Private Enterprise Advisory Committee Meeting Notes – February 7, 2018
The Private Enterprise Advisory Committee assists the Accounting Standards Board (AcSB) with maintaining and improving accounting standards for private enterprises (ASPE) in Part II of the CPA Canada Handbook – Accounting and with 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.
The AcSB staff has prepared these notes based on discussions held during the Committee’s meeting. The meeting notes do not necessarily represent the AcSB’s views and nothing in them constitutes authoritative guidance on acceptable or unacceptable application of ASPE. Only the AcSB can make such a determination.
The Committee discussed members’ comments arising from their fatal-flaw review of the forthcoming Exposure Draft on Agriculture, and identified areas for the Board to consider providing further clarification.
The Committee discussed whether the point of processing, at which time the products would be outside the scope of the new section, was sufficiently clear in the draft guidance. The Committee advised the Board to add examples of biological assets and agricultural produce, and products that would be outside the scope of the new section because they are the result of processing after harvest.
Definitions and classification
Committee members discussed whether it was clear how the definitions of biological assets and agricultural produce are used in determining whether items are classified as agricultural inventories or productive biological assets. The Committee advised the Board to consider clarifying how the definitions of biological assets and agricultural produce correspond to the classifications of productive biological assets and agricultural inventories.
Measurement of agricultural inventories
The Committee considered the proposed accounting policy choice when full cost is not used to measure agricultural inventories, and discussed whether the description and examples of input costs were clear enough for the guidance to be consistently interpreted and applied. The Committee advised the Board to further clarify what is included in input costs and when labour is considered readily determinable.
The Committee also advised providing examples of when costs, such as amortization, should be included in full cost.
Measurement of productive biological assets
The Committee advised the Board to clarify whether the option to use input costs only would be available for productive biological assets, and to provide examples of overhead costs. The Committee also advised that the Board clarify when a biological asset becomes productive.
The Committee discussed whether agricultural producers should be required to disclose the amount of any write-downs because this disclosure is not required of other private enterprises. The Committee advised the Board to reconsider this disclosure requirement for agricultural producers.
The Committee also advised the Board to consider whether agricultural producers should be required to disclose what they include in determination of cost, if they do not use full cost to measure their agricultural inventories.
Committee members advised the Board to consider illustrative examples and application guidance to help stakeholders apply the new standard.
Retractable or Mandatorily Redeemable Shares Issued in a Tax Planning Arrangement
The Committee discussed a summary of the feedback obtained from outreach activities on the Exposure Draft, “Retractable or Mandatorily Redeemable Shares Issued in a Tax Planning Arrangement.” Committee members advised the Board to consider:
- clarifying “Condition 2 – Redemption schedule” by removing reference to “implicit arrangements”;
- revising “Condition 3 – No consideration other than shares exchanged” to more clearly reflect that this condition applies to transactions that involve more than one class of shares;
- providing an option for liability classification when all the conditions for equity classification of retractable or mandatorily redeemable shares are met or a stakeholder chooses not to assess whether all the conditions are met.
Committee members also discussed feedback on the transitional relief the Board proposed and expressed mixed views about whether additional transitional relief was necessary in circumstances when information about a tax planning arrangement could not be obtained.
Accounting for Related Party Financial Instruments and Significant Risk Disclosures
The Committee discussed a summary of the feedback obtained from outreach activities on the Exposure Draft, “Accounting for Related Party Financial Instruments and Significant Risk Disclosures.”
Committee members advised that the Board clarify the initial measurement proposals for related party financial instruments. Members thought adding a flow chart in Section 3856, Financial Instruments, and Section 3840, Related Party Transactions, would direct stakeholders on which standard to apply to the various elements of a related party transaction.
Committee members also advised the Board to consider providing guidance on what “entity-specific information” means. However, members think illustrative examples should not be provided in the guidance because these may be applied as template disclosures.
Review of Recently Issued Standards under Other Accounting Frameworks
The Committee considered recent standards issued in other jurisdictions to assess whether some or all of the new accounting in those standards would provide significant benefit to Canadian private enterprises reporting under ASPE. Members discussed:
- new or amended standards under U.S. GAAP issued by the U.S. Financial Accounting Standards Board (FASB) since October 2016, particularly amendments specific to private companies; and
- IFRS® Standards issued or amended by the International Accounting Standards Board (IASB) since December 2016.
The Committee advised the Board that:
- the FASB amendments to the definition of a business and the pending IASB amendments have merit for the Board’s consideration in its Part II priorities; and
- the guidance in IFRIC 23 Uncertainty over Income Tax Treatments would be helpful for private enterprises in Canada given the increasing complexity of taxes, and that this topic could be considered for a future Part II project.
The Committee also discussed the following topics and advised the Board that no amendments to ASPE should be considered as a result of these changes to IFRS Standards and U.S. GAAP:
- changes in control of joint operations;
- accounting for insurance proceeds;
- the FASB update on the application of “down-round” accounting; and
- the scope of financial instrument recognition for interests in joint arrangements.