Decision Summary May 16, 2017

This summary of Accounting Standards Board (AcSB) decisions has been prepared for information purposes only. Decisions reported are tentative and reflect only the current status of discussion on projects, which may change after further deliberations by the AcSB. Decisions to publish Handbook material are final only after a formal ballot process.

International Financial Reporting Standards

Prepayment Features with Negative Compensation (Previously Called Symmetric Prepayment Options)

The Board reviewed and approved its response letter to the IASB’s Exposure Draft, “Prepayment Features with Negative Compensation (Proposed Amendments to IFRS 9),” subject to drafting changes.

The Board committed to asking the IASB for its cooperation so the Board can endorse and incorporate the final amendment issued by the IASB into the CPA Canada Handbook – Accounting by November 1, 2017.

Modifications or Exchanges of Financial Liabilities that do not Result in Derecognition

The Board discussed a draft staff response to the IFRS Interpretations Committee’s tentative agenda decision “IFRS 9 Financial Instruments - Modifications or exchange of financial liabilities that do not result in derecognition” and suggested additional aspects to consider in the response.

Board members observed that many entities may be unaware of the Committee’s technical conclusion that, in applying IFRS 9, an entity accounts for modifications and exchanges of financial liabilities that do not result in derecognition by recognizing an adjustment to the amortized cost in profit or loss.

Consequently, the Board expressed support for additional efforts to raise awareness noting that this forthcoming agenda decision may constitute more of a change in practice for Canadian stakeholders adopting IFRS 9 than previously anticipated.

Principles of Disclosure

The Board discussed some key areas of the IASB’s Discussion Paper, “Disclosure Initiative—Principles of Disclosure” on which the Board will seek stakeholder input to inform its response to the IASB. Specifically, the Board discussed the following sections of the Discussion Paper:

  • Section 1 – Overview of the ‘disclosure problem’ and the objective of this project;
  • Section 3 – Roles of the primary financial statements and the notes; and
  • Section 4 – Location of information

The Board encourages stakeholders to share their views on the Discussion Paper by registering to attend an AcSB roundtable discussion in Vancouver, Toronto, Montreal or virtually, and submitting comment letters to the IASB by October 2, 2017.

Standards for Private Enterprises

2017 Annual Improvements

The Board considered an issue raised in finalizing the amendments to Section 1521, Balance Sheet, proposed in its Exposure Draft, “2017 Annual Improvements to Accounting Standards for Private Enterprises,”  relating to the presentation of current assets. The Board decided to clarify further the requirements in Section 1521.

Financial Instruments – Narrow-scope Amendments

The Board considered feedback received from the “Post-implementation Review of Section 3856, Financial Instruments” and additional targeted advice from members of its Private Enterprise Advisory Committee on alternatives to resolve the following narrow-scope issues:

Initial measurement of related party financial instruments

The Board decided that initial measurement guidance for related party financial instruments should be added to Section 3856, Financial Instruments. The Board also discussed measurement concepts for these instruments and directed the staff to explore these concepts further.

Measurement of related party compound financial instruments

The Board discussed acceptable methods for the initial measurement of the separate liability and equity elements of related party compound financial instruments. The Board decided that the allocation of proceeds should be consistent for both related party and third party compound financial instruments.

Classification of impairment and forgiveness of related party loans

The Board agreed that the financial asset impairment indicators in paragraph 3856.A15 are not exclusive to third party financial assets. The Board discussed potential approaches to distinguish between impairment and forgiveness of related party loans and directed the staff to obtain feedback from additional financial statement users on this issue.

Scope of accounting for modifications and extinguishments of related party loans

The Board discussed the application of the 10% threshold assessment in paragraph 3856.A52(a) and directed the staff to consider how it would be applied to modifications of related party loans.

Usefulness of financial instrument risk disclosures

The Board discussed the risk disclosure requirements and directed the staff to obtain feedback from additional financial statement users, such as lessors and private equity investors, regarding the usefulness of this disclosure.

Application by not-for-profit organizations

The Board directed the staff to research whether these proposed amendments would be appropriate for application by not-for-profit organizations given there is no guidance for measuring financial instruments with related not-for-profit organizations. The results of the research will enable the Board to determine whether and when the amendments would be applied by not-for-profit organizations.

Next steps

The Board will issue an exposure draft on these narrow-scope issues no later than the fourth quarter of 2017.

Redeemable Preferred Shares

Initial measurement for shares issued to a related party

The Board discussed how redeemable preferred shares that are classified as liabilities and issued to a related party should be measured initially. The Board has decided that redemption amount is appropriate in these circumstances. In this regard, the Board considered the interactions of this project with the Board’s project relating to the narrow scope amendments to Section 3856, Financial Instruments

Reassessment criteria

The Board also considered when the classification of redeemable preferred shares may need to be reassessed after initial recognition. The Board agreed that:

  • the underlying principle for reassessment should be on the same basis as the classification exception;
  • an enterprise should reassess the classification of the shares upon the occurrence of transactions or events; and
  • this guidance should be included in the financial instruments section.

The Board also directed the staff to explore further situations when redeemable preferred shares that are initially classified as liabilities may subsequently be reclassified as equity. 

Presentation and disclosures

The Board also considered feedback from users of private enterprise financial statements and decided that an enterprise should:

  • charge the offset for the liability to equity;
  • present redeemable preferred shares classified as a liability on the face of the balance sheet separate from other liabilities;
  • explain why there is an equity balance; and
  • describe the arrangement that gives rise to the redeemable preferred shares.

Transition requirements

The Board considered the implications of applying the proposed exception on a retrospective or prospective basis. The Board decided that retrospective application was appropriate, but based on the terms and conditions that exist at the date of initial application. In addition, the Board decided to provide transitional relief for redeemable preferred shares that are extinguished prior to the date the amendments are effective.

Next steps

The Board will issue a re-exposure draft on these proposals no later than September 30, 2017.

Standards for Not-for-Profit Organizations

Contributions – Revenue Recognition and Related Matters

The Board discussed the feedback received to date from its Not-for-Profit Advisory Committee, including input relating to current practice and various options to account for donor stipulated contributions.

The Board also considered the next steps in carrying out research on the recognition of revenue from contributions. The Board decided to:

  • perform additional research to understand better current practices, such as on the types of not-for-profit organizations that use the deferral method or the restricted fund method and why, and the significance of different types of revenue to those organizations; and
  • consult with a range of users of not-for-profit financial statements, including, but not limited to, foundations, government funders and not-for-profit directors to understand what information they need to make decisions.  

The Board directed the staff to assess how this project should consider the research under way on Section 1000, Financial Statement Concepts and Section 3400, Revenue, in its Consultation on Priorities for Part II of the Handbook, and whether a corresponding review of Section 1001, Financial Statement Concepts for Not-for-profit Organizations, in Part III is needed.

Due Process and Governance

AcSB Due Process

The Board approved a report to the Accounting Standards Oversight Council on due process compliance matters.

Canadian Securities Administrators

Following up on previous discussions on the definition of a publicly accountable enterprise (see the Board’s July 2016 Decision Summary), the Board received a presentation from members of the Canadian Securities Administrators’ National Instrument 45-106 Committee to better understand the use of the exempt and private market by enterprises to raise capital. The Board will consider the information provided by the Committee and discuss next steps at a future meeting.


Read about AcSB recommendations made to influence the development of IFRS and enhance the global comparability of financial reporting outcomes, including US GAAP, in the Board’s Responses to IASB Documents for Comment and Responses to Other Documents for Comment.