Private Enterprise Advisory Committee
February 17, 2016
The Private Enterprise Advisory Committee’s purpose is to assist the Accounting Standards Board (AcSB) in maintaining and improving accounting standards for private enterprises (ASPE) in Part II of the CPA Canada Handbook – Accounting and in identifying the need for non-authoritative guidance about the standards. The Committee makes recommendations to the AcSB but is not authorized to interpret or provide authoritative guidance on ASPE.
This document has been prepared by the staff of the AcSB and is based on discussions during the Committee’s meeting. The meeting notes do not necessarily represent the views of the AcSB and nothing in them constitutes authoritative guidance on acceptable or unacceptable application of ASPE. Only the AcSB can make such a determination.
2017 Annual Improvements
The Committee discussed various issues raised by stakeholders to consider which, of any, should be recommended to the AcSB for inclusion in the 2017 Annual Improvements.
The Committee agreed to recommend the following to the AcSB:
Item to Be Considered as Part of the 2017 Annual Improvements
Share Capital – Disclosure of Number of Shares Issued
The pre-changeover accounting standards in Part V, Section 3240, Share Capital, required certain disclosures in respect of authorized and issued share capital in paragraphs 3240.02 and 3240.03, respectively. When Part II was developed, many of the disclosure requirements regarding authorized share capital were no longer required. In the process of removing the disclosure requirements relating to authorized share capital and merging some of those requirements with disclosures relating to issued share capital, the requirement to disclose the number of shares issued was duplicated in paragraphs 3240.20(a) and 3240.20(e).
The Committee agreed to recommend to the AcSB that this duplication be addressed by deleting the requirement to disclose the number of shares issued in paragraph 3240.20(e).
Items to Be Addressed as Narrow-scope Amendments
Subsidiaries – Transitional Provisions
The transitional provisions in Section 1591, Subsidiaries, were developed to provide relief only on transition to the new Standards. However, Committee members noted that some stakeholders hold the view that the transition provisions may be applied when an enterprise changes its accounting policy choice from cost to consolidation at any time in the future.
The Committee agreed to recommend to the AcSB that the applicability of the transitional provisions be clarified. The Committee noted that Section 1591 is effective for fiscal years beginning on or after January 1, 2016 and that the final annual improvements from the next cycle will not be issued until July 1, 2017. In that regard, the Committee further agreed to recommend that this issue be addressed outside the annual improvements cycle as a narrow-scope amendment.
Subsidiaries – Accounting for a Subsidiary Controlled through a Combination of Contractual Arrangements and Voting Interest
Stakeholders have noted that it is unclear as to how the voting interest, if any, that an investor holds in a subsidiary controlled through a combination of voting rights and contractual arrangements should be accounted for upon reading paragraph 1591.24(b)(ii). The Committee also noted that it is not clear in the guidance that an enterprise is not required to assess whether contractual arrangements give rise to control when consolidated financial statements are not being prepared. The Committee agreed to recommend to the AcSB that the standard be clarified in respect of both issues raised and that the issues should be addressed as part of the narrow-scope amendment discussed above.
Review of Recently Issued or Amended IFRSs
As part of its mandate, the Committee considers whether final amendments made to other accounting frameworks would significantly improve accounting standards for private enterprises (ASPE). At this meeting, the Committee discussed International Financial Reporting Standards (IFRSs) issued or amended by the International Accounting Standards Board in 2015.
The Committee agreed to recommend to the AcSB that no amendments to ASPE be considered as a result of changes to IFRSs at this time.
Subsidiaries and Investments
The Committee discussed the responses received on the Exposure Draft, “Subsidiaries and Investments,” issued by the AcSB in September 2015. Respondents generally agreed with the proposed amendments. The Committee discussed the issues raised by respondents and roundtable participants to the Exposure Draft with a view to recommending to the AcSB what changes should be considered when finalizing the amendments. In addition to recommendations relating to a number of minor issues, the Committee agreed to recommend the following to the AcSB:
- References to Section 1582, Business Combinations, should be included in Section 1591, Subsidiaries, when doing so provides better clarity and beneficial guidance. This recommendation underscores the underlying principle that initial measurement of a subsidiary accounted for using the cost method should be determined on a basis similar to other business combinations. Following this approach, additional references to Section 1582 should be included in Section 1591.
- Proposed paragraph 1591.26A makes it clear that initial measurement is on a basis similar to other business combinations. Accordingly, paragraph 1591.26A (h), which states that Section 1582 shall be applied for any other aspects of the initial measurement of an interest in a subsidiary not otherwise addressed in paragraph 1591.26A, should be removed.
- No changes should be made to the amendments for subsidiaries that do not constitute a business. Accordingly, the amendments should apply to all subsidiaries regardless of whether the subsidiary meets the definition of a business.
- An accounting policy choice for the recognition of bargain purchase gains and the accounting for step acquisitions should not be permitted.
- Disclosure requirements in respect of the initial and subsequent measurement of provisional amounts should be added to Section 1591.
The Committee also discussed the comments raised by respondents and roundtable participants regarding the accounting for acquisition-related costs for investments subject to significant influence when the investment is accounted for using the equity method. The Committee did not make a recommendation to the AcSB on this issue and will continue discussions on the issue at its April 2016 meeting.
The Committee noted that several additional issues raised were beyond the scope of the current project. The Committee agreed to recommend to the AcSB that these issues be further analyzed by staff for consideration at a future meeting.
The AcSB will deliberate the feedback received on its Exposure Draft and the Committee’s recommendations at its March 2016 meeting.
Redeemable Preferred Shares Issued in a Tax Planning Arrangement
The Committee received an update on the additional analysis conducted relating to the scope of the classification exception and the characteristics of tax planning arrangements. The Committee also discussed possible bases for a classification exception. Specifically, the Committee discussed whether a classification exception might be restricted to:
- estate freezes in which there is no change in control over the entity that is subject to the freeze;
- estate freezes and roll-over transactions, by focusing the classification exception on transactions with the controlling shareholder; and
- estate freezes that are non-reciprocal or when the only consideration exchanged is common or preferred shares that had been held by the common shareholder.
The Committee agreed to recommend to the AcSB that a classification exception on the basis of a change in control be further explored.