Controlled For-Profit Organizations

Where a non-profit organization controls a for-profit organization, certain disclosures are required.

Control Defined

Control over a for-profit organization is generally present when more than 50% of the for-profit’s voting shares are owned by the non-profit. In making the determination of whether or not control exists, other guidance found in s.1590 of the CICA Handbook may apply.

Accounting treatment

The reporting organization may either consolidate the results of the for-profit organization or apply the equity method of accounting. (4450.30) The equity method of accounting is described in section 3051 of the CICA Handbook. Under the equity method of accounting, the reporting organization limits its accounting to the effect on the investment balance and the reporting organization’s share in the net income of the for-profit organization.

Regardless of the accounting method chosen, the following should be disclosed:

the policy applied in reporting the results of the controlled organization
a description of the relationship between the reporting organization and the controlled organization (4450.31)

Where the equity method is used, the following information about the for-profit organization should also be disclosed:

the total assets, liabilities, and shareholder’s equity at the date of the financial statements
revenues (including gains), expenses (including losses), net income and any cash flows from operating, investing, and financing activities (4450.32)

Consideration should also be made of the relevant recommendations of sections 1601 and 3051 of the CICA Handbook when consolidating or applying the equity method.