Accounting requirements under the Canada Not-for-profit Corporations Act
November 2011

Author Oliver Moore

The Canada Not-for-profit Corporations Act (the Act) came into force on October 17, 2011. It replaces Part II of the Canada Corporations Act, which will be fully repealed after the three-year transition period which began with the Act’s coming into force. During this transition period, which will end October 17, 2014, existing federally incorporated not-for-profit corporations (NFPs) currently governed by Part II of the Canada Corporations Act must apply for continuance under the Act or be forcibly dissolved.

This is one in a series of bulletins examining and explaining selected provisions of the Act. Previous bulletins have addressed the transition steps under the Act, innovations in the area of members’ rights, and the new distinction between soliciting and non-soliciting corporations. This bulletin addresses the accounting requirements contained in the Act.

The key factors that determine the accounting requirements applicable to a given corporation in a given year are: (i) gross annual revenues for last completed financial year (AR); and (ii) whether or not the corporation is a soliciting corporation.¹ Based on these factors, a corporation may fall into one of five classes. Accounting requirements will differ according to class and the decisions taken by the members; either an audit engagement, a review engagement, or a compilation will be required. The five classes may be summarized as follows.

Soliciting corporation; AR equal to or less than $50,000

Corporations in this class must appoint a public accountant (PA), unless the members unanimously resolve to waive this requirement (s. 182(1)).
If a PA is not appointed, then a compilation is required.
If a PA is appointed, then a review engagement is required (s. 188(1)), unless the members specifically require, by way of ordinary resolution, an audit engagement (s.188(2)).

Soliciting corporation; AR above $50,000 up to and including $250,000

Corporations in this class must appoint a PA, and the members may not waive this requirement.
An audit engagement is required (s. 189(1)), unless the members pass a special resolution waiving this requirement in favour of a review engagement (s. 189(2)).

Soliciting corporation; AR above $250,000

Corporations in this class must appoint a PA, and the members may not waive this requirement.
An audit engagement is required (s. 189(1)), and the members may not derogate from this requirement.

Non-soliciting corporation; AR equal to or less than $1million

Corporations in this class must appoint a PA, unless the members unanimously waive this requirement (s. 182(1)).
If a PA is not appointed, then a compilation is required.
If a PA is appointed, then a review engagement is required (s. 188(1)), unless the members specifically require, by way of ordinary resolution, an audit engagement (s. 188(2)).

Non-soliciting corporation; AR above $1 million

Corporations in this class must appoint a PA, and the members may not waive this requirement.
An audit engagement is required (s. 189(1)), and the members may not derogate from this requirement.

The following table, reproduced from the commentary accompanying the draft Regulations of the Act, is a helpful summary.

Type of Corporation	Gross Annual Revenues	May Dispense with Public Accountant	Review Engagement	Audit
Class 1 – soliciting	less than $50K	yes	default	optional
Class 2 – soliciting	between $50K and $250K	no	optional	default
Class 3 – soliciting	more than $250K	no	N/A	mandatory
Class 4 – non soliciting	less than $1M	yes	default	optional
Class 5 – non soliciting	more than $1M	no	N/A	mandatory

Under section 190 of the Act, a soliciting corporation may make application to the director to have its AR deemed lower than it actually is. Where the director is satisfied that no prejudice to the public would result, he may choose to: (a) deem the corporation’s AR to be equal to or less than $50,000, thus placing the corporation in Class 1; or (b) deem the corporation’s AR to be between $50,000 and $250,000, thus placing the corporation in Class 2.

The Act requires that the directors immediately fill the office of PA should it become vacant (s. 185(1)), unless the articles of the corporation provide that such vacancy is to be filled by a vote of the members (s. 185(3)).

Corporations falling into Classes 1 and 4 are referred to by the Act as “designated corporations” (s. 179); their specificity is that their members may resolve not to appoint a PA. Such a resolution, however, is not valid unless all members entitled to vote at an annual meeting consent to it, and such a resolution is only valid until the following members’ meeting (s. 182).

At the time of applying for continuance or incorporation under the Act, applicants should gain a clear understanding of which accounting obligations will apply and what the available options are.