Private Enterprise Advisory Committee
June 14, 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, if any, should be suggested to the AcSB for inclusion in the 2017 Annual Improvements.
The Committee agreed to suggest the following to the AcSB:
Item to Be Considered as Part of the 2017 Annual Improvements
Foreign Currency Translation – Reversal of Previously Recorded Write-downs of Inventory
Foreign Currency Translation, paragraph 1651.53, requires that previously recorded write-downs of inventory should not be reversed in the translated financial statements of an integrated foreign operation. However, this requirement contradicts the guidance in Section 3031, Inventories, that requires previous write-downs to inventory be reversed when the circumstances that previously caused inventories to be written down no longer exist or there is clear evidence of an increase in the net realizable value reflecting changes in economic circumstances.
The Committee agreed to suggest to the AcSB that this contradiction be addressed by deleting the requirement that prohibits the reversal of previously recorded write-downs of inventory in paragraph 1651.53.
Balance Sheet – Presentation of Assets Leased under Capital Lease
Section 1521, Balance Sheet, consolidates the presentation requirements in other Sections. Stakeholders noted that paragraph 1521.04, which lists the assets that should be separately presented on the balance sheet, omits assets leased under capital leases. However, Leases, paragraph 3065.21, requires that assets under capital lease should be presented separately. The Committee agreed to suggest to the AcSB that the relevant standards in either Section 1521 or Section 3065 should be aligned to address this issue.
Accounting Changes –Disclosure of Adjustments when Applying and Accounting Policy Change
The pre-changeover accounting standards in Part V, Section 1506, Accounting Changes, required an enterprise to disclose the amount of an adjustment related to an accounting policy change for both the current and each of the prior period(s) presented. When Part II standards were developed, the disclosure requirement regarding the adjustment for the current period was retained; however, the disclosure requirement relating to each of the prior period(s) presented was removed. Committee members noted that disclosing the adjustment related to the prior period(s), rather than the current period, meets the needs of users.
The Committee agreed to suggest to the AcSB that this issue be addressed by deleting the requirement to disclose the amount of an adjustment related to an accounting policy change for the “current period” and add a requirement for the “prior period(s) presented” in paragraphs 1506.34(e) and 1506.35(c).
Items to Be Addressed but Considered to Be Outside the Scope of the Annual Improvements
Impairment – Allocation of an Impairment Loss
Section 3063, Impairment of Long-lived Assets, and Section 3064, Goodwill and Intangible Assets, respectively, provide limited guidance on how impairment losses should be allocated between long-lived assets and goodwill (or an asset group) when they are assessed for impairment at the same time, at the reporting unit level. The Committee noted that in practice this issue is raised frequently and that there is a lack of guidance in Part II of the Handbook, leading to diversity in practice. Accordingly, the Committee agreed to suggest to the AcSB that this issue warrants further consideration before any change can be considered.
Post-implementation Review of Financial Instruments
The Committee discussed the feedback to the “Post-implementation Review of Section 3856, Financial Instruments.” The purpose of this review was to assess the effectiveness of Section 3856 for preparers and financial statement users.
The Committee agreed to suggest to the AcSB that the issues noted below merit being added to the AcSB’s project plan and addressed through either a major project or a narrow-scope amendment:
- issues associated with the following related parties items should be dealt with concurrently:
- scope of accounting for related party financial assets and financial liabilities after initial recognition;
- measuring related party compound financial instruments;
- classification of impairment and forgiveness of related party loans; and
- challenges in determining the carrying amount or exchange amount of newly issued related party financial instruments;
- classification of certain instruments as either equity or financial liabilities; and
- some disclosure requirements.
The Committee also agreed to suggest to the AcSB that the issues noted below be researched further:
- initial measurement of financial instruments with non-market conditions or uncertain cash flows is challenging; and
- determination of fair value for some financial assets (including mutual or pooled funds).
The Committee noted that the latter issue is prevalent with not-for-profit organizations and, accordingly, suggested that it be raised with the Not-for-Profit Advisory Committee at its next meeting.
Redeemable Preferred Shares Issued in a Tax Planning Arrangement
The Committee discussed an analysis of the viability of a classification exception on the basis of retention of control over the enterprise. Specifically, the Committee discussed the challenges with applying the concept of control as a condition to the various characteristics of tax planning arrangements.
The Committee also provided further input into an analysis of the following issues for consideration:
- the definition of tax planning arrangements;
- conditions that should also be met in order for the classification exception to be permitted, in addition to the retention of control;
- reclassification considerations; and
- presentation and disclosure.
The Committee discussed its role and responsibilities to ensure that current and new members had a consistent understanding. The Committee also discussed the results of a self-assessment of its members on the performance of the Committee in 2015-2016.