auditor and to not have an audit or a review engagement (s. 76(2)(b)). In such a case, a compilation would be performed.

5. Non-public benefit corporation; annual revenue above $500,000 (or such other amount as prescribed by regulation)

  • The default position is that such a corporation must conduct an audit.
  • Members of the corporation can pass an extraordinary resolution (requiring at least 80% of the votes cast at a special meeting of the members) to have a review engagement instead of an audit (s. 76(2)(a)).
  • There is no possibility for members to dispense with the conducting of at least a review engagement.

The following table summarizes the five categories.

Click here to see table.

 1 PB$100K or less  Yes Optional Default 2 PBbetween $100K and $500K NoOptional Default  3 PB $500K or more No N/A Mandatory 4 Non-PB $500K or less Yes Optional Default 5Non-PB  more than $500K No Optional Default

The Act specifies that to be an auditor of a corporation or to conduct a review engagement of a corporation, a person must be permitted to conduct an audit or review engagement under Ontario’s Public Accounting Act, 2004 and be independent of the corporation, any of its affiliates, and the directors and officers of the corporation and its affiliates (s. 69(1)). An auditor or the person entitled to conduct a review engagement is appointed by ordinary resolution at the annual meeting of the members of a corporation (s. 68(1)).

The Act also specifies that the extraordinary resolutions described above are only valid until the next annual meeting of the members, which means that the analysis of which accounting requirements apply must be repeated annually.

Cassandra Marcotte