FYI Article – Subsidiaries and Interests in Joint Arrangements: Take Advantage of the Transitional Provisions in 2016

August 2016

Are you a private enterprise thinking about preparing consolidated financial statements? The Accounting Standards Board (AcSB) has made this easier for 2016.

Section 1591, Subsidiaries, and Section 3056, Interests in Joint Arrangements, are effective for annual periods beginning on or after January 1, 2016. They include guidance that was developed in part to encourage and provide relief to private enterprises electing to consolidate their subsidiaries.

However, the provisions are available only on initial transition to these new Sections.

Take Advantage of Transitional Relief

Private enterprises have a one-time opportunity in 2016 to take advantage of the transitional relief. Enterprises that may benefit from the relief include those:

  • using the cost method to account for their subsidiaries who choose to prepare consolidated financial statements for the first time when applying Section 1591; and
  • preparing consolidated financial statements that may identify additional subsidiaries not previously consolidated.

Why Is This Important in 2016?

We learned that some stakeholders interpreted the transitional provisions in Sections 1591 and 3056 to mean that they may be applied when an enterprise changes its accounting policy choice, as permitted by Section 1506, Accounting Changes, at any time in the future.

In order to prevent this misinterpretation of the transitional provisions, we issued the Exposure Draft, “Clarifications to Sections 1591 and 3056”, in May 2016.

This Exposure Draft aimed to clarify that the transitional provisions may not be applied when an enterprise changes its accounting policy choice to consolidate its subsidiaries at any time in the future, and that this relief will only be available to enterprises transitioning to Sections 1591 and 3056 for the first time.

Has Anything Else Changed?

The proposed narrow-scope amendments also aim to clarify that:

  • an enterprise is not required to assess whether contractual arrangements give rise to control when subsidiaries are not consolidated; and
  • the accounting treatment for the voting interest, if any, that an investor holds in a subsidiary when subsidiaries are not consolidated.

Timing of Adoption and Transitional Provisions

We expect to issue the final amendments in the fourth quarter of 2016. The amendments will be effective for years beginning on or after January 1, 2017. Earlier application is permitted. We also intend the amendments to be applied retrospectively.

As always, we will redeliberate the proposals in light of comments received. Part of the redeliberation process includes consultations with the Private Enterprise Advisory Committee.

For additional information on this project, see the Subsidiaries and Interests in Joint Arrangements project page.


Michelle Thomas, CPA, CGA
Principal, Accounting Standards Board
Phone: +1(416)204-2979