September 11, 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 this document 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.
Employee Future Benefits
The Committee discussed an issue relating to the accounting under Section 3462, Employee Future Benefits, for a provision for adverse deviations in the going concern funding valuation. The provision was established by Ontario’s new funding rules for defined benefit pension plans with valuation dates of December 31, 2017, or later and filed after April 30, 2018.
The Committee advised that diversity is arising in practice regarding whether to include the provision for adverse deviations in the measurement of the defined benefit obligation when an enterprise elects to use a funding valuation under Section 3462. The Committee also discussed the practice in Quebec for accounting for the stabilization reserve in the measurement of the defined benefit obligation.
The Committee advised that the Board consider:
- whether it intended the funding valuation used in Section 3462 to be in accordance with regulation or a best estimate; and
- the implications of this issue for a defined benefit plan in which there is no legislative, regulatory or contractual requirement to prepare an actuarial valuation for funding purposes.
The Committee discussed the Board’s approved project to address stakeholders’ issues in Section 3400, Revenue, on the following topics:
- bill-and-hold arrangements;
- multiple-element arrangements;
- percentage of completion method;
- reporting revenue gross or net; and
- upfront non-refundable fees/payments.
The Committee considered the overall approach to the guidance that should be provided to address stakeholders’ issues raised. The Committee advised the Board that the proposed solutions retain the principles-based approach currently used in Section 3400. Therefore, the Committee suggested that rather than provide prescriptive guidance, the proposals should expand on the current principles, supplemented by illustrative examples when appropriate.
The Committee also discussed staff’s proposed solutions that looked to revenue guidance from various sources, including the superseded Emerging Issues Committee (EIC) abstracts in the pre-changeover standards in Part V of the Handbook and the IFRS® Standards and U.S. GAAP. The Committee considered whether the staff’s proposed solutions adequately addressed the issues raised by stakeholders and whether to suggest additional references.
Consultation on Project Priorities – Related Party Transactions
The Committee discussed an approach to addressing the challenges with Section 3840, Related Party Transactions. The Committee advised the Board to address challenges in the Section in phases.
The Committee also discussed specific issues in practice with the definition of a related party. The Committee considered whether a more principles-based approach or additional examples of related parties would address these issues.
Consultation on Project Priorities – Financial Instruments – Hedging
The Committee discussed the use of hedging and how enterprises apply the guidance in Section 3856, Financial Instruments, to account for qualifying hedging relationships. Committee members noted that even for qualifying hedging relationships, the use of hedge accounting is rare because it is viewed as complex.
Committee members also considered the objective of hedge accounting and whether the guidance could be enhanced to reduce complexity and provide decision-useful information in financial statements. The Committee advised the Board to conduct further research with users on what information about an enterprise’s hedging relationships is useful.
Withdrawal of Part V
The Committee discussed whether the pre-changeover accounting standards in Part V of the Handbook remain useful in current practice, or whether they could be withdrawn. Committee members noted that Section 4250, Future-oriented Financial Information, and several EIC abstracts are still mentioned.
The Committee advised the Board to consult with the public on a narrow list of EICs that address topics that are still relevant and not considered in Part II of the Handbook.
Committee members also considered other issues with the withdrawal of Part V, such as whether these standards might be needed as reference material in litigation. The Committee advised the Board to consider whether Part V could be archived with disclaimers as other standard setters have done.
The Committee discussed the staff-proposed mandatory criteria and additional helpful indicators for determining whether a transaction involving the combining of two or more enterprises could be considered a merger.
While there was general agreement with the staff-proposed criteria and additional indicators, Committee members made recommendations on how they might be better articulated to ensure the appropriate enterprises are captured. In addition, a couple of Committee members questioned the division of the staff-proposed mandatory criteria and additional helpful indicators.
Framework for Financial Reporting
The Committee was provided an overview of, then gave input on, the Draft Framework for Reporting Performance Measures that can be used by different types of entities, including private companies. The staff informed the Committee that stakeholder input on the Draft Framework is requested by October 1, 2018.