Private Enterprise Advisory Committee
November 7, 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.
2019 Annual Improvements Process and Narrow-scope Amendments
The Committee discussed issues stakeholders raised and considered which, if any, to recommend to the AcSB for inclusion in the 2019 annual improvements process.
Committee members agreed to recommend the following as annual improvements to the AcSB:
Items to Consider as Part of the 2019 Annual Improvements
Application of the Cost Method to Interest in Jointly Controlled Enterprises
The Committee considered whether guidance in Investments, paragraph 3051.07A, can be applied to interests in joint arrangements that are accounted for using the cost method. The issue arises because Section 3056, Interests in Joint Arrangements, refers to Section 3051 when the cost method is used. However, paragraph 3051.07A specifies application only to investments subject to significant influence. The Committee advised that the Board clarify whether the guidance in paragraph 3051.07A applies to interest in joint arrangements accounted for using the cost method or not.
Application of First-time Adoption Exemptions
The Committee discussed the guidance in First-time Adoption, paragraphs 1500.11B - .11E, for measuring assets and liabilities of subsidiaries and joint arrangements on first-time adoption. An issue arises when a subsidiary (or joint arrangement) becomes a first-time adopter later than its parent (or investor) or vice versa. For example, when a parent applies paragraph 1500.11E, it is unclear if the parent can use some or all of the other exemptions within Section 1500 even though that may change the values of the subsidiary’s assets and liabilities. The Committee advised that the Board clarify the how the first-time adoption exemptions are to be applied when the timing of first-time adoption between parent and subsidiary are not aligned.
Items to Address but Considered to Be Outside the Scope of the Annual Improvements
Accounting for Interests in Joint Arrangements
The Committee considered whether additional guidance or illustrative examples would clarify the accounting for joint arrangements as jointly controlled enterprises or operations in line with Section 3056. The additional guidance or illustrative examples would assist when assessing whether the joint arrangement is a jointly controlled enterprise or operation when the investee is a partnership. The Committee agreed to recommend to the Board that further clarification was needed before considering additional illustrative examples. However, the Committee advised that this clarification may change current practice and, therefore, thought this item was outside the scope of an annual improvement.
Disclosure of Government Remittances
The Committee discussed application issues relating to the requirement to disclose government remittances in line with Current Assets and Current Liabilities, paragraphs 1510.15 - .16. In particular, members discussed the differing views about when a government remittance is recorded and when disclosure is required. Committee members noted the various interpretations of the guidance and the likelihood that this is leading to diversity in practice.
Other Issues Discussed
Accounting for Asbestos
The Committee also discussed the current practice relating to the accounting for asbestos. Members considered if the existence of asbestos in a building should result in the recognition of an asset retirement obligation in line with Section 3110, Asset Retirement Obligations. The Committee did not think this was a prevalent issue in practice and, therefore, agreed to not recommend this issue to the Board.
The Committee received an update on the project’s status and the Board’s discussions at its September 20-21, 2017 meeting. Committee members also considered proposals for:
- recognition of unharvested crops and unborn animals as assets;
- categorization of assets as productive biological assets and agricultural produce;
- cost as the measurement basis for productive biological assets;
- the use of and the conditions for an exception to measure some agricultural produce at net realizable value;
- need for classification guidance for gains/losses due to changes in net realizable value;
- complexities with tracking and allocating cost; and
- disclosure requirements.
Committee members discussed the consistency of the proposals with other sections of Part II.
Consultation on Project Priorities – Survey
The Committee discussed the results of the Part II priorities survey and the feedback from stakeholders on the different topics. The Committee considered the three topics the Board prioritized for further research in addition to Section 3400, Revenue, and recommended one more topic for the Board to consider prioritizing.
The Committee considered the timing and approaches for future projects and made recommendations to the Board on the order in which they should be addressed.
Consultation on Project Priorities – Revenue
The Committee discussed the results of the stakeholder survey relating to Section 3400, Revenue, including the comments received. Committee members noted that the Section generally works well; however, stakeholders increasingly need to refer to other frameworks for more guidance when addressing application challenges. This occurs for more complex revenue transactions, such as:
- contingent consideration from the sale of goods and services;
- future services associated with an upfront non-refundable fee/payment;
- loyalty programs;
- software services and their associated licenses; and
- subscription sales.
As the AcSB has decided that revenue is one of its priorities for ASPE, the Committee considered possible approaches on how to address the issues raised by stakeholders. This includes retaining the current risks-and-rewards model versus a control-based model derived from the concepts in IFRS 15 Revenue from Contracts with Customers in Part I of the Handbook. Committee members held mixed views on these approaches and advised that the revenue standard continue to be principles-based and encourage using professional judgment.