Accounting Standards Oversight Council
Report on Public Meeting
June 7-8, 2018
Accounting Standards Oversight Council (AcSOC) discusses the activities of
the Public Sector Accounting Board (PSAB), the Accounting Standards Board (AcSB) and related matters.
At its meeting in Toronto on June 7-8, 2018, AcSOC received presentations on, and discussed, the following:
AcSOC Risk Assessment
Framework for Reporting Performance Measures
Accounting Issues of the Province of Ontario
Sustainability Accounting Standards Board
Cryptocurrencies and Blockchain
Report on AcSOC Members’ Attendance at a PSAB Meeting
AcSOC Chair Peter Jewett welcomed attendees, including those observing the meeting via the livestreaming video platform.
He extended a special welcome to new members Susan Campbell, Lorraine Moore, and Jocelyn Patenaude. He noted that a fourth new member, Shelley Brown, had a prior commitment and was unable to attend the meeting.
PSAB Chair Charles-Antoine St-Jean provided an update on the Board’s three key strategies (conceptual framework, international strategy, and government not-for-profit organization strategy) and its progress on key files.
Mr. St-Jean said that the three strategies are interdependent and being developed concurrenly. PSAB’s objective is to decide on its international strategy by March 2020, issue a conceptual framework exposure draft in 2020, and a second government not-for-profit organization consultation paper also in 2020.
To better integrate these far-reaching strategies, PSAB is exploring the possibility of extending its 2017-2020 Strategic Plan by one year. The matter will be brought to the Council for discussion at its next meeting on October 25-26, 2018.
Some members expressed doubts about stakeholders’ ability to deal with the documents referred to above at the same time.
PSAB issued the Statement of Concepts, “A Revised Conceptual Framework,” and the Statement of Principles, “A Revised Reporting Model” on May 28, 2018, for six-month comment periods. These documents could redefine Canadian public sector accounting for the next 25 years and the Board is developing robust communications and outreach programs to inform, and interact with, stakeholders.
PSAB issued “Reviewing PSAB’s Approach to International Public Sector Accounting Standards,” the first of two consultation papers, on May 28, 2018, for a four-month consultation period. The Consultation Paper’s purpose is to inform stakeholders of the criteria that the Board will consider when determining an appropriate option for its future international strategy, and to solicit stakeholder input. Extensive communications and outreach programs are under development.
Government not-for-profit organization strategy
In 2017-2018, PSAB consulted with more than 100 government not-for-profit organization stakeholders and thought leaders across Canada to understand better the needs of users of government not-for-profit organization financial statements. Issues noted during the consultation process included:
- the presentation of general-purpose financial statements;
- the variety of balanced-budget legislations and their effect on financial statement preparation; and
- that a standard on endowments is needed.
At its December 2018 meeting, PSAB will consider for approval a consultation paper seeking feedback from stakeholders to develop a government not-for-profit organization strategy that meets the public interest.
Michael Puskaric, Director, Public Sector Accounting, stated that PSAB has received numerous stakeholder requests to improve its financial instruments and foreign currency translation standards because of the challenges of applying the standards to specific transactions. The Board also reviewed the International Public Sector Accounting Standards Board’s IPSAS Exposure Draft 62, “Financial Instruments,” which includes a section on hedge accounting. PSAB conducted outreach sessions to educate stakeholders on the differences between PSAB’s financial instruments standard and IPSAS 62.
Mr. Puskaric said that at its March 2018 meeting, PSAB conducted an extensive review of the options, considering stakeholder responses and feedback from consultations. PSAB confirmed its support for the existing financial instruments and foreign currency translation standards. The Board, however, did extend the effective date of the standards by two years to April 1, 2021, to incorporate non-hedging improvements based on feedback received during stakeholder consultations.
PSAB plans to issue an exposure draft to improve the transitional provisions for these standards and potentially address other non-hedge accounting issues before the effective date. The Board’s decision balanced the need for accountability over financial instruments with the costs to implement a standard in a highly complex area.
In reply to questions, Mr. St-Jean’s remarks included the following:
- Regarding the interaction of PSAB’s role with the Auditor General of Ontario’s concerns about the Province of Ontario’s accounting of the Fair Hydro Plan, the Board discussed its position at meetings in December 2017 and March 2018. It also reached out to stakeholders to ascertain whether the issues under consideration are prevalent across Canada. While there are somewhat related issues (involving rate-regulated accounting) in some other provinces, the Board is satisfied that there are no systemic problems with its standards. Accounting for rate-regulated assets and liabilities is not part of its 2017-2020 Strategic Plan. The Board will continue to monitor the situation. (Please see the discussion on the accounting issues of the Province of Ontario later in this report.)
- Regarding comments from members that the second deferral of the effective date on PSAB’s financial instrument and foreign currency translation standards might indicate a failure in due process related to the first deferral, Mr. St-Jean said that the Board is reviewing its due process procedures. He will report on this matter to the Council at its meeting on October 25-26, 2018.
- The scope of the financial instruments standard, as originally stated, was not as complete as it could have been and this led to some challenges for stakeholders.
- When starting new projects, PSAB always considers other standard setters’ work to avoid replicating basic work already done by others.
2017-2018 Performance Report
Mr. St-Jean stated that PSAB had achieved its key 2017-2018 Annual Plan objectives, and is making good progress toward the long-term outcomes of its 2017-2020 Strategic Plan. He commented on the year-over-year increase in the Board’s outreach activities, citing increases in the number of webinars, articles written by the staff, and presentations made by the Chair and staff.
Richard Neville, the Performance Review Committee Chair, said that the Committee met twice to review PSAB’s performance and its members concurred with the Board’s overall assessment of its performance in 2017-2018.
The Council endorsed the Committee’s conclusion and decided that PSAB’s 2018-2019 Annual Plan provided a basis for the Council to assess the Board’s performance for the year ending March 31, 2019.
Mr. Jewett stated that it has been a year of progress. He and the Committee Chair thanked the PSAB Chair, existing and past Board members and staff for their efforts to improve public sector financial reporting in Canada in the public interest. The Council also thanked the Committee members for their work.
AcSB Chair Linda Mezon commented on the activities related to achieving the AcSB’s strategic objectives, its international work, and its domestic and other activities.
To follow through on the AcSB’s strategic objectives, it is essential that the Board stay relevant in today’s fast-changing world, communicate with its stakeholders, leverage its international and other relationships, and be innovative and use evolving technology to best effect.
The AcSB undertook a project to enhance the relevance of financial reporting. As an initial step to start a conversation, the Board will publish its Draft Framework for Reporting Performance Measures on June 14, 2018. The Framework is designed to help all parties in the financial reporting process (management, directors, contributors, owners, lenders, investors, auditors, regulators, academics and others) improve the reporting of performance measures outside of financial statements.
Consulting widely with interested and affected parties enhances the quality of financial reporting standards. The AcSB Chair is participating in more interviews with the media on various topics. In relation to its private enterprise activities, the Board is planning an extensive outreach program in conjunction with the upcoming publication in July 2018 of its agriculture exposure draft.
The AcSB is leveraging its international and other relationships with the AcSB Chair and staff attending numerous international and domestic meetings and presenting to leading academics and others.
The AcSB strives to use plain language in its communications and other materials. The revised AcSB’s Due Process Manual (previously known as the Due Process Handbook) is a recent example. The Board is also using evolving communications tools, such as LinkedIn and social media.
The AcSB continues to undertake various activities to support Canadian preparers and auditors in implementing standards and addressing emerging accounting topics in practice. The Board is heavily engaged in supporting stakeholders in the implementation of the new insurance contracts standard through its Insurance Transition Resource Group and numerous outreach activities. The aim is to understand potential concerns and explain the Board’s activities to support the new standard’s implementation.
The AcSB continues to monitor the International Accounting Standards Board (IASB) project on rate-regulated activities. At its June 2018 meeting, the AcSB will discuss its research paper on the decision-usefulness of financial information that reflects the economics of rate-regulated activities, and will discuss when to publish it.
The AcSB staff is part of an international staff working group researching hybrid pension obligations. The AcSB staff will share the research performed to date with members of the IASB’s Accounting Standards Advisory Forum at its July 2018 meeting in London.
In January 2018, the AcSB’s IFRS® Discussion Group discussed the topic of cryptocurrencies, given transactions of this nature are percolating in the Canadian markets. The Board decided to refer the issue to the IASB by sharing the Group’s discussion at the April 2018 meeting of the Accounting Standards Advisory Forum. The Group also discussed issues preparers raised relating to cloud-computing arrangements. The Board decided to refer the cloud-computing issue to the IASB’s IFRS® Interpretations Committee.
The accounting for cannabis is an emerging topic owing to the upcoming legalization of the product in Canada. The AcSB is undertaking various activities to address this topic, including contributing to articles and radio interviews.
The AcSB has completed a financial statements concepts diagnostic relating to Parts II and III of the CPA Canada Handbook – Accounting. The Board will consider updates to the concepts for Parts II and III in conjunction with its research on priority topics for both Handbook Parts.
The AcSB is deliberating the feedback received on its Exposure Draft “Accounting for Related Party Financial Instruments and Significant Risk Disclosures (Proposed amendments to Financial Instruments, Section 3856).” The Board is also drafting its standard on retractable or mandatorily redeemable shares issued in a tax planning arrangement. It plans to issue one set of amendments to the financial instrument standard from both projects in the fourth quarter of 2018.
The AcSB has completed a fatal flaw and a field test of the draft exposure draft of Section 3041, Agriculture. The Board plans to publish it in July 2018; earlier than publicly announced, which was “no later than Q3 2018.”
Regarding not-for-profit organizations, the AcSB and PSAB monitor developments in their respective projects, where appropriate, through, for example, Board and staff discussions and providing updates at advisory committee meetings. The AcSB is continuing its research to understand:
- the types of contributions organizations receive and the types of organizations that use the deferral method or the restricted fund method;
- what information financial statement users need to make decisions; and
- the terms and conditions of the various types of contributions received.
The staff is developing an outline of a consultation paper for the AcSB’s consideration.
In September 2018, the AcSB will meet in Montreal to further its outreach activities and to strengthen stakeholders’ awareness of, and understanding about, the Board. The entire Board will participate in the planned outreach activities.
In reply to questions, Ms. Mezon’s remarks included the following:
- Regarding the implementation of the new insurance contracts standard (IFRS 17), the AcSB has been advised that the larger insurance entities in the European Union (EU) are working on their implementation plans. It would appear that smaller entities are waiting for the completion of the EU’s endorsement process before beginning their implementation activities. The new standard is very complicated and many entities are hampered because of the lack of the necessary system software.
- The Canadian Life and Health Insurance Association intends to send a letter to the IASB expressing concerns with the implementation of IFRS 17. A compelling case will need to be presented to the IASB for it to consider delaying the new standard’s implementation date of January 1, 2021.
- The AcSB has referred the topic of accounting for cryptocurrencies to the IASB, as it feels strongly that the matter should receive the standard-setter’s early attention. Thereafter, consideration of a longer-term approach can be considered.
- One of the objectives of reaching out to academics is to leverage their strength to do unbiased research. This helps the AcSB with evidence-based standard setting. In addition, many academics teach future accountants, and its interaction with academics hopefully results in students becoming aware of the AcSB and its standard-setting activities.
- Tasks are allocated to the staff based on the AcSB’s work priorities. Staff members are rotated, enabling them to work on the different parts of the Handbook.
Members’ comments included the following:
- Commenting on the desire for some to extend the January 1, 2021 adoption date for the new insurance contracts standard, a member suggested that those enterprises that are well on the way to implementing the standard, do not desire a delay. The member suggested that stakeholders should be asked if the adoption date should be retained, with the addition of an option to implement the standard prior to the mandatory adoption date.
- Referring to the AcSB’s research program and its interaction with academics’ work, standard setters are tempted to look at a single academic study on a particular topic. A lone study on a topic is insufficient. A series of academic studies is generally required to understand the relative phenomena surrounding a topic.
- The Actuarial Standards Board (ASB) is undertaking a project to provide actuaries with guidance on dealing with hybrid pension plans. The ASB is also preparing an inventory of the various kinds of pension plans. The member suggested that the ASB might be able to provide the AcSB with helpful information.
The AcSB’s compliance with due process
Members were advised that there were no reportable departures from due process or “comply-or-explain” actions, nor was there any unusual event in the application of due process during the February to April 2018 period. Compliance was considered in the context of the Board’s new AcSB Standard-Setting Due Process Manual and its previous Due Process Handbook.
2017-2018 Performance Report
Mr. Neville said that the Performance Review Committee met twice to review the AcSB’s performance in 2017-2018. The Board’s overall assessment of its performance is as follows:
- Overall, the Board had a successful year, achieving the key objectives and most other objectives in its 2017-18 Annual Plan. The Board stayed highly engaged with Canadian stakeholders on current and future standard-setting projects and continued to have strong international involvement regarding IFRS® Standards as well as topics relevant to other parts of the Handbook. The Board made substantial progress on key projects for private enterprises and NFPOs; however, it decided to delay the timeline on its Agriculture project. It also took appropriate steps toward achieving the objectives set out in its 2016-2021 Strategic Plan, including holding a Board Strategy Session in November to refine its strategic direction over the remaining three years of the AcSB's current strategic plan.
Mr. Neville stated that the Committee was satisfied that the AcSB’s conclusions were justified and agreed that the Board had a successful year in 2017-2018.
Ms. Mezon said that the AcSB had a good year and thanked Board members and staff for their efforts. She commented that a third of the staff has less than two years’ experience in standard setting, which places a burden on Board members. She thanked them for coping with this burden.
The Council endorsed the Committee’s conclusion and decided that the AcSB’s 2018-2019 Annual Plan provided a basis for the Council to assess the Board’s performance for the year ending March 31, 2019.
Mr. Jewett thanked the Performance Review Committee members for their work, and the AcSB Chair and staff for their efforts, which enabled the Committee to carry out its governance responsibilities.
Following discussion at its meeting on March 1-2, 2018, AcSOC formed an ad hoc Risk Review Committee to assess the Council’s risk.
In the absence of Cathy Riggall, the Committee’s Chair, Annie Giraudou, an AcSOC and Committee member, reported as follows:
- The Committee held its inaugural meeting on April 26, 2018, to discuss and agree on its purpose and the process to be followed to undertake the risk review.
- At subsequent meetings, the Committee will create and finalize a risk analysis to present to the Council for its input at its meeting on October 25-26, 2018.
- The proposed format of the Council’s risk analysis will be consistent with that of the AcSB and PSAB.
- The Committee plans to present its final report to the Council in February 2019.
Members discussed and agreed with the Risk Committee’s plans.
Ms. Mezon stated that, as previously reported, the AcSB and AcSOC have had regular discussions on the relevance of private-sector entity audited financial statements. The Board has now decided to provide leadership on this matter, while indicating that multiple initiatives are required from all parties involved, including preparers, directors, auditors, and users. To that end, the AcSB has developed a Draft Framework for Reporting Performance Measures, which is due for release on June 14, 2018.
Rebecca Villmann, Director, Reporting Initiatives and Research, noted that the Draft Framework is a first step to enhance the relevance of information that users rely on to make resource-allocation decisions, while recognizing that audited financial statements provide the foundation for such information.
Users have consistently said that performance measures lack transparency, consistency and comparability, and there is no correlation of performance measures to management’s compensation. The AcSB has taken a first step to develop an overarching framework to respond to these concerns and encourage best practices on a voluntary basis. While the Draft Framework is not an accounting standard, the Board is applying the principles of due process (transparency, consultation and accountability) in developing the Draft Framework. The Board thinks that the framework can benefit for-profit and not-for-profit entities.
The AcSB has held discussions with peers and individual experts, and has held several meetings and participated at various conferences on its initiative. Initial feedback is very encouraging. This feedback helped the AcSB evolve the Draft Framework, which is broader than just financial accounting. Application of the guidance in the final framework might eventually enable verification of non-GAAP performance measures by independent parties, such as valuation experts, and external or internal auditors.
While those consulted support the AcSB’s efforts, they expressed several key concerns:
- The practicality of the guidance. Is industry guidance required?
- The applicability of the guidance. Should it distinguish between financial and operational measures? Should it be mandatory?
- Is the guidance consistent with existing and forthcoming Canadian Securities Administrators’ (CSA) requirements?
- Does the guidance provide a basis for assurance?
The AcSB has arranged a series of activities and consultation opportunities to promote its initiative. Comments from interested parties on the Draft Framework, which are due by September 17, 2018, will inform the Board’s next steps.
Members congratulated the AcSB and staff on its leadership role in developing the Draft Framework.
In reply to questions, Ms. Mezon’s remarks included the following:
- There is a connection and an overlap with the activities of the Sustainability Accounting Standards Board (SASB). (Please see the discussion on the SASB’s activities later in this report.)
- The AcSB would like the framework to complement the CSA’s requirements.
- The AcSB is aware of the activities of others who are looking at the issue of transparent and consistent performance measures. This includes performance measures for not-for-profit organizations. The Board will consider all these activities to try to produce collaborative guidance to improve financial reporting.
- The biggest challenge related to improving the reporting of performance measures is to take the first step to start the conversation and move away from the status quo, as the AcSB is doing.
Members’ comments included the following:
- A member expressed some concern about the possible implications of labelling the AcSB’s document as a framework. The member said that standard setters use conceptual frameworks in a specific context.
- Another member suggested that the AcSB document’s title as being a framework is problematic in that the IASB and other standard setters use frameworks in their standard-setting activities. The Board’s document borrows significantly from other frameworks. Its document should indicate that it is based on, but not the same as, the IASB’s framework.
- The CSA will publish for comment a draft rule in September to replace and expand on its existing Staff Notice 52-306 (Revised) Non-GAAP Financial Measures. There is some overlap between the Draft Framework and the CSA’s draft rule. The AcSB should work with the CSA Chief Accountants and acknowledge this publicly, possibly via a joint press release.
- A member questioned why the AcSB was leading the initiative rather than improving measures within the GAAP financial statements.
- Canada’s stock exchanges provide smaller public issuers with considerable help in discharging their reporting obligations. The AcSB should consider asking these exchanges to assist it with its framework project.
- The AcSB should consider the potential effect of any new standards on commonly used performance measures.
- In North America, some items of information that the IASB requires to be in the financial statements are commonly disclosed in management’s discussion and analysis (MD&A). The IASB should consider allowing entities to state that if certain MD&A items are audited, there is no need to duplicate these items in the financial statements.
Miville Tremblay, the Vice-Chair, stated that the AcSB has the support of the Council. He said that many parties are involved in improving the relevance of audited financial statements and that all should work together to contribute to the project.
(This agenda item was open to public observation, but was not livestreamed)
Bonnie Lysyk, Auditor General of Ontario, accompanied by Tim Beauchamp, a member of the Auditor General’s Panel of Senior Advisers, presented on the following:
- The role of the Auditor General and the importance of PSAB’s standards (PSAS) to that role.
- Two significant accounting issues in the Province of Ontario’s consolidated financial statements and their importance for the protection of the public interest:
- Fair Hydro Plan – A structured transaction designed to record future increases in electricity prices as an asset.
- Pension Asset Valuation – The Province has not provided audit evidence that it has the unilateral right to withdraw surplus or reduce minimum contributions.
- The importance of PSAB to work in the public interest and to highlight the need for the Board’s timely response to significant challenges to its conceptual framework through legislated accounting.
- The importance of protecting the independence of PSAB standard setting in Canada, and the avoidance of any perception of political influence and conflict of interest.
Ms. Lysyk’s comments included the following:
Importance of PSAS to the public
- As a key safeguard for transparency and accountability in government, Auditors General audit for the correct application of PSAS.
- Auditors General in Canada defend PSAS and its conceptual framework, even when legislated accounting attempts to override PSAS.
- The Offices of the Auditors General’s credibility depends on auditing for governments’ compliance with independently set and supportable accounting standards in an accepted and defendable conceptual framework.
- Regarding the Fair Hydro Plan, Canadian Auditors Generals agree that PSAB’s conceptual framework does not permit the recording of rate-regulated assets. As well, three national accounting firms, the retired PSAB Director, a former Auditor General of Canada, and others, all agree.
- Regarding the need for a pension valuation allowance, the Office of the Auditor General of Ontario reached its conclusion after extensive consultation with Auditors General in Canada, three national accounting firms, the retired PSAB Director, and others.
Ontario Fair Hydro Plan Act, 2017
- The government implemented a complex accounting/financing structure to avoid showing an annual deficit and increase in net debt. Another government organization created a regulatory asset under a PSAS framework. An independent rate-regulatory process did not take place; therefore, there is no rate-regulated asset and rate-regulated accounting is not applicable.
PSAB and the public interest
- While it is normally not good policy for PSAB to weigh in on issues between management and an organization’s auditors, it could be more responsive to issues such as legislated accounting and inappropriate rate-regulated accounting, to help resolve the situation, and not prolong debate with silence. Ms. Lysyk suggested that the Board could engage in active research on the issues to understand thoroughly the risk to its conceptual framework and standards.
- Ms. Lysyk suggested that PSAB and AcSOC could solicit additional information to understand significant complicated issues in the public interest, and guard against any actual or perceived conflict of interest with preparers of government financial statements in the standard-setting process in Canada.
The presenters’ comments on members’ questions included the following:
- Rating agencies are beginning to understand the issues involved and are awaiting developments. These agencies are interested primarily in cash flows.
- PSAS on the topics are clear to all the Canadian Auditors General. They all think that the standards do not permit rate-regulated accounting. It is important that PSAB, AcSOC, and all the Auditors General state this clearly.
- Because there is no independent regulator, using rate-regulated accounting would also not be permitted under U.S. GAAP.
- The Province of Ontario’s actions are precedent setting, particularly relative to the magnitude of the issues.
- A focused discussion between PSAB and the Office of the Auditor General of Ontario on the issues would be desirable.
- The Province of Ontario structured the Fair Hydro Plan transaction so that the Province’s financial statements would avoid showing a deficit and an increase in net debt. The Province did not provide the Office of the Auditor General of Ontario with early notice of the Province’s actions.
- The Province’s actions are legal in that they are in accordance with its legislation, but they are not in accordance with PSAS. The Auditor General of Ontario’s opinion on the Province’s 2016-2017 consolidated financial statements states that they are not in accordance with PSAS.
Mr. Jewett thanked the presenters and emphasized that any legislated overriding of PSAS is always of great concern to PSAB and the Council.
At an in-camera discussion subsequent to the Auditor General’s presentation, members decided that the AcSOC Chair should send a letter to the Auditor General of Ontario:
- thanking her for her presentation;
- stating that the Council and PSAB encourage the Canadian public sector to use the PSAB-established standards, and that any variance from these standards is of great concern to the Council; and
- indicating that the Council would solicit further information to understand the complex issues, and accounting by the Province of Ontario, of its Fair Hydro Plan.
Professor Jeffrey Hales, Chair of the Standards Board of the Sustainability Accounting Standards Board (SASB), provided an overview of the organization, which creates industry-specific sustainability accounting standards that help companies disclose financially material, decision-useful environmental, social, and governance (ESG) information to investors in a cost-effective way.
Professor Hales discussed the growing investor interest in sustainability, the rigour of SASB’s standards-development process, and the market support and interest for improved ESG disclosure. He commented on the robustness of SASB’s standards, which are designed to provide decision-useful information. Its standards, which enable peer-to-peer comparisons and industry benchmarking, are drawing wide interest across global capital markets, and the number of companies referencing SASB in a variety of documents is rising.
In reply to questions, Professor Hales’s remarks included the following:
- SASB’s annual budget is about US$8 million. It is funded heavily by:
- donations from entities such as Bloomberg, foundations and the major accounting firms; and
- revenue generated from programs and publications.
- The programs and publications include:
- SASB’s Engagement Guide, which provides industry-specific guidance on how asset owners and asset managers can use SASB standards to inform their engagement with companies;
- a field guide that distills standards for 79 industries into one reference manual; and
- an annual reference document for investors and users to understand better the current state of disclosure on SASB’s topics and metrics.
- SASB’s governance structure, modelled on that of the U.S. Financial Accounting Standards Board, separates fiduciary duty from standard setting and includes a complaints and appeals process.
- Because the bulk of the U.S. capital market comprises multinational companies, SASB’s topics and metrics need to be useful to investors and users wherever these multinationals operate. Investors and users would like SASB’s metrics to apply to global portfolios
- SASB meets and liaises with the U.S. Securities and Exchange Commission and the U.S. Public Company Accounting Oversight Board on a regular basis.
- SASB monitors the environment, similar to the process adopted by accounting standard setters. Its standards are not created in a vacuum. It attempts to standardize best practice.
- The 90-day comment period for SASB standards is a small part of the entire process, which includes the use of industry working groups populated by issuers and investors.
- SASB is attempting to attend to investors’ needs by trying to facilitate capital market allocations.
- Traditional accounting measures are based on frameworks that are rooted in the notion of assets and liabilities. These are important in valuing an entity, but there are many other factors to be considered.
Mr. Jewett thanked Professor Hales for an informative and helpful presentation.
Scott Hendry, Senior Special Director, Financial Technology in the Funds Management and Banking Department of the Bank of Canada, provided an overview of digital currencies and distributed-ledger technology.
Mr. Hendry said that there has been strong growth in cryptocurrencies, most of which are securities not currencies; few are used to buy goods and services and they are still too volatile to be good money.
The Bank of Canada is interested in some of the potential implications of cryptocurrencies on monetary policy and financial stability. Mr. Hendry said there is a lack of oversight of cryptocurrencies and consequently poor consumer and investor protection. He said that global authorities should co-operate to improve the regulatory structure to ensure appropriate risk management, and commented that cryptocurrencies:
- could erode the effectiveness of monetary policy and lender-of-last-resort policy if widely adopted;
- could facilitate money laundering and terrorist financing;
- reduce market integrity;
- are not compliant with securities legislation; and
- remove the need for other payment intermediaries.
Commenting on Bitcoin, one of the most popular cryptocurrencies, Mr. Hendry said these can be acquired through Bitcoin ATMs and that trust and dependencies abound in the Bitcoin ecosystem even though it is supposed to operate without trusted intermediaries. The system has been in operation since 2009.
Mr. Hendry said that blockchain is a ledger of transactions, also known as “distributed-ledger technology”. The ledger is stored and maintained by a network of users and is secured by trust in the platform, not intermediaries. The concept underlies Bitcoin, cryptocurrencies, and other use cases. The ledger is:
- an immutable record of transactions among participants who do not trust each other;
- secured by decentralized validation and processing of transactions; and
- a shared database.
In reply to questions, Mr. Hendry’s remarks included the following:
- The mining process, which rewards miners with cryptocurrencies, does not set their value. Supply and demand sets value. Bitcoin has no intrinsic value.
- There will eventually be a fixed number of Bitcoins. No one controls the number of Bitcoins. The rewards given to miners are unrelated to their costs.
- Miners are not subject to anyone’s control. Cryptocurrency wallets that allow users to make cryptocurrency transactions are available to all.
Mr. Jewett thanked Mr. Hendry for an interesting and thought-provoking presentation.
Daniella Girgenti, Communications Manager, Standards, commented on the results of livestreaming AcSOC’s March 1, 2018, meeting.
She noted that there were 53 registrants, of which 33 attended and watched a significant portion of the proceedings. While most of the registrants were based in Canada, there were registrants from Barbados, the People’s Republic of China, the United Kingdom, and the United States.
Mr. Tremblay thanked Ms. Girgenti for the information.
Two members reported on their attendance at the March 22-23, 2018, PSAB meeting. They said that it was well chaired, there was good participation from Board members, and the public interest was always considered. They were particularly impressed by the staff’s presentations, which were designed to avoid repeating matters covered in the meeting papers. They noted that there were several matters common to the AcSB’s work.
* * * * *
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.