Private Enterprise Advisory Committee
May 25, 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 March 21-22, 2017 and May 16, 2017 meetings. The Committee assessed the articulation of the conditions for a classification exception based on:
- retention of control of the enterprise;
- control of the enterprise being retained by the party receiving the redeemable preferred shares; and
- other conditions that reflect changes in the future cash outflows of the enterprise.
The Committee also provided input on situations when redeemable preferred shares that are initially classified as liabilities may subsequently be reclassified as equity.
Financial Instruments – Narrow-scope Amendments
The Committee discussed the decisions made by the AcSB at its May 16, 2017 meeting. In particular, the Committee considered:
- initial measurement of related party financial instruments;
- measurement of related party compound financial instruments;
- classification of impairment and forgiveness of related party loans; and
- scope of accounting for modifications and extinguishments of related party loans.
The Committee discussed the merits of including initial measurement guidance for related party financial instruments in Section 3856, Financial Instruments. Committee members highlighted:
- diversity in practice particularly with classification of impairment and forgiveness of related party loans as an income adjustment or in equity; and
- complexity with accounting for derecognition of related party financial instruments.
The Committee considered the effects of the proposed changes in Section 3856 on current practice and on not-for-profit organizations applying Part III of the Handbook.
The Committee also discussed the usefulness of financial instrument risk disclosures and advised that some financial instrument risk disclosures are not beneficial to financial statement users. Committee members advised that additional users should be consulted to better understand their disclosure needs before discussing improvements to the guidance.
Consultation on Project Priorities – Related Party Transactions
The Committee discussed the decision made by the AcSB at its April 20, 2017 meeting. In particular, the Committee discussed challenges in practice with applying the:
- definition of a Related Party and with Related Party Transactions; and
- measurement principles of carrying amount and exchange amount in Section 3840, Related Party Transactions.
The Committee also discussed examples of issues with accounting for some types of combinations under common control when applying the guidance in Section 3840.
Consultation on Project Priorities – Survey
The Committee discussed the AcSB’s decision from its March 21-22, 2017 meeting, to conduct a survey of stakeholders to seek views on:
- the prioritization of topics it is considering; and
- if, and when, to conduct post-implementation reviews of Section 1582, Business Combinations and Section 3462, Employee Future Benefits.
Committee members also reviewed a draft of the survey and recommended improvements. The survey is expected to be issued by June 30, 2017.
Consultation on Project Priorities – Financial Statement Concepts
Committee members noted that a review of the concepts underlying the development of accounting principles for Part II was needed to be responsive to the evolving nature of private and not-for-profit organizations.
The Committee discussed the significant proposals in the IASB’s October 2015 Exposure Draft, Conceptual Framework for Financial Reporting and how the proposals differ from existing requirements in Part II.
Committee members questioned whether the benefit exceeds the cost of converging the purpose, scope and qualitative characteristics of Section 1000, Financial Statement Concepts with IFRS. However, members agreed to recommend to the AcSB that improvements be considered for:
- the definition of a reporting entity;
- the definition of an asset and a liability; and
- the recognition criteria.
The Committee discussed whether there were common characteristics between combinations of not-for-profit organizations and for-profit enterprises, and in particular co-operatives. The Committee noted that some aspects of combinations between co-operatives were similar to that of not-for-profits especially for combinations of two or more entities of a similar size.
However, Committee members thought that the characteristics were more similar to that of a for-profit enterprise business combination. Committee members advised that further research be done to identify the characteristics of co-operative business combinations and other entities of a similar nature before any recommendations could be made to the AcSB.
The Committee discussed:
- the complexities of accounting for grants received by a private enterprise from a not-for-profit foundation; and
- whether an enterprise with a verbal partnership agreement was within the scope of Section 3056, Joint Arrangements.
The Committee agreed to recommend to the AcSB that these issues be considered in its consultation on project priorities.
The Committee received an update on the status of the project and discussions of the Agriculture Advisory Group at its May 24, 2017 meeting.
The Committee received an update on its member feedback for the 2016-2017 fiscal year.