Consultation on Priorities for Part II

Current Status Next Steps

Research ongoing.

To be determined.

BACKGROUND

In developing its 2016-2021 Strategic Plan and through various consultations, the AcSB has received feedback from stakeholders applying accounting standards for private enterprises (ASPE) about their concerns with the standards. In response to this feedback, the AcSB identified a number of topics, which it is considering for future projects.

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The AcSB is performing targeted outreach activities to gain a better understanding of the issues relating to the topics identified. These activities include issuing surveys, seeking input from advisory committees and consultations.

The AcSB will consider the feedback obtained from these activities when determining the timing and scope of its future projects.

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PROJECT NEWS & DECISION SUMMARIES

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October 18, 2017. Are you a Canadian private enterprise, an advisor to one, or a user of private enterprises’ financial reports? If so, learn about proposed amendments to the accounting for Retractable or Mandatorily Redeemable Shares, Financial Instruments and the AcSB’s Priorities for Part II.

AcSB Decision Summary – September 20-21, 2017
The Board discussed the results of the survey that sought input on what topics respondents think should be addressed in future projects. The Board was pleased with the number of responses and the broad range of backgrounds represented by survey respondents. The Board also acknowledged the time and effort taken by stakeholders in providing detailed commentary and found the insights helpful in its deliberation process.

After considering feedback from the survey and other consultations, the Board decided that three topics should be prioritized for further research in addition to its research activities on Section 3400, Revenue. The Board directed staff to seek input from its Private Enterprise Advisory Committee on these topics before it makes a final decision.

The Board also discussed the interaction of its research activities with Section 1000, Financial Statement Concepts. The Board decided that a review of financial statement concepts in Part II and Part III is warranted in context of its other research activities.

AcSB Decision Summary – July 13, 2017
The Board discussed the results of the stakeholder survey relating to Section 3400, Revenue, in Part II of the Handbook, including the comments received. The Board was pleased with the number of survey responses and acknowledged the time and effort undertaken by respondents, and found the feedback valuable.

The Board also considered next steps and directed the staff to carry out additional activities, including:

  • considering the interaction of this Section 3400 work with the research work on Section 1000, Financial Statement Concepts and the Part III project on Contributions – Revenue Recognition and Related Matters; and
  • gathering feedback on revenue from users involved in private equity acquisitions of private enterprises with Canadian and U.S. operations currently applying Part II.

AcSB Decision Summary – March 21-22, 2017
The AcSB is currently conducting research and targeted outreach with stakeholders to gain a better understanding of the issues relating to the following topics:

  • Section 3840, Related Party Transactions;
  • Section 1000, Financial Statement Concepts;
  • Section 3400, Revenue; and
  • the benefit of amortizing goodwill and providing relief from the recognition of intangible assets on business combinations.

The AcSB is also considering the following topics in its priorities for Part II:

  • clarifying the definition of a business;
  • including guidance on determining functional currency; and
  • Section 3856, Financial Instruments: fair value measurement, hedge accounting, derecognition and classification of equity and financial liabilities.

The AcSB discussed different approaches to consulting stakeholders and decided to issue a survey 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

The AcSB expects to issue the survey in the second quarter of 2017. The AcSB will consider the results of the survey and the research and targeted outreach performed on the topics identified by no later than the fourth quarter of 2017.

Private Enterprise Advisory Committee Notes – February 2, 2017
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.

AcSB Decision Summary – January 12, 2017
Financial Instruments – Post-implementation Review
The AcSB approved a project to address several narrow-scope issues identified during the Post-implementation Review of Section 3856, Financial Instruments, associated with the scope of related party transactions and measurement of related party compound financial instruments and disclosure.

The AcSB discussed whether several other topics, including fair value measurement, hedge accounting, derecognition and classification of equity and financial liabilities, have merit in being added to its work plan. The AcSB agreed that if these topics are added to its work plan, they would need to be addressed through major projects. Therefore, the AcSB will consider these topics in the context of its consultation with stakeholders about the relative priorities for Part II projects.

Private Enterprise Advisory Committee
As part of its due process, the AcSB considers whether amendments made to accounting frameworks in other jurisdictions would significantly improve accounting standards for private enterprises (ASPE). At this meeting, the AcSB discussed the Private Enterprise Advisory Committee’s recommendations on recent amendments made to the following accounting frameworks:

  • IFRSs issued or amended by the IASB since December 2015.
  • The IFRS for Small and Medium-sized Entities amended by the IASB in 2015.
  • New or amended standards under U.S. GAAP issued by the U.S. Financial Accounting Standards Board (FASB) since February 2014, including amendments as a result of input provided by FASB’s Private Company Council.

The AcSB decided to include the following in its consideration of priorities for ASPE:

  • The benefit of amortizing goodwill and providing relief from the recognition of intangible assets on business combinations.
  • Clarifying the definition of a business to help distinguish between the acquisition of a business and a group of assets. 

The AcSB also discussed two amendments, as recommended by the Committee. These topics, and the AcSB’s decisions, are as follows:

  • Reduce the threshold stipulated in Section 1625, Comprehensive Revaluation of Assets and Liabilities, to apply push-down accounting.  Section 1625 currently requires all or virtually all of the equity interests in the enterprise to have been acquired in order to apply the option to revalue assets and liabilities comprehensively. The AcSB directed the staff to conduct further research to assess whether such a change would provide significant benefit to stakeholders.
  • Eliminate the requirements in Section 3465, Income Taxes, to segregate future tax assets and liabilities into current and non-current portions when the future tax method is applied. The AcSB directed the staff to consider the approach to undertake a project to address this topic.

The AcSB also agreed with the Committee’s recommendation that no amendments should be considered at this time relating to: 

  • including an option to revalue property, plant and equipment in Section 3061, Property, Plant and Equipment;
  • providing additional guidance in Section 3064, Goodwill and Intangible Assets, on the accounting treatment for cloud computing arrangements; and
  • the recently issued IFRS and U.S. GAAP standards on leasing.

Private Enterprise Advisory Committee Notes – December 1, 2016
To carry out its plan to consult with stakeholders about relative priorities for ASPE, the AcSB is focusing its consultation on specific topics of concern at this time.  The Committee discussed issues relating to the following topics:

Revenue
The Committee discussed challenges in applying the principles of the revenue standard in its current form. Committee members highlighted the increasing need to refer to other frameworks for additional guidance.  In particular, the following types of transactions were highlighted and discussed further:  

  • construction contracts;
  • multiple-element arrangements;
  • up-front, non-refundable fees;
  • loyalty programs;
  • bill-and-hold arrangements; and
  • subscription sales and modification of contracts.

Related Party Transactions
The Committee discussed various challenges with the application of Section 3840, Related Party Transactions.  In particular, Committee members highlighted:

  • interaction of Section 3840 with other Sections in Part II;
  • challenges with determining the carrying amount in some circumstances; and
  • presentation and disclosure considerations.

Financial Statement Concepts
The Committee discussed the use of Section 1000, Financial Statement Concepts, in practice, and the situations in which stakeholders refer to this Section.  The Committee also acknowledged the potential for changes to financial statement concepts in other frameworks and the impact of these changes on Part II.

AcSB Decision Summary – September 21-22, 2016
One of the AcSB’s expected activities described in its 2016-2017 Annual Plan is to consult with stakeholders about the relative priorities for future Part II projects.  To carry out this activity, the AcSB discussed the scope of the consultation and decided that it should be targeted to specific topic areas at this time, as follows:

  • Section 1000, Financial Statement Concepts;
  • Section 3400, Revenue; and
  • Section 3840, Related Party Transactions.

The AcSB further decided that the nature of the consultation should be tailored to each topic area to gain a better understanding of the issues, and may involve surveys as well as discussions with its advisory committees and other stakeholders.

Private Enterprise Advisory Committee Notes – June 14, 2016
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.

 

Disclaimer: This project summary has been prepared for information purposes only. Decisions reported are tentative and reflect only the current status of discussions on this project, which may change after further Board deliberations. Decisions to publish Handbook material are final only after a formal ballot process.