Directors of a corporation incorporated or continued under the Canada Not-for-profit Corporations Act must present comparative financial statements to the members at every annual meeting. The Canada Not-for-profit Corporations Regulations specify these annual financial statements in further detail. What follows is a summary of the content each of these financial statements.
In each case, the financial statements must be prepared in accordance with generally accepted accounting principles ("GAAP") set out from time to time in either:
● the CPA Canada Handbook - Accounting; or
● the CPA Public Sector Accounting Handbook.
Content of Annual Financial Statements
1. Statement of Financial Position ("Balance Sheet")
Lists assets and liabilities as at the end of the corporation's financial year.
Assets are listed first and are divided into current assets (such as cash, accounts receivable, inventory and prepaid expenses) followed by fixed assets (such as lands, buildings, leasehold improvements, equipment and machinery). Current assets are generally listed in order of liquidity (with the most liquid assets such as cash listed before accounts receivable and accounts receivable listed before inventory and prepaid expenses).
Assets are generally listed at their historic cost at the date of the balance sheet, rather than at their current values. However, inventory is generally listed at the lower of cost or market value and fixed assets are shown net of accumulated depreciation taken to the balance sheet date (to give net book value).
The balance sheet therefore may not reflect either liquidation value or current market value of the assets.
Liabilities are listed at the amount owing (including accrued interest) as at the balance sheet date. Current liabilities (due within a year of the balance sheet date) are listed first, followed by long-term liabilities. Liabilities include debts for borrowed monies and trade payables outstanding at the balance sheet date.
Contingent liabilities such as guarantees and litigation claims (where liability is genuinely disputed) are not generally included as liabilities.
The balance sheet does not include true leases as either assets or liabilities.
2. Statement of Comprehensive Income ("Retained Earnings")
Often incorporated as part of the balance sheet. Like the balance sheet, it reflects the results of operations at the balance sheet date.
The statement of retained earnings represents the change (positive or negative) in retained earnings in the financial year. Net income is added to retained earnings whereas net loss is deducted.
3. Statement of Changes in Equity ("Income statement", "Statement of earnings", or "Statement of profit and loss")
Shows the net revenue and expenses for the entire financial year, the amount of which is added (if positive) or subtracted (if negative) from the statement of retained earnings.
4. Statement of Cash Flows ("Funds statement" or "Statement of changes in financial position")
Shows the changes in cash and cash equivalents during the entire financial year. For example, it will reflect the addition of funds received from fund-raising operations or the disposition of capital assets and the expenditure of cash on the purchase of capital assets.
Net income (or loss) from operations is added (or deducted) from cash flow.
A corporation is not required to use these names for the components of its financial statements, but will generally use a designation that will be comprehensible to its directors and members.
If audited, the annual financial statements will include the report of the auditor prepared in accordance with generally accepted auditing standards ("GAAS") as set out in the CPA Canada Handbook - Assurance, as amended from time to time. If a review engagement of the annual financial statements is conducted, the report must be prepared in accordance with GAAS. If the external accountant prepares neither an audit nor a review engagement report, the financial statements will be accompanied by a compilation report, which includes a notice to reader advising of the accountant's limited engagement and that no opinion is expressed on the financial statements.
Annual financial statements almost always include various notes - for example, to show the accumulated depreciation of fixed assets, details of secured financing or an evaluation of litigation claims.
The articles, by-laws or (in the case of a non-soliciting corporation) unanimous member agreement can require the directors to present further information with respect to the corporation's financial position and results of its operations during the financial year. However, it is uncommon for a corporation's articles, by-laws or UMA to require the production of additional financial information beyond the minimum requirements set out in the Act and Regulations.