Accounting Standards Oversight Council
Report on Public Meeting
February 25-26, 2016
Accounting Standards Oversight Council discusses the activities of PSAB and the AcSB, and related matters.
At its meeting in Toronto on February 25-26, 2016, the Accounting Standards Oversight Council (AcSOC) received presentations on, and discussed, the following:
The Roles of AcSOC and the Boards Regarding Planning and Performance
Public Sector Accounting Board Activities
PSAB’s Public Interest Framework
Update on International Accounting Matters
Accounting Standards Board Activities
Canada’s Not-for-Profit Sector
Report-back on AcSOC Members’ Attendance at a PSAB Meeting
In order to remind members of the governance procedures regarding the roles and responsibilities of the Accounting Standards Board (AcSB), Public Sector Accounting Board (PSAB), AcSOC Performance Review Committee and the main Council, and how they mesh together, Bob Muter, Performance Review Committee Chair, detailed the relative roles and responsibilities of these bodies. This included the interaction of the Boards’ strategic plans, annual plans and performance reports, as well as the Performance Review Committee’s performance review report and AcSOC’s report to stakeholders.
He commented that from the perspective of the Performance Review Committee, at its meeting earlier in February 2016, its members were pleased to have received quality material from the AcSB and PSAB. Members engaged in a good dialogue with the Board Chairs and Directors and received an excellent response to the Committee’s observations and comments.
Mr. Muter complimented the Performance Review Committee members on their hard work and diligence.
Rod Monette, PSAB Chair, introduced Michael Puskaric who recently succeeded Tim Beauchamp as PSAB’s Director, Public Sector Accounting. He commented on PSAB’s capacity and on certain key files, including the following:
In addition to the new Director, the staff complement has been augmented by two Principals, one being an increase in capacity and the other a replacement. CPA Canada has approved the recruitment of an additional Principal during the 2016-2017 operating year. PSAB will then be at full capacity.
As part of its strategic planning process for 2017-2020, PSAB is reviewing its relationship with the International Public Sector Accounting Standards Board (IPSASB). PSAB is considering how it can leverage its resources to work with IPSASB on projects, while also beginning to develop a consultation paper on assessing possible convergence with IPSASB’s standards.
Mr. Monette thanked Stephenie Fox, Vice-President, Standards, for putting forward PSAB’s case for additional resources to CPA Canada and for her assistance in the recruitment process.
Pensions and employment benefits
PSAB has set up a task force and advisory group, comprising a broad base of individuals from across Canada, to advise it on revisions to the existing pensions and employment benefits standard.The task force is scheduled to meet in late March 2016. The project is expected to take a two-phased approach dealing first with technical issues, such as experience gains and losses and discounts rates, and then determining how newly developing plans (shared risk or target benefit plans) should be dealt with. PSAB is also keeping a close eye on developments on this topic in the provinces.
This project is PSAB’s prime concern from a public interest perspective. Anticipating that this will be a highly controversial, technical and complex project, various strategies have been formulated to mitigate the risks identified. The PSAB staff has undertaken various communication initiatives. Information will also be gathered from stakeholders via an invitation to comment and an exposure draft. PSAB will continue to assess the risks and revise its strategies as appropriate.
Replying to questions, Mr. Monette’s comments included the following:
- Senior governments were somewhat apprehensive regarding the project’s outcome, particularly the likely effect on disclosed pension and employment benefits in governments’ balance sheets.
- The lack of support from stakeholders for the reporting model proposed in Consultation Paper 3 on PSAB’s Conceptual Framework project will not affect the pension and employment benefits project.
- This project will generate significant interest among senior governments and PSAB will formulate a broad strategic process to assist stakeholders to understand the importance of the issue from a public interest standpoint.
Members suggested PSAB consider:
- including union representatives on the advisory committee; and
- a general framework for the project before embarking on a two-phased approach.
Financial instruments/foreign currency translation
Some sovereign governments in Canada have expressed concerns about certain of the accounting requirements in these standards, particularly the effect on hedge accounting. As a result, PSAB deferred the effective date on these standards to April 1, 2019 from April 1, 2016.
Subsequently, the staff is consulting with senior governments to ensure that there is a common understanding among stakeholders and PSAB regarding the mechanics of a hedge accounting option, its implications for financial statements and the concerns of stakeholders. The staff will prepare a report summarizing their consultations so that PSAB can decide on next steps, if any.
Following a suggestion from an AcSOC member, PSAB will consider the merits of field testing for these standards.
Another member suggested that PSAB should engage with its not-for-profit organization (NFPO) stakeholders to ascertain the effect of these standards on their organizations.
PSAB received the staff’s analysis and findings of the Post-implementation Review of its standard at its December 2015 meeting. It also reviewed a draft feedback statement that reports on the findings of the Review. PSAB plans to approve the feedback statement at its March 2016 meeting.
PSAB has asked the staff to explore providing authoritative clarifications in a Public Sector Guideline and to provide information about the process of issuing a guideline for its consideration at its March 2016 meeting.
Replying to questions, Mr. Monette’s comments included the following:
- Local governments and NFPOs appear to be comfortable with the standard.
- PSAB considered options for clarifying the standard through amendments at its December 2015 meeting. However, it was concerned that proposing amendments may risk opening up the standard, which it does not see as desirable at this time.
- PSAB’s due process system makes it difficult to compress the timeline for the completion of its projects.
2015-2016 Performance Report
Mr. Muter said that the Performance Review Committee reviewed PSAB’s draft Performance Report in detail and provided their observations to the PSAB’s Chair and Director. Committee members agreed that the interim report reflects PSAB’s performance to date and that, despite many challenges, PSAB is having a successful year.
Members decided that PSAB is:
- meeting it objectives;
- following due process;
- successful with its outreach activities; and
- using its resources effectively and efficiently.
Committee members requested PSAB provide more comment regarding its work on NFPOs.
A final report will be prepared for the Committee’s review in May 2016. The report will be presented to AcSOC at its meeting on June 9-10, 2016 to enable the Council to assess PSAB’s performance during the year ended March 31, 2016.
Mr. Muter thanked the Committee members for their work, and the PSAB Chair and staff for their efforts, which enabled the Committee to carry out its governance responsibilities.
Draft 2016-2017 Work Plan
Mr. Muter said that, subject to suggested amendments, the Performance Review Committee members agreed that the draft work plan appeared to provide a basis for the Committee to assess PSAB’s performance for the year ended March 31, 2017. Committee members’ suggestions included the following:
- The PSAB Chair and Director should revisit the work plan project timelines to ensure that they are achievable.
- The work plan should include comment on the consultations and effectiveness of PSAB’s strategy for NFPOs.
- The work plan should indicate that it was prepared on the basis that there will be no significant departures of technical staff.
- Additional comment should be provided on the risks associated with First Nations’ adoption of PSAB’s standards.
Mr. Monette said that the Performance Review Committee’s report was very valuable for PSAB. He noted that consideration will be given to the following matters:
- Increasing the amount of board time per annum, either through teleconferences, agendas or meeting frequency.
- Increasing collaboration with PSAB’s international counterparts.
- Increasing the staff’s involvement in PSAB’s outreach activities.
Mr. Puskaric summarized the content of the draft plan and said that the planned timelines for a number of projects had been revised.
Comments by members and others included the following:
- Potential work on rate-regulated activities is likely to consume staff resources significantly.
- It is important to begin the conversation on assessing a possible convergence with IPSASB’s standards. Mr. Monette noted that PSAB will reassess the existing situation, noting that convergence would likely take many years to achieve.
- One member asked for Mr. Monette’s views on the need to maintain a Canadian standard-setting presence when, and if, convergence is achieved with IPSASB’s standards. The Vice-President, Standards, commented that the experience of the Auditing and Assurance Standards Board (AASB) and the AcSB is that international convergence does not result in a decreased need for a local standard-setting board. A Canadian standard-setting presence is beneficial in that it gives Canada a voice on the international scene. Both the AcSB and AASB are influential and highly respected in international standard-setting circles. The AcSB Chair noted that Canadian law requires all accounting standards to be incorporated into the CPA Canada Handbook – Accounting before they can be implemented in Canada.
- Another member noted that senior governments in Canada might express concern if PSAB decided to adopt IPSASB’s standards (i.e., they might be averse to using standards set offshore).
- In reply to a question regarding the speed (or lack thereof) of PSAB’s work on NFPO standards, Mr. Monette said that PSAB will reassess the situation based on hard evidence to see if anything in particular requires action on its part.
- One member said that in his opinion First Nations may be of the view that exceptions should be made to the CPA Canada Public Sector Accounting Handbook to accommodate their requirements. This is a high-risk issue for PSAB. Mr. Monette said that PSAB needs to gather evidence to understand that sector better. First Nations matters have the potential to be very resource intensive. He commented that PSAB’s current focus is on making sure that First Nations are appropriately represented on PSAB. The member suggested that AcSOC should request an appropriate individual from the First Nations community to make a presentation to the Council on First Nations financial reporting matters.
The AcSOC Chair commented that PSAB has a large workload and that several important matters need to be dealt with before considering international convergence. He suggested that potential First Nations concerns should be dealt with, including asking an appropriate constituent to present to AcSOC. In addition, PSAB should prepare a consultation paper on the possible convergence of its standards with those of IPSASB.
2017-2020 Draft Strategic Plan
Mr. Puskaric commented that subject to minor suggested amendments, the Performance Review Committee had concluded that PSAB’s 2017-2020 Draft Strategic Plan sets out the right priorities for PSAB.
Mr. Monette stated that PSAB’s 2017-2020 Draft Strategic Plan will be issued for public comment following a review by PSAB in March 2016. Following public consultation, final approval by PSAB is expected in December 2016 and the new plan will cover the three-year period ending March 31, 2020.
He said that over the strategic planning period, PSAB has a number of projects that will be important in serving the public interest. These include pensions and employment benefits, financial instruments and public private partnerships.
Replying to members’ questions, Mr. Monette’s comments included the following:
- He complimented the presenters who discussed Canada’s not-for-profit sector. He said it is important to understand the capacity constraints in that sector.
- He was confident that PSAB has adequate resources to achieve the objectives in its 2017-2020 Draft Strategic Plan.
- Regarding potential work on First Nations matters, he said that PSAB currently has some capacity to research the topic, in the event that it is required. The Vice-President, Standards noted that the necessity of undertaking research on appropriate topics is a major item in the AcSB’s projected activities, and that this is an issue for all the standard-setting boards. CPA Canada’s Research, Guidance and Support Group works closely with the standard-setting boards. One member commented that research and development, including utilizing outside expertize, is critically important and should be discussed in the strategic plan.
- His sense is that there are only a few major differences between PSAB’s standards and those of IPSASB.
Comments by members included the following:
- Regarding a possible convergence of PSAB’s standards with those of IPSASB, the first level of discussion should not delve into technical matters but should be limited to strategic issues. This would not be a major drain on PSAB’s time.
- Regarding possible convergence, clarity is required on the objective of the convergence discussions. It is necessary to conceptualize where PSAB will be in three years’ time.
- The strategic plan should describe the costs and benefits of adopting international standards and the implications of not doing so. A more fulsome discussion is required.
- A discussion on the concerns with PSAB’s existing conceptual framework and next steps would be useful.
Following discussion, members agreed with PSAB’s proposal to extend its 2013-2016 Strategic Plan by one year to March 31, 2017. Members also agreed that the proposal should be exposed for public comment.
A draft public interest framework was reviewed by AcSOC at its meeting in June 2015 and subsequently by PSAB. The document was also discussed at a meeting of the Public Sector Accounting Discussion Group in October of 2015 and reviewed again at PSAB’s December 2015 meeting.
The draft framework classifies and sets out a number of considerations that must be taken into account when setting standards and does not propose a definition of public interest. There were differing views among those who reviewed the framework as to its usage and composition. Some viewed the document as an internal tool and others a public communications document, or as a section of the conceptual framework. Some were in favour of a high-level summary document and others suggested that a detailed description of the considerations to be taken into account in developing an accounting standard or other guidance was required.
PSAB ultimately concluded that the public interest framework document should be used for internal orientation and discussion purposes.
AcSOC members were in favour of the document and suggested some minor amendments. Their comments included the following:
- The framework gives a good explanation of the considerations taken into account by PSAB in developing an accounting standard or other guidance. The framework is useful for both internal and external purposes.
- A high-level summary document should be available for stakeholders and a detailed technical document should be used routinely for internal purposes.
- The framework should be available for stakeholders so that PSAB can be held accountable.
- The framework should be reviewed regularly to see if amendments are required.
Sheila Fraser, Vice-Chair of the International Financial Reporting Standard Foundation Trustees, provided an update on a number of matters that were discussed at meetings held in London on January 26-28, 2016.
Review of structure and effectiveness of the IFRS Foundation
The Trustees devoted a substantial amount of time in reviewing the progress of the review of the structure and effectiveness of the IFRS Foundation. This included considering summaries of the comments received on its Request for Views consultation document, which was issued in July 2015, and the outreach that was conducted during the consultation period.
The Request for Views elicited a total of 97 comment letters. The Trustees considered some of the key themes raise by respondents, as follows:
- Regarding the relevance of International Financial Reporting Standards (IFRSs), the Trustees decided that the IASB’s remit should not be expanded to encompass financial reporting standards for the public sector.
- Responses were mixed on whether the IASB’s remit should be expanded to encompass financial reporting standards for NFPOs in the private sector. While the majority of respondents did not favour such a move, there was a substantial minority, largely from within the not-for-profit sector, that expressed support. The Trustees asked the staff to conduct further analysis on the issues and potential consequences.
- Respondents generally supported the Foundation’s strategy for wider corporate reporting and the Trustees reaffirmed that the IASB should play an active role therein.
- Regarding the relevance of IFRS standards, the Trustees agreed that the staff should undertake further work on the proposal that the Foundation should establish a network of experts to provide advice on technological developments and their potential impact on the IASB’s Standards.
A substantial number of respondents made comments relating to the adoption of the IASB’s Standards, the funding of the Foundation and representation on the Foundation and its bodies. The comments had implications for the proposals made by the Trustees in the Request for Views about the geographical distribution of the Trustees, and both the geographical distribution and size of the IASB, which would require careful thought. The Trustees had an initial discussion but made no decisions on these issues. Owing to the retirement of an IASB member in June 2016, one position will open up for a candidate from North America. Hopefully, Canada will put forward some strong candidates. Ms. Fraser said that while the Trustees were keen to appoint a user from North America, the prime requirement for candidates is technical strength and excellence.
IFRS 16 Leases was published on January 13, 2016. The Standard received a good deal of publicity, which has been mostly positive. IFRS 16 will provide more transparency with all leases being recognized as assets and liabilities by lessees. The accounting will better reflect the underlying economics of leasing transactions.
At its January 2016 meeting, the IASB completed its planned technical decisions on the project and a standard is expected to be issued by the end of 2016. The process of drafting the Standard will be a challenging one and the IASB will take a careful and considered approach, including consulting interested external parties.
Due Process Oversight Committee
This Committee met on January 26, 2016 and discussed the latest position on revenue recognition, following the publication of IFRS 15 Revenue from Contracts with Customers. The Committee was reminded that the IASB published an Exposure Draft in July 2015 on Clarifications to IFRS 15. The clarifications in that document resulted from the IASB’s consideration of issues discussed by the Revenue Transition Resource Group, a group established jointly by the IASB and the U.S. Financial Accounting Standards Board (FASB) in June 2014 (given that IFRS 15 was fully converged with its U.S. equivalent).
The Committee was updated on the progress of the IASB’s 2015 Agenda Consultation, noting that the comment period on its Request for Views closed on December 31, 2015 and that over 100 comment letters had been received. In terms of main messages, the Committee noted the encouragement from many constituents for completing the projects on insurance contracts and the conceptual framework.
Replying to questions from members, Ms. Fraser’s comments included the following:
- Regarding extending the IASB’s remit to encompass financial reporting standards for NFPOs, most respondents felt that the IASB was fully occupied on its existing activities. Some said that there is a need for more consistency in the application of standards by NFPOs. Ms. O’Malley, Chairman, International Forum of Accounting Standard Setters, noted that many participants, particularly those from emerging and developing economies, at the Forum’s last meeting in September 2015 had expressed support for the IASB issuing standards for NFPOs. She said that at the Forum’s next meeting in Toronto on April 4-5, 2016 there could be another call for the IASB to institute some action on this matter. Ms. Fraser reiterated that there is no great appetite at the IASB to issue standards for NFPOs.
- An oversight structure for IPSASB was put in place in 2015. This settled a major preoccupation by many IPSASB stakeholders regarding the lack of such oversight.
- Many stakeholders are asking for assistance in the application of IFRSs. This calls into question whether implementation assistance is within the role of the IASB and also whether the necessary resources are available.
- The IASB and Trustees are of the view that while convergence of national standards is desirable, national standards will likely coexist with IFRSs for some time into the future.
One member commented that the governance structure of both the IASB and AcSB is very important and that the IASB’s governance structure is an integral part of the AcSB’s structure.
The Chair thanked Ms. Fraser for her briefing, for which members were highly appreciative.
Linda Mezon, AcSB Chair, introduced AcSB member Paul Hargreaves who was present as an observer. She noted that Mr. Hargreaves is the Chair of the AcSB’s recently formed Not-for-Profit Advisory Committee (NFPAC).
Ms. Mezon commented on the AcSB’s recent activities. Her remarks included the following:
Volunteer appointments and committee effectiveness
Ms. Mezon commented that the AcSB’s volunteer committees are the AcSB’s lifeblood, noting that the AcSB currently utilizes the services of about 120 volunteers. Much time and effort is devoted to improving the effectiveness of these committees. She said that Canada also has representatives on some important international advisory groups, for both the IASB and FASB. The AcSB is currently seeking possible candidates for the IASB’s Global Preparers Forum.
Ms. Mezon said that the NFPAC had its inaugural meeting in January 2016. Committee members were very eager and engaged, and their input will be considered by the AcSB at its March 2016 meeting. The purpose of NFPAC is to act in an advisory capacity to the AcSB to assist the Board in maintaining and improving accounting standards for NFPOs.
Commenting on the presentation on Canada’s not-for-profit sector in the current meeting (see later in this report), she agreed with the comments that Canada’s 86,000 charities are not equipped to deal with complex accounting standards. The NFPO sector in general is complex and the AcSB is addressing the issue of producing appropriate standards for this broad sector. She noted that some jurisdictions, such as New Zealand, have a tiered system of standards based on the size of an entity’s revenues. The lowest tier provides standards for entities with very small revenues.
In reply to a question, Mr. Hargreaves said he was confident that the NFPAC would perform well in that its members were deeply committed and interested in providing advice to the AcSB on the NFPO project. Ms. Mezon commented that the AcSB will work closely with PSAB on this project. She noted that it might be difficult to achieve harmonization of the AcSB’s NFPO standards with those of PSAB.
The AcSB continues to develop major improvements to accounting standards for private enterprises over a multi-year development cycle and minor revisions through an annual improvements process. Key activities included the following:
- Agriculture – A Discussion Paper was issued in December 2015 seeking input on the need for and type of guidance on how to account for various types of biological assets in order to reduce diversity in practice. The AcSB intends to focus on connecting with stakeholders “in the field”.
- Redeemable preferred shares – The AcSB is gathering data to understand the characteristics of the various types of transactions utilizing these shares before making a decision on whether an exception to the traditional liability classification should be retained.
- Private enterprises raising capital in non-traditional markets such as crowdfunding platforms – The AcSB considered a request from the Canadian Securities Administrators (CSA) to clarify how the definition of publicly accountable enterprises in the Preface to the CPA Handbook – Accounting relates to issuers that prepare financial statements in conjunction with a securities offering under a prospectus exemption. The AcSB considers that its private enterprise standards are not designed to facilitate the raising of public funds and thinks that there is no need to act on the CSA’s request at this time. However, it will continue to monitor the situation.
The AcSB’s global involvement
Members of the AcSB continue to meet with members of the FASB so that each Board can share its perspectives on current and developing issues.
The treatment of new types of emerging pension plans has been, and continues to be, discussed with various international standard setters.
The AcSB will be hosting a meeting of the International Forum of Accounting Standard Setters in Toronto on April 4-5, 2016, following which former AcSB member and current AcSOC member Tricia O’Malley will step down as Chair.
The third annual IASB Research Forum will be held in conjunction with the 2016 Contemporary Accounting Research Conference on October 15, 2016 in Waterloo, Ontario. The AcSB will be a participant and will provide support.
Commenting on relations between the IASB and FASB, Ms. Mezon said that the IASB is concentrating on implementation matters. The FASB is performing an agenda consultation, which likely means that the FASB may be undertaking work on topics that are not being addressed internationally. The AcSB will monitor this situation.
Upcoming IFRS insurance contracts standard
The IASB’s new insurance contracts standard will likely be issued by the end of 2016. The AcSB is doing all it can to make the IASB aware of the Canadian life insurance industry’s concerns. Ms. Mezon said she and the AcSB Vice-Chair had recently travelled to London with representatives of three major Canadian life insurance enterprises. The group met with the IASB Chairman, Vice-Chairman and three IASB members to advise them of certain industry concerns relating to how the insurance business operates in Canada. A good dialogue ensued. Once the new standard is issued, the AcSB will support its implementation in Canada, including leveraging off the expertise of its Insurance Accounting Task Force. The AcSB will also consider possible interaction with its IFRS Discussion Group. Given the technical nature of the insurance standard, it is unlikely that the AcSB’s IFRS Discussion Group would be able to deal with implementation issues. Accordingly, the mandate of the AcSB’s Insurance Accounting Task Force might have to be modified to allow an opportunity for raising awareness on implementation issues. The IASB will likely ask certain insurers to field test some parts of the upcoming standard.
Members said that the AcSB’s efforts on behalf of the life insurance industry in Canada deserve much credit. The industry has been given every opportunity to express its views directly to the IASB.
Ms. Mezon said that it is likely that Canadian insurers will be able to use the deferral approach and not adopt the new financial instrument standard in 2018 as required currently. She noted that there is support for revising the predominance threshold to qualify for the deferral. She also said that Canadian insurers have stated that they need an appropriate period of time to prepare for the adoption of the new standard. They have mentioned four or five years.
IFRSs – building relationships
The AcSB has had an active exchange of views with the Office of the Superintendent of Financial Institutions on insurance accounting and other matters. Ms. Mezon also attended the annual FASB financial reporting conference in Norwalk, Connecticut, and the Annual General Meeting of the Office of the Auditor General of Canada. She will make a presentation to the IASB staff in London in April 2016 on standard setting in Canada.
In addition, the AcSB tailored a cross-Canada webinar to the CFA Society Toronto to help analysts prepare for upcoming changes to accounting standards. One AcSOC member said this event was very well received and should be repeated more frequently.
The Chair congratulated Ms. Mezon on her efforts to build relationships with major international standard setters.
IFRSs – supporting implementation
Ms. Mezon said that the AcSB’s focus is now on supporting the implementation of three major standards – financial instruments, revenue recognition and leases. The AcSB is also reconsidering the role of its IFRS Discussion Group as to how it can better meet stakeholder needs.
Looking ahead, the AcSB is waiting for the IASB to issue a discussion paper on the principles of disclosure. The paper is a significant part of the IASB’s disclosure initiative, which is to alleviate concerns from some stakeholders about disclosure overload. Once the paper is issued, the AcSB will consider how best to engage users and preparers.
2015-2016 Performance Report
Mr. Muter said that the Performance Review Committee reviewed the AcSB’s draft Performance Report in detail and provided their observations to the AcSB’s Chair and Director. Committee members agreed that the AcSB is having a successful year.
In particular, the report demonstrates the high level of AcSB member engagement through extensive communications and outreach activities. Mr. Muter said that the AcSB:
- continues to be a strong participant in global standard setting;
- finalized several improvements to accounting standards for private enterprises;
- has a better understanding of evidence-based standard setting; a key to success going forward, especially as a research capability is developed;
- established a Not-for-Profit Advisory Committee; and
- carried out all its key activities during the year, although additional staff resources would have enabled it to complete all its planned activities.
A final report will be prepared for the Committee’s review in May 2016. The report will be presented to AcSOC at its meeting on June 9-10, 2016 to enable the Council to assess the AcSB’s performance during the year ended March 31, 2016.
Mr. Muter thanked the Committee members for their work, and the AcSB Chair and staff for their efforts, which enabled the Committee to carry out its governance responsibilities.
2016-2021 Draft Strategic Plan
Mr. Muter said that Performance Review Committee members discussed the AcSB’s Draft 2016-2021 Strategic Plan and provided their observations to the AcSB Chair and Director. Members were pleased with the proposed design version of the 2016-2021 Strategic Plan.
The Committee concluded that the 2016-2021 Strategic Plan will provide it with an effective basis to evaluate the AcSB’s performance over the strategic plan period.
Ms. Mezon said that the 2016-2021 Strategic Plan sets out the AcSB’s strategic objectives and reflects extensive feedback from stakeholders, AcSOC and the Performance Review Committee. One of the main purposes of the Plan is to reach stakeholders beyond those that regularly interact with the AcSB, its Chair and the staff. The document is short and concise, written in plain English, non-technical in nature and is visually appealing. It will be widely disseminated.
The 2016-2021 Strategic Plan continues to apply the core strategies previously adopted for the major categories of Canadian reporting entities in accordance with the AcSB’s “one size does not fit all” philosophy.
Common threads in the document are a focus on continuing to ensure that Canadian GAAP remains high quality, that the AcSB meets the needs of its stakeholders, and that the AcSB contributes to, and influences, global best practices.
A new initiative highlighted in the Strategic Plan is the development of a formal research program that will focus on topics that are important to Canadians and where the AcSB can make a difference.
Members’ comments included the following:
- The Strategic Plan document will be an excellent communications tool. It is a simple document with good visuals.
- The document should clarify the distinction between the accounting by pension plans and the pension accounting by employers.
- Replying to a question, Ms. Mezon said the AcSB is monitoring the development of new types of pension plans. The AcSB does not believe that a project is necessary at the current time because no amendments are required to its standards for pension plans.
Draft 2016-2017 Annual Plan
Mr. Muter said that Performance Review Committee members discussed the AcSB’s 2016-2017 draft annual plan and provided their observations to the AcSB Chair and Director. Members were pleased with the format and succinct content of the document.
Committee members agreed that the draft annual plan appeared to provide a basis for the Committee to assess the AcSB’s performance for the year ended March 31, 2017.
Ms. Mezon said that the strategies and objectives in the draft annual plan take their direction from the AcSB’s 2016-2021 Draft Strategic Plan. The draft annual plan is clearly written and is designed to appeal to a broad group of stakeholders. She commented that in compliance with its risk-assessment policy, the AcSB completed an environmental scan and performed an interim assessment of the risks which it faces. No new risks were found and the risk assessments made in the previous operating year continue to be appropriate.
Ms. Mezon said that the AcSB will consider input from AcSOC on its annual plan and 2016-2021 Draft Strategic Plan at its meeting in March 2016. It will also approve both plans at that meeting and publish them in April 2016. AcSOC will be advised of any significant changes at its meeting in June 2016.
Ms. Mezon stated that the following are the AcSB’s key priorities (applicable to all categories of reporting entities):
- Find new methods and opportunities to communicate with stakeholders.
- Continue to contribute to global discussions on financial reporting matters.
- Develop a plan to conduct research and identify research opportunities.
- Update the AcSB’s Due Process Handbook.
The key priorities to meet the specific needs of each of the sectors for which the AcSB sets standards are as follows:
- International Financial Reporting Standards – Focus on the implementation of the major new standards.
- Accounting standards for private enterprises – Consult stakeholders regarding key priorities.
- NFPOs – Carry out improvements projects with the assistance of the AcSB’s NFPAC.
- Pension plans – Monitor practice in applying the standards for pension plans and developments in corresponding standards for other sectors, and reporting by pension plans at the IASB and in other jurisdictions.
Ms. Fox said that CPA Canada has reiterated its strong support for the AcSB and its standard-setting activities. She commented that CPA Canada has approved the hiring of two additional technical staff during the 2016-2017 operating year. Also, additional resources have been approved so that some of the non-authoritative IFRS guidance can now be translated into French. This will greatly assist preparers to implement important IFRSs, such as those for leases, revenue recognition and insurance contracts.
Now that the three legacy accounting bodies (the Canadian Institute of Chartered Accountants, CGA-Canada and CMA Canada) have amalgamated, members commented that CPA Canada should make sure that relevant activities previously performed by the latter two bodies, such as research on public policy issues, continue to be carried out.
Ms. Mezon commented that since the merger of the three legacy bodies, her audience at conferences has changed from being mainly Chartered Accountants to a more mixed set of financial reporting individuals.
Bruce MacDonald, President and Chief Executive Officer, and Bill Harper, Vice-President, Finance and Operations, both from Imagine Canada, presented some insights into, and financial reporting perspectives of, Canada's not-for-profit sector.
The following indicates how Imagine Canada views the sector so that as a national body it meets the needs of NFPOs and tries to influence the relevant regulatory environment. The presenters stated that the context for the discussion is that there are an estimated 50,000 charities in Canada that use the cash basis of accounting. There is a need for simplicity and relevance in NFPO financial reporting for charities in that:
- preparers are profoundly under resourced in the finance and accounting area, and have no time or expertise to learn and apply complex accounting standards;
- users have a compelling need for clear, relevant and comparable NFPO financial reporting, particularly on the results of NFPOs’ operations; and
- if the Handbook fails to meet these needs, alternatives will grow further in popularity and leave the Handbook standards behind.
The presenters said that the paid staff of about 90 per cent of charities have little financial expertise and use the cash basis of accounting. Charities are under intense pressure to reduce overhead and administrative costs even further. They noted that 73 per cent of Canadians think that charities spend too much on salaries and administration expenses.
Accounting firms cannot realistically help owing to fee pressure and standards overload. The presenters said that most charities are extremely small clients of accounting firms (only two per cent of charities have large revenues). Many accounting firms, particularly practitioners who are not specialists, lack expertise in the NFPO sector and have a challenge staying abreast of multiple sets of guidance.
The key users of charities’ financial statements are funders, potential board members and creditors. The presenters noted the following:
- Funders can generally request needed information. Very often their frame of reference is the Canada Revenue Agency’s Form T3010, which is a registered charity information return that must be filed annually with the Canada Revenue Agency. Funders require a basis to compare charities. Significant measurement differences between the information in Form T3010 and the financial statements render financial statements less valuable.
- Potential board members prefer to see a charity’s financial results presented in a form similar to a private business. Their frame of reference is also often Form T3010.
- Creditors would also like a charity’s financial results to be presented similar to those of a private business. Creditors often supplement this information with credit bureau reports.
What should the “standard” be for financial reporting for charities? Should it be one of the following:
- The CPA Canada Handbook – Accounting;
- The Canada Revenue Agency’s Form T3010, which mandates uniform reporting from all registered charities, including compensation and fundraising data, and makes it all available online; or
- Requirements developed by organizations in the sector?
In addition, there are various “sector scorecards”, such as charity intelligence reports. This all presents a challenge to PSAB and the AcSB in that there are many other information sources; users will choose that which they think meets their needs. The presenters stated that Imagine Canada would like to work with the Boards to try to ensure that the financial reporting system operates efficiently and provides transparent financial information.
Replying to questions, the presenters’ comments included the following:
- Imagine Canada focuses mainly on Canada’s roughly 86,000 charities. There are also another 80,000-90,000 other NFPOs, such as sports clubs, car clubs, trade unions and the like, that are probably unable to cope with sophisticated accounting standards.
- Sophisticated funders utilize their own systems to map the comparability of organizations. Financial information comprises only a small part of their decision making.
- It would take significant resources to develop an online technical solution to guide lay individuals to prepare financial statements for smaller NFPOs.
- Although it depends on the nature of the organization and the type of transaction, many NFPOs struggle with the interpretation and application of accounting standards.
Members’ comments included the following:
- Imagine Canada should consider issues related to First Nations reserves and bands.
- There is a parallel between NFPOs and private enterprises, in that financial statement preparation is driven by the requirements of users. The vast majority of small NFPOs and private enterprises do not prepare GAAP financial statements.
- Fifty per cent of NFPOs operate without a paid staff.
- The vast majority of NFPOs don’t understand the guidance on accounting standards because they do not use them on a day-to-day basis. They have no common understanding of how to deal with accounting problems. Form T3010 does not set out detailed accounting rules.
The Chair thanked the presenters for this most enlightening presentation, which gave members much food for thought.
Eric Turner, Director, Auditing and Assurance Standards Board, provided an update on the adoption of an enhanced auditor’s report in Canada.
He detailed a number of public interest concerns regarding the existing auditor’s report that have arisen following the global financial crisis of 2008. These include the following:
- The audit process is not transparent. The auditor’s report uses standardized wording and gives no indication of the auditor’s work effort.
- A user cannot assess the quality of the audit.
- The auditor’s report does not provide value. The report is not specific to the entity and does not raise “red flags”.
There is now an attempt to address public interest concerns as follows:
- International standards are moving away from a binary, standardized pass or fail auditor’s report.
- The report will now be tailored to the specific circumstances of the entity.
- There will be significant changes affecting audit committees, auditors, preparers and investors.
The following presents a high-level indication of the key features of the new auditor’s report:
- The report will be more extensive and comprise several sections, the first of which is the audit opinion.
- A new section termed “key audit matters” is required for listed entities.
- There is an additional focus on the going concern concept.
- There is a new section and work effort on “other information”. Other information includes management’s discussion and analysis and the annual report. The auditor will now be required to consider the consistency of management’s discussion and analysis in light of the auditor’s knowledge gained during the audit (not just the consistency of management’s discussion and analysis with the financial statements).
- The auditor must indicate his or her responsibilities for the audit. An explicit statement is required on the auditor’s independence and ethical requirements. For listed entities, the engagement partner’s name must be disclosed.
The most important change is the new section on key audit matters. These are defined as those matters that, in the auditor’s professional judgment, were of most significance in the audit of the financial statements of the current period. Key audit matters are selected from matters communicated with those charged with governance.
The following are the potential benefits of key audit matters:
- Matters of most significance to the audit are highlighted as seen “through the eyes of the auditor”.
- There is an increased transparency about the audit.
- They focus investors and other users on particular areas in the financial statements – there is a better understanding of the entity and its financial statements.
- They provide a basis to engage further with management and the audit committee about the entity, its financial statements and the audit.
- Communication between the auditor and audit committee is increased. Increased attention is paid to disclosures.
- The auditor’s focus on matters requiring attention is renewed.
It should be noted that key audit matters do not:
- change the auditor’s underlying responsibilities to conduct a risk assessment and respond and form an opinion on the financial statements; nor
- change the responsibilities of management and the audit committee for the preparation and presentation of the financial statements
Mr. Turner said that the status of auditor reporting standards in various jurisdictions is now as follows:
- The International Auditing and Assurance Standards Board’s standards are effective for financial statement periods ending on or after December 15, 2016.
- Some European jurisdictions have already implemented changes (with positive results in the Netherlands and U.K.)
- The U.S. Public Company Accounting Oversight Board (PCAOB) expects to issue proposals in 2017.
The Canadian Auditing and Assurance Standards Board (AASB) issued an Invitation to Comment in June 2015, with a comment deadline of February 5, 2016. Important considerations are as follows:
- The AASB proposes to defer the effective dates for one year to 2017.
- The AASB proposes a staged implementation for key audit matter reporting, as follows:
- TSX-listed entities would have to comply in 2017; and
- other entities would be obligated to do so one year later (2018).
- Early adoption would be permitted.
The following are some early observations related to Canada:
- There is some support from investors and audit committees for increased transparency.
- There is support for a measured approach to implementation.
- There is a strong push to wait to see what the PCAOB decides, before proceeding. There are concerns that if the reporting requirements are significantly different between the U.S. and Canada, this will lead to inconsistent reporting by listed entities in Canada.
- It is not clear if smaller listed entities, such as venture issuers, would benefit from the new proposals.
The AASB will meet in June 2016 to consider whether to finalize, amend or delay final the standards.
In reply to questions, Mr. Turner’s comments included the following:
- The new report would not change the scope of an audit, but presents the potential for a better quality audit. The cost of the proposals will be an issue for preparers and audit committees in Canada. On the other hand, investors in Canada have not provided much input on the new proposals, so the potential benefits for them are hard to divine.
- The intention is not to duplicate what management discloses in compliance with the disclosure requirements of IAS 1 Presentation of Financial Statements regarding the use of significant judgment.
- Much consideration will be given to discussions among the auditor, management and the audit committee.
- From a public interest perspective, the new proposals were discussed extensively with the Auditing and Assurance Standards Oversight Council (AASOC). Also, one member of AASOC attends every meeting of the AASB. The AASB requires appropriate evidence to support all its actions. One member commented that it could take five to 10 years for appropriate evidence to emerge on the effects of the new proposals.
- Auditors do not opine on MD&A. They do read the document to assure themselves that nothing therein contradicts the auditor’s knowledge of the audit and the client’s business.
Members complimented Mr. Turner on an excellent, engaging and informative presentation.
Two members reported on their attendance at a recent PSAB meeting, noting that they were impressed with the due process procedures and the transparency of PSAB’s operations. Participants at the meeting were very engaged and the discussions were of a very high calibre.
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The Accounting Standards Oversight Council (AcSOC) is an independent, volunteer body established by the Canadian Institute of Chartered Accountants (CICA)* in 2000. It serves the public interest by overseeing and providing input on the activities of the Accounting Standards Board (AcSB), which sets financial reporting standards for profit-oriented enterprises and not-for-profit organizations, and the Public Sector Accounting Board (PSAB), which sets financial reporting standards for governments and their organizations. AcSOC's responsibilities include appointing the AcSOC, AcSB and PSAB members. Reporting to the public and made up of representatives that include regulators, investors and other users, preparers and auditors of financial reports, AcSOC brings a broad perspective to complex issues facing standard setters in both the private and public sectors.
* The CICA, CGA-Canada and CMA Canada have since consolidated under the CPA Canada banner as the profession’s national body.