Private Enterprise Advisory Committee
October 6, 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.
The Committee received a summary of the feedback received on the AcSB’s Discussion Paper, “Agriculture,” issued in December 2015. The Committee discussed the following issues raised by stakeholders through comment letters and roundtable discussions and agreed that they warranted further consideration by the AcSB.
Project Scope – Purchased Agricultural Produce
Many respondents were concerned with the exclusion of purchased agricultural produce (such as feed for animals) from the scope of the project because it would not be practical for agricultural enterprises that produce and maintain inventories of agricultural produce for use in their operations. For example, a significant number of agricultural enterprises grow their own feed and purchase additional feed when needed. Respondents explained that it would not be realistic or meaningful to measure this inventory differently in an enterprise’s financial statements because the value of the inventory to the enterprise is the same regardless of origin. The Committee recommended that the AcSB further consider this issue, specifically with regard to the different approaches taken by the International Accounting Standards Board and the U.S. Financial Accounting Standards Board.
Recognition – Unharvested Crops
Most respondents agreed with the AcSB’s preliminary view that biological assets should be recognized when they meet the definition of an asset and the recognition criteria in Section 1000, Financial Statement Concepts. However, many respondents also expressed the view that unharvested crops should not be recognized in financial statements due to the uncertainty of obtaining future benefits. The Committee noted that several respondents expressed concern that there would be little benefit to recognizing annual crops at cost because of the short cycle and a significant amount of effort would be required to determine cost.
Measurement – Underlying Principle
Some respondents suggested that guidance developed for the agricultural sector should follow a principles-based approach for all biological assets and agricultural produce, rather than a mixed measurement model as proposed in the Discussion Paper. One Committee member noted that mixed measurement models are used elsewhere in ASPE, so the proposed model is consistent with other elements of Part II of the Handbook. Other Committee members thought that a principles-based approach might lead to a more cohesive standard.
Measurement – Unharvested Crops at Cost
Several respondents disagreed with the AcSB’s preliminary view that unharvested crops should be measured at cost because of the significant uncertainty of future benefits to be obtained and the complexities in determining cost. The Committee noted that many enterprises currently expense the costs of planted annual crops.
Measurement – Bearer Animals at Cost
The majority of respondents disagreed with the AcSB’s preliminary view that bearer animals should be measured at cost because it is unclear why bearer animals would be measured differently than animals held for sale and there are significant complexities in determining cost. The Committee agreed these complexities should be considered in the development of authoritative guidance for the agricultural sector.
Measurement – Change in Use
Respondents raised concerns with a change in the measurement basis for certain biological assets should there be a change in use (i.e., from a bearer animal at cost to an animal held for sale at current value when certain conditions are met and vice versa). The Committee agreed that this was an issue, particularly with regard to bearer animals and animals held for sale, when management’s intended use may be uncertain, or change based on market or other conditions.
The Committee also discussed the following:
- One Committee member noted that U.S. GAAP allows an accounting policy choice and recommended that the AcSB continue to consider allowing an accounting policy choice for agricultural assets. Other Committee members noted that there was unanimous support for the AcSB’s preliminary view that authoritative guidance should be developed for the agricultural sector and the purpose of this guidance would be to improve comparability in financial reporting. These members thought that allowing an accounting policy choice would not accomplish this goal.
- One member thought that the reality of the agricultural sector was that land and quotas were inextricably linked to the financial results and reporting of agricultural enterprises Therefore, they should be included in the project scope.
- Committee members thought that some of the definitions proposed in the Discussion Paper were unclear. Specifically, definitions for bearer plants, unharvested crops and agricultural produce (i.e., in the context of an apple tree, with unharvested apples that will become agricultural produce after harvest) were unclear. The Committee thought that further consideration needed to be given to definitions at the various stages of production to ensure that the guidance is clear.