Private Enterprise Advisory Committee
February 2, 2017
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.
Redeemable Preferred Shares Issued in a Tax Planning Arrangement
The Committee discussed the decisions made by the AcSB at its January 12, 2017 meeting and the results of field testing conducted to assess the viability of permitting a classification exception on the condition of retention of control of an enterprise. In particular, the Committee discussed:
- whether the current guidance in Section 1591, Subsidiaries, is sufficiently robust to address the characteristics of redeemable preferred shares issued in a tax planning arrangement;
- the perspective from which control of the enterprise should be considered; and
- other conditions that are necessary, in addition to retention of control over the enterprise.
Committee members provided feedback on the types of arrangements that would not meet the classification exception and the potential effect on practice. Committee members also provided input on the overall project timeline.
2017 Annual Improvements Process
The Committee discussed the responses received on the Exposure Draft, “2017 Annual Improvements to Accounting Standards for Private Enterprises” issued in September 2016. Respondents generally agreed with four of the five proposed amendments.
The Committee agreed to recommend to the AcSB that the following proposed amendments be approved as exposed:
- Section 1505, Disclosure of Accounting Policies, would require disclosure of accounting policies “in one of the first notes” to the financial statements.
- Section 1506, Accounting Changes, would require disclosure of the amount of an adjustment to an accounting policy to the prior period(s) only.
- Section 1651, Foreign Currency Translation, would not require the reversal of previously recorded write-downs of inventory in the translated financial statements of an integrated foreign operation.
- Section 3065, Leases, would only require disclosure of the amount of the allowance for impairment of operating lease receivables and not the carrying amount of impaired operating lease receivables.
Some Committee members expressed concern that the proposed amendments to Section 1521, Balance Sheet, clarifying the items to be presented separately in the balance sheet, may lead to a change in practice. These Committee members thought that the proposed amendments should be deferred and reconsidered in the context of a broader disclosure initiative.
The AcSB will discuss the responses to its Exposure Draft and the Committee’s recommendations at its March 2017 meeting.
2018 Annual Improvements Process and Narrow Scope Amendments
The Committee discussed issues raised by stakeholders to consider which, if any, should be recommended to the AcSB for inclusion in the 2018 annual improvements process. Committee members agreed to recommend that the AcSB consider the following topics when assessing its future project priorities as the issues raised did not meet the guidelines of an annual improvement:
Insurance Contracts Including Cash Surrender Value
Insurance contracts, including cash surrender value of a life insurance policy, are excluded from the scope of Section 3856, Financial Instruments. The Committee discussed the alternatives for accounting for these instruments in the absence of guidance.
Bare Trust Arrangements
The Committee considered whether accounting for a joint arrangement of a bare trust holding real estate property as a jointly controlled asset, jointly controlled operation or a jointly controlled enterprise was clear in Section 3056, Interest in Joint Arrangements.
Acquisition by a Company of its Own Shares and Government Assistance
Section 3240, Share Capital and Section 3800, Government Assistance provide two accounting alternatives with one method being “preferred”. The Committee discussed the opportunities for varying interpretations of these standards and the resulting impact in practice.
Disclosure of Obligations under Capital Lease and Long-term Debt Repayments
Section 3065, Leases and Section 3856, Financial Instruments require disclosure of aggregate amount of payments over the next five years to meet repayment, sinking fund or retirement provisions. The Committee discussed the practice of disclosing only principal repayments for long-term debt but principal and interest repayments for capital lease obligations despite the identical disclosure guidance.
Consultation on Project Priorities – Related Party Transactions
To carry out its plan to consult stakeholders about the relative priorities of future ASPE projects, the AcSB is focusing its consultation on the following specific topics at this time:
- Section 1000, Financial Statement Concepts;
- Section 3400, Revenue; and
- Section 3840, Related Party Transactions.
The Committee discussed challenges with the application of Section 3840, Related Party Transactions at this meeting. In particular, Committee members discussed:
- interaction of Section 3840 with Section 3856;
- challenges with applying the measurement bases in Section 3840;
- accounting for related party transactions for a non-profit entity;
- business combinations under common control; and
- presentation and disclosure.
The Committee agreed to advise the AcSB that research should focus on the application challenges with the measurement bases in Section 3840 and business combinations under common control.
The Committee discussed the challenges in determining a functional currency resulting from a lack of guidance in ASPE and agreed to recommend to the AcSB to include this issue in its consultation on project priorities.
The Committee also discussed the presentation of foreign currency debt and a related forward contract to hedge future principal payments. The Committee agreed no further action was needed for this issue.
The Committee received an update on the status of the project, the formation of the new Agriculture Advisory Group and the project timeline.