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Transcript: Webinar – Domestic Accounting Standards Update (Fall 2023)

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Eric English: Okay, so. Looks like we’re at about two o’clock here. So why don’t we go ahead and get started with the webinar.

So, good afternoon, everyone, and welcome to today’s Domestic Accounting Standards Update webinar. Just to note that attendance of this webinar and successful completion of the quiz may count towards your CPD requirements.

The link to the quiz will be displayed at the end of the session and also included in the chat.

Upon successful completion of the quiz, you will be emailed a certificate for your records.

Okay, so before we get started, a reminder that the opinions stated reflect those of the presenters and do not necessarily reflect the views of the Accounting Standards Board.

So on behalf of the Accounting Standards Board, it is now my pleasure to introduce today’s speaker, Armand Capisciolto.

Armand is the Chair of the Canadian Accounting Standards Board. Armand has served on the Accounting Standards Board since 2013, including as a Member, Vice-Chair, and now Chair. His extensive experience as a standard-setter also includes chairing the ACSB’s private enterprise advisory committee, and membership on the IFRS accounting standards discussion group.

A quick introduction to myself as well. I’m Eric English, a Principal, the Accounting Standards Board staff.

I work closely with the Board, external parties and volunteers to develop high-quality accounting standards and other guidance for public companies, private enterprises and not-for-profit organizations.

I'm also the current Secretary of the Accounting Standard Board’s private enterprise advisory committee.

So now to briefly review our agenda for today. In this session, we will cover the ACSB’s strategic and annual plans, recently issued or effective domestic standards, the ACSB's current work plan for domestic standards and, lastly, other current events and activities that the ACSB is currently undergoing.

If you have questions throughout the webinar, you can type them into the Q&A function as we go along. And depending on time, we’ll try to get to as many as we can at the end of the session.

So before moving forward, we'll do a couple of quick polls to understand who is listening in live to today’s webinar. This will help us to tailor our comments to those listening.

So the first question is: What is your current role?

Okay, see lots of responses coming in. I’ll just give it a few more seconds here.

Okay, looks like we have a lot of public practitioners here as well as a good mix of financial statement preparers. So I think that’s a really good mix to have for today’s audience.

And moving on to our second polling question: Which category of reporting entity is most relevant to your current role?

Okay, I’ll just give that a few more seconds as we have some people coming in here.

Okay, so it looks like we have a lot of private enterprises, but then also some, a lot of representation for not-for-profit organizations. So I think we’ll have some really good, really good content to share with everyone today.

Okay. Alright, so moving along, I’ll now pass it over to Armand to begin with our first agenda item. Off to you, Armand.

Armand Capisciolto: Okay, thanks, Eric. And thank you, everybody, for joining us today. Let’s give a really quick overview of our 2023-2024 Annual Plan. And first off, we go to the next slide, Eric.

We are into the second year of our 2022-2027, our five-year Strategic Plan. And our strategic plan – it really drives our Annual Plan. So, we’re working through, our part way through, our 2023-2024 annual plan, so we are going to give an update today on where we are and what we still have to do. And for those of you who don’t have our Strategic Plan memorized – and I’m assuming that very few of you online that don’t have it memorized – if we go to the next slide, just a reminder that within our strategic plan, we had three key strategies, or three pillars, and they just remind everybody they were delivering relevant and high-quality accounting standards. So, I think when you think about what we do with the accounting standards, that’s kind of our core of what we do.

But we now do it in an environment where there’s reporting beyond financial statements. So we also want to improve the quality of reporting beyond financial statements, and so that’s part of our Strategic Plan and thinking about how financial statements fit in with all these other types of reporting that’s going on, and also grow the accounting standards for international influence. And we talked about international influence. We’re not just talking about influencing IFRS, but also working with other standard-setters, even on the standards that apply for private enterprises and not-for-profit organizations to ensure we’re all working towards best practice.

As far as our Annual Plan, just highlighting some stuff on our Annual Plan, we, as far as our domestic projects, we’ll be talking about a few of these shortly.

We’re focused on accounting for insurance contracts with cash surrender value. We have a project on scaling the standards for those of you in the not-for-profit space.

I assume you know we have a project on contributions, and we’re also continuing to make some improvements to our pension standards.

And [we] try to do all of this while recognizing the need to [be] responsive to emerging issues in an environment and that there’s constant change. It’s something that we’re also very conscious of as we work towards making sure we have relevant and reliable standards.

And a couple things, and again, we’ll talk about these a little bit more a little later on. We’re also looking at some of the reporting challenges, and again, this is for private companies or domestic standards related to goodwill and intangible asset accounting. So that’s something, I’m sure, some viewers are very eager to hear about. We’re also looking at the financial statement concepts in the Handbook and determining if there’s any tweaks that need to be made to the concepts.

And as I said earlier, when we look at the pillars of our strategy and how accounting standards interact with other standards, we are working very closely with the newly operational Canadian Sustainability Standards Board to ensure that when an entity has to report both financial statements and non-financial information that that information is connected and it actually makes sense when you read it together.

So, Eric, I believe now I’m turning it back over to you to talk about some recently issued or amended standards.

Eric English: Thanks, Armand. So we now move on to our next agenda item: domestic standards or amendments that have been recently issued.

So as you can see on the slide, the slide summarizes the key domestic standards and amendments and the effective dates for each of those projects.

As you can see, there’s been a lot of activity over the last couple of years. More information on each of these topics is included in the Appendix to these slides for your reference. Those slides also include links to additional resources that can help with implementation of these amendments or standards. So I’ll bring it back to you, Armand, now to talk about the details of our current domestic work plan.

Armand Capisciolto: Okay, so let’s, let’s skip ahead to the next slide. The first project that we want to talk about is Insurance Contracts with Cash Surrender Values.

So as I mentioned, we took on a project to issue guidance related to the recognition and measurement of these types of insurance policies held, and the reason we took this on is their … it doesn’t really fit in into the accounting anywhere right now.

If you look at financial instruments in insurance policies held, it’s actually scoped out of the financial instrument standard, and so there’s nothing that addresses the accounting for these types of insurance products.

So what we had heard is there was significant diversity in practice, so and that diversity existed in two places:

One whether or not this asset, this cash surrender value was even being recognized. Some were recognizing it; some were not recognizing it.

And for those that were recognizing it, there was also diversity in how the premiums paid and the changing cash surrender value were presented on the income statement. So, the Board has issued an Exposure Draft. I believe it was actually just issued late last week. And, within 90-day comment period, what this Exposure Draft proposes it proposes to issue an accounting guideline. And that guideline would talk about the recognition and measurement of the cash surrender value as an asset, and it would be measured at the cash surrender value. It would also talk about the presentation of the annual change in the cash surrender value in the premiums paid and how you will present that. And especially because sometimes it’s a net positive and sometimes it’s a net negative, depending on where it stands and the maturity of the insurance product. And there would also be disclosure requirements so that users had the information they need to make decisions.

This guidance applies to both for-profit and not-for-profit organizations. And there’s also some consequential amendments specifically for not-for-profit organizations on how these would be accounted for as contributions if a paid-up insurance contract was gifted to a not-for-profit organization. So if you have these, this is something you deal with on a regular basis. The comment period, the ED is out, 90-day comment period. And so send us your comments, and let us know what you think about that.

The next project that I want to talk about is Scaling the Standards.

So, this is a strategic project – a project that falls within the pillar of delivering relevant and reliable accounting standards. And when we look at why we took on this project, when we think about the entities and the variety of entities that follow both Part 2 and Part 3 of the Handbook, it's very broad, right? You have very large organizations that are private companies in Canada, very small organizations in Canada. So, how do we set standards that’s relevant to all of those?

So this consultation paper, which is closed since and the Board is now considering the comments, we kind of gave you a bunch of different ideas, and those ideas were whether or not we issue some new frameworks, whether we allow some tearing, which is within frameworks, and there were four different options, and people gave us comments on all those options.

As I said, we are re-deliberating those comments right now and considering what people told us.

The only decision that we have made to date, and this was because the feedback was pretty much unanimous, that we will not pursue an intermediary accounting framework that falls between IFRS and Part II and Part III kind of an IFRS light or ASPE plus – whatever you want to call it. We are not pursuing that. That was the one decision that has been made. As far as the other options, which included looking at tearing within the existing standards and the introduction of a newer, a new framework for small entities, again, no decision has been made. We’re continuing to do some research to see what those options would look like. And once we have that done, we would then look at what that project would look like and then issue another document for people to comment on at that point in time.

So, we have a polling question for you, and some of you may be wondering, "Why are they asking this polling question?”

Well, one of the things that we heard in the feedback was that Parts II and III so ASPE and the not-for-profit accounting standards are just too complex. We heard that from a number of people. So we thought we would ask what I call, the Goldilocks question: When you look at Parts II and III, are they too simple? Are they too complex? Or are they just right? So we’d like to hear from people and get your thoughts on that.

Eric, I will leave it to you too. You’ll be seeing how many people are answering on when to release the results. I am very intrigued to see the results to this polling question. Wow, wow! Well, you know no one is saying the “too simple”. We know that. Okay. So, or very few of you are saying they’re too simple. A lot of “too complex”, and a little less “just right”. So, very interesting, and some more data for the Boards to consider as we move forward with this project. Thank you for that.

So, the next project that I want to talk about (again, a comment period has closed on this) is Contributions – Revenue Recognition and Related Matters in Part III.

So, this is contributions for not-for-profit organizations. A topic that, what we’ve learned is that, people are very passionate about.

So if we think about what is this exposure, what did this Exposure Draft propose for those of you in the not-for-profits phase – right now for contributions, you have a policy choice. You can use the deferral method, or you can use the restricted fund method. What these proposals do is move to a single approach for recognizing revenue from restricted contributions with some specific guidance for special types of contributions, so that was kind of replacing the contributions standard and the contributions receivable standard with a new contribution standard and also made amendments to the current guidance on financial statement presentation.

The comment period closed at the end of September. We did a lot of outreach on this. We received quite a few comment letters. We had 18 either virtual or live outreach sessions in various places across the country. And we received a significant amount of feedback. And the feedback was of extremely high quality. When I say high quality, what I loved about the feedback is when people disagreed with us, they told us why, and they had very-well-thought-out reasons why, and some people also agreed. So what what I would say right now is the Board has its work cut out for it as we move forward and deliberate the feedback that we received and determine what are the next steps and what kind of impact that has on on the project timeline.

We had a fabulous meeting with our not-for-profit advisory committee last week where they gave us, kind of, where they weighed in on the input received. We have a meeting coming up later this month with the Board to, for the first time, really get into the Board looking at the feedback. Like I said, it’s no easy decisions for the Board to make. But I really want to thank especially those online who did send us comment letters or attended outreach sessions. Your comments are all being looked at. At the end of the day, a comment that I love to make is the quality of the standard to get or direct input of the quality … directly correlated with the quality of the input we received, and we received extremely high-quality input. So, wherever we end up, I think we’re going to end up in a good spot because we received some great input.

And with that, I believe, Eric, I’m going to turn it back to you to talk about revenue from upfront non-refundable fees.

Eric English: Thanks, Armand. So in December 2019, the AcSB issued a narrow scope amendment to the revenue standard in Part 2 of the Handbook that provided additional guidance on a number of topics, including upfront and non-refundable fees or payments.

These amendments became effective on January 1, 2022. As entities started to apply the amendments to the revenue standard, the AcSB heard of application challenges from interested and affected parties – particularly member benefit organizations relating to the amendments for upfront non-refundable fees or payments.

These parties were concerned about the decision usefulness of deferring upfront non-refundable fees over long member durations, and they also expressed concerns about the associated cost of applying the amendments. The AcSB considered feedback and decided that more time is needed to research the concerns raised and the underlying contracts.

In December 2022, the AcSB deferred the effective date of the previously issued amendments into Section 3400, Revenue, related to upfront non-refundable fees or payments to January 1, 2025. Earlier this month, the AcSB issued an Exposure Draft proposing to indefinitely defer the effective date of the amendments, with early application permitted until the Board’s project on evaluating the preface is complete. This Exposure Draft also proposes a new disclosure requirement for entities recognizing upfront non-refundable fees or payments and revenue upon entering into the arrangement. This Exposure Draft will have a 90-day comment period.

Okay, and this slide highlights a few research projects that the Board is also currently working on. The first topic is Reporting Controlled and Related Entities, which applies to not-for-profit organizations reporting under Part 3 of the Handbook.

The AcSB is currently undertaking a research project related to Section 4450, Reporting Controlled and Related Entities for Not-for-Profit Organizations.

At its meeting in March, the Board discussed the rationale for the project and decided that the research will not include changes to the current choice between consolidating and disclosing controlled entities for not-for-profit organizations. Instead, the Board discussed that the purpose of the research project is to improve the transparency of the financial statements for financial statement users regarding the relationship that entities have with related and controlled entities.

At its meeting in September, the Board discussed feedback received from the not-for-profit advisory committee and determined that research activities should first be focused on the disclosure requirements in Section 4450. Research on the definitions in Section 4450 will follow subject to these findings.

The second topic is Standards for Pension Plans in Part 4 of the Handbook. The AcSB is conducting research on investment disclosure and presentation issues in Part 4 and is considering ways to improve transparency. Areas of focus include fair value disclosures, disclosures on interest and investment funds, and presentation of investment management fees.

At its meeting in September, the Board tentatively decided to require a separate presentation of administrative expense categories between investment expenses and pension administration and other expenses. The Board also provided feedback on a proposed definition of investment expenses.

The Board discussed options for disclosures related to investment expenses and tentatively decided that additional qualitative disclosures related to what is included in investment expenses would be useful to users. In addition, the AcSB discussed ways to improve transparency on a pension plan’s interests and investment funds and other structured entities.

The Board is considering introducing a principle-based requirement to disclose information that enables users to understand the nature and extent of a pension plan’s interest in these entities and the associated risks.

The Board will seek feedback on these potential solutions at its November 2023 Pension Plan Working Group meeting.

The last item is Goodwill and Intangibles. We’ve heard preliminary feedback that the cost of the current impairment-only approach to goodwill exceeds the benefits and are exploring other options such as an amortization-based approach. We’ve also heard that the cost of separately recognizing intangible assets may exceed the benefit to financial statement users.

We’re in the very early days of research on this project. As part of our research, we are consulting with advisory committees and working groups to better understand the issues related to these topics. We are also looking at the standards applied by private enterprises and not-for-profit organizations in other jurisdictions to consider whether a different approach would better meet the needs of users. The Board will be discussing the results of the research and potential next steps in January 2024. So stay tuned for more on this project.

So before moving on to some of our other topics, we’d like to ask a polling question to gather your thoughts on the goodwill research project. So which approach to Accounting for Goodwill would you prefer: Amortization or Impairment-only?

And I’ll just push that. Should be available for you now.

Armand Capisciolto: The suspense is killing me, Eric. The suspense is killing me on this one. What are people going to say?

Eric English: We’ll leave it open for a few more seconds here.

Okay, and I think we have most of everybody. Everybody replied quite quickly on that one, so I can see a lot of enthusiasm on this topic. So, sharing the results, it looks like we’re pretty close to 50-50.

Armand Capisciolto: Wow, it’s like a US election here.

Eric English: It’s tight, but yes, thank you everyone for responding at that. That’s very interesting for us to know. Okay, so, I’ll pass it back to Armand to discuss our next agenda item and other current events and activities.

Armand Capisciolto: Okay, so let’s move to the next slide and talk about the revenue recognition.

And for those of you that follow Board decision summaries and the notes of our various committee meetings – which I assume is all of you, that as soon as those are out, you’re reading them immediately – you will know that some application issues were discussed by both our Private Enterprise Advisory Committee (PIAC) and the Board related to revenue recognition.

And the Board ultimately decided that no changes were needed to the standards and encouraged the use of professional judgment.

So, what I thought I would do on this slide is take some time to explain the judgments I believe need to be considered. And I’m going to emphasize the “I believe need to be considered”. I think Eric mentioned early on these are the views of presenters and not necessarily the views of the Board in its entirety.

So let’s talk about these issues, and I’ll kind of explain how, I think, judgment should be applied.

The first issue was whether the guidance in the Appendix for the application of the percentage of completion method applied when an enterprise uses the simplified… simplification in paragraph 17 of 3400, that allows the revenue to be recognized on a straight-line basis.

And the question that was brought to both PIAC and the Board was: If revenue is street line, how much … how are the costs recognized – or the actual cost or do you follow the guidance in the Appendix?

So, basically, I think there’s a couple of judgments that need to be considered.

The first judgment that needs to be considered is if straightlining of revenue is even permitted. And why I say that is paragraph 17 only permits straightlining if the services that will be delivered result from an indeterminate number of acts over a specified period.

So, the example I always like to use when I talk about this is snow removal. I live in Sault Ste. Marie, Ontario. I know it’s going to snow in the winter in Sault Ste. Marie, Ontario. What I don’t know: Is it going to snow every day or every second day? That’s pretty much the two options you get at Sault Ste. Marie. We get a lot of snow. And so that’s the type of example.

So when I look at that and I think about that, well, is it an indeterminable number of acts? And for snow removal, the answer is probably yes.

So then I say, well, if the acts, if the number of acts are truly indeterminable, my next consideration is: Can I actually estimate the total cost over the term of the contract?

And again, if it’s indeterminable, maybe I can’t. But maybe I have a history and based on weather patterns maybe can estimate the cost.

But if you can’t, then recording actual costs is likely your only option. However, if you can estimate the total cost, which may be very judgmental and impacted by specific facts and circumstances, then you would look at the guidance in the Appendix. So when we talk about the judgment in that issue, what we’re talking about – or what I believe we're talking about – is those two judgments.

Can I actually apply this simplification? And if I do apply that simplification, and truly its indeterminant number of acts are indeterminable, can I ask to meet the costs? Because if I can – the Appendix. I have to look at the guidance in the Appendix. So that was issue one.

Issue two.

This relates to a disclosure requirement for service contracts. So again, service contracts, lately, are using the percentage completion method. And what paragraph 32Ab requires is an enterprise to disclose the aggregate amount of costs incurred and recognize and profit at the end of the reporting period for contracts in progress.

What we’ve heard is this can be challenging to apply for some service organizations, and it’s actually the types of venues that this information really matters is really those that are engaged in construction contracts. And that the challenges might exist in other organizations such as professional services firms. And, in that case, is the information as useful to a user as it is for an NV engaging in construction contracts?

So when the Board started looking at this one, we did consider whether an amendment was needed to clarify the contracts that this applies to.

However, we determine that’s really not a feasible thing to do. Because although yes, this supplies ... this is very important information – and we’ve heard from users of financial statements of construction companies that this is very useful information – when looking at construction contracts to identify all the types of contracts, this could be decision useful or would be very difficult because there are other long-term contracts that might not be construction contracts but might have … might be similar in nature, and trying to define that scope is very, very difficult. So the Board ultimately decided not to undertake standard-setting but encourage enterprises to use professional judgment when considering whether this is applicable.

And I think, what, again, what I believe we meant by whether this is applicable is that judgment needs to be applied to determine if this information will impact the decision of users. Again, what we’ve heard in construction contracts is yes, it will. But we’ve heard in other sectors, it will not. And if it will not impact the decisions of users, it is by definition not material, and if it’s not material, the disclosure may not be applicable.

The last issue that, again, was discussed by both PIAC and the Board was the accounting for losses on long-term contracts with multiple elements.

So in the scenario discussed, an enterprise enters into a long-term contract with multiple elements. And during the contract, the enterprise realizes the cost for one of the elements will exceed the consideration allocated to it. However, the contract will remain profitable on an overall basis.

So the question discussed was whether the loss that should be recognized, once you know the contract is not going to be a profitable contract, should be recognized partly through for that one element, or it should be viewed as a contract in totality.

So again, we look at the words and the standards, and we first looked at paragraph A33 of 3400, which specifically references revenue and costs on a total basis, total basis for the contract. Therefore, some may say the standard is very clear, and it should be applied in totality to the contract.

However, we heard from others that said, well, no. Once you allocate a contract to its multiple elements, you should view each element as if it’s a separate transaction. And that’s actually laid out … that's actually in the principle, which is laid out in paragraph 11 of 3400.

So, as a result, it would appear that both approaches are supportable. So the Board in the decision summary acknowledged that a loss could be recognized earlier if it better reflects the economics of the contract.

Again, determining whether recognizing a loss earlier better reflects the economics of the contract would be a very judgmental item – again, why we refer to judgment in our decision summary.

So I hope people found that useful. To hear a little bit of, again, my recollection of the discussions that took place on both PIAC and the Board level so you understand what we meant when we referred to the application of judgment to those three revenue recognition application issues that made its way to the Board. So that is the revenue issues.

So if we move on to the next topic. Oh. Yes, I think the order is different than my side. So we also have outstanding a work plan survey. This was launching October. And this is something the Board is doing to help us set our plan for 2024-2025. We list out a number of potential projects that the Board could take on, and we ask whether those projects are relevant to you or not, and on a sliding scale. So we very much encourage this. The surveys do not take long to complete. The last couple of projects we use surveys on we received unbelievable high-quality input. So encourage everybody to complete the survey.

I believe in the slide deck … I believe you click on that underlying work plan survey. It is a link that will bring you right to the survey. So we’re making it easy for you as well.

And the last thing I wanted to talk about on kind of the current matters is accounting for carbon credits, and this is an area where we are doing some research.

And carbon credits are prevalent in the Canadian marketplace and becoming more prevalent in the Canadian marketplace. You have both mandatory markets, or compliance-based markets, and voluntary markets. And we know the voluntary market is going at a very fast pace, and there’s even exchanges emerging for trading of these carbon credits. So we are doing some research on the accounting issues related to this.

Although our research is IFRS focused, we believe these issues are equally relevant to entities applying Part 2 and Part 3, as many of the things that are leading companies to acquire carbon credits exist regardless of what accounting standards you apply.

The key issues that we are looking at is: Do these meet the definition of an asset, and then if there are obligations also related to them? Whether you are the person, the entity generating them and have to maintain the credits, or the entity using them? Are there also obligations related to them, and do those obligations meet the definition of a liability?

So with that, we’re going to ask one more polling question of people:

Do the entities that you work with currently or anticipate buying, selling or holding carbon credits? So three options here: yes, no, we’re not sure.

Okay, so we have a lot of Noes and a few Yeses and quite a few Not Sure. So, again, thank you. These are just data points helpful for us as a Board as we move forward with some of these projects.

And thank you for answering. So with that, I will turn it back over to Eric.

Eric English: Thanks, Armand. So next we’d like to talk about some ways that you can get involved with the work of the Board.

We want to know what you think, and we are always interested in hearing from you. You can send us a question or comment directly on our website, which is linked on this slide. And you can also share your views by volunteering to join an advisory committee or one of our working groups. We post volunteer opportunities on our website, where you can reach out to one of the staff contacts on the slide to find out about any open opportunities to join a committee or a working group. If you have any questions on a project we spoke about today or want to share your views, you can also contact the staff listed on this slide.

To stay up to date on the AcSB’s activity, subscribe to our biweekly e-newsletter, the Standard. You can also follow us on social media on Facebook, Twitter or X, and LinkedIn using the links on this slide.

And this slide just includes a link to our website where you can find some additional information about what types of projects and what news is going on at the AcSB.

So with that, that now takes us to the questions portion of today’s session. So just a reminder, if you haven’t already, you can submit a question using the Q&A function in the chat. We’ll try to get to as many questions as we can before the end of the session. So, let’s look at some of the questions that we have coming in here.

We have one comment on Goodwill here, Armand, and maybe this might be good to touch on just because the polling results for … were so tight for that question. Regarding the polling question on Goodwill, my understanding is that many preparers and auditors would have preferred a third choice regarding the possibility to account for Goodwill and Intangibles assets together – i.e., a choice not to separate them. For many members, the issue is not whether to amortize or to appreciate Goodwill. The issue is the requirement to separate intangible assets from Goodwill.

Of course, if not separated, they should probably be amortized and appreciated if needed. I don't know if you have any comments on that.

Armand Capisciolto: Thank you for this question. When we look at this goodwill and intangible assets project, there's two elements that we are looking at: both the initial recognition and the subsequent recognition. When I think about goodwill in general or business combination accounting in general, there are two areas where costs merge:

The first area is at the time in the business combination, and performing the purchase price allocation and separating the identifying and then separately valuing intangible assets is a costly exercise. We are well aware of that.

And then, the second element that adds cost is the impairment testing in dealing with the valuation to do the impairment test.

And when we look at this issue and what we’re examining when we get into this, with any accounting standards, it’s cost versus benefit. And we have heard, especially in the private company space, that there’s costs being incurred, but the benefit might not be there. In that, a lender might not look at goodwill at all. A lender might not distinguish between a customer relationship and goodwill.

So those are all elements of the project we’re looking at. We kept the polling question quite simple for purposes of this presentation, but we are looking at both of those. And you are correct: If we end up in the second bucket, where we’re saying, well, no, we’re going to group some of those intangibles with goodwill, it becomes very difficult to not be in an amortized situation.

And for anyone who follows what other standard-setters do, you will know the US does provide that option to group certain intangibles with goodwill for private companies. And then you would amortize it. So, thank you for the question. It allows us to expand a little bit more on the types of issues that we are looking at with this project.

Eric English: Thanks for that, Armand. Another question we have is: “Do you have any thoughts on the impact of the feedback received on the Contributions Exposure Draft on timing of a new standard or a Re-exposure Draft?”

Armand Capisciolto: Tough questions! We had a good group today.

This will be a key part of the Board’s discussion at our November meeting. So, until the Board has looked at all the comments and started to look at the extent of those comments, it’s hard to give an answer to that.

Like you said, the feedback was significant. The comments we received were high-quality comments. Even if we ended up in a situation that we were going with what was proposed, getting through all those comments are going to take time, and as a Board we need to … we are going to have to consider that. And like I said, it’s going to be something that’s discussed at our November Board meeting. So, stay tuned for our November decision summary to see where the Board lands on that.

So that was my attempt at non-answer answer.

Eric English: Okay. Another comment that we have is on scaling the standards. Question is for scaling the standards. The question is about: “Accounting standards, I think, have to do a lot with the size of the businesses you deal with. For the right-size company, it's just right, but for Ma and Pa shops, it might be too complex.” That’s more of a comment, but I wasn’t sure if you wanted to expand on that a little.

Armand Capisciolto: This is one of the things that we’re really trying to explore. When people tell us it’s too complex, I really want to understand the why. If we don't understand the why, we can’t really move forward with what to do with it, right? So is the why a size issue, and the bigger the company they can deal with some of these things? Is it a type of transaction issue in that you know what? There’s some large companies that just do simple things, and there’s some small companies that do some complex things. And the size doesn’t matter, and it’s the complexity of the transactions. Is it how we write the standards? So there’s a whole bunch of different things that we’re exploring, and, I think, this is going to be part of our next steps on the scaling project is how do we take this feedback. Some of it, to be honest, contradicts itself. And follow up with people and to get a better understanding of the why. And to me, why people are saying Parts II and III are too complex. If someone can give me the answer, that would be great. I don’t think there is one single answer, unfortunately. So we are going to have to talk to some more people to find out a little bit more on that topic.

Eric English: Okay. So this question, I think, is relating back to our discussion on the revenue application issue, Armand, and the question is: “It was said if the disclosure doesn’t impact the users, then it is not material.” Just wondering if you can expand on that a little bit and perhaps provide a little bit more background on that comment.

Armand Capisciolto: Yes. No easy questions today, Eric. I think we should have went for our planted questions. Our planted questions are much easier.

No, thank you, everybody, for these great questions. Well, I think when I think about materiality – and again, I’m thinking about materiality from an accounting standard standpoint, but I’m a former auditor so I also can’t forget how I used to think about it as an auditor as well – materiality can be both quantitative and qualitative. And when we talk about disclosures, a lot of time, we are looking at it from a qualitative standpoint. And saying something is not useful to a user is a tough one, right? Because I’m sure people have different opinions on what’s useful to a user and what’s not useful to a user.

And when we look at the example that we’re talking about in this disclosure, it is a critically important disclosure for long-term contracts such as a construction contract where the amount of profit you'd recognize to date, the costs incurred to date – all of that stuff is really critical for a user looking at those financial statements on a go-forward basis and almost looking at the ongoing contracts almost like an order backlog or also getting a sense of how well those contracts are going, right? Because you can you can tell a lot from the kind of the revenue recognized to date, the costs incurred to date. Is this contract going the way it was anticipated to go or not go? So when we talk to users from a standard-setting standpoint, in that type of contract, whether it’s a construction contract or building a specific piece of equipment for someone that takes a long period of time, that information is really useful. And users look at that. The questions that came up with this were very much focused on professional services firms, where that is how much profit a law firm has recognized on all of engagements they have or cases they have in process is a little bit difficult to determine. That's not how they do their accounting. But is it as relevant where you’re billing on an hourly basis and that is the kind of the billing type cycle.

So, making that judgment on whether something is useful to a user is a difficult one. It’s a qualitative one. That’s where we were going with. That was kind of the discussion that has taken place on that specific topic. But again, at the end of the day, materiality from a qualitative standpoint needs to be considered, and we need to focus on what matters to users of financial statements. That’s why we do what we do. That’s why people prepare financial statements. That’s why people get financials audit. That's why we develop standards to hopefully give information that is useful to people making capital allocation decisions. And it’s not going to impact those decisions, which, based on everything we’ve heard, it will in the construction space but might not in the professional services space. That is a judgment that we would expect a preparer and their assurance provider to make, and that’s why we decided not to do standard-setting there because it would be … we felt it was an area where judgment is meant to be applied.

Eric English: Okay, so we have another question here. This is relating to the related party business combinations. What option do you think most entities will choose in terms of the related party business combinations, retrospective or prospective accounting for these transactions? So, perhaps there’s a little bit of a background that we might be able to provide them on that topic.

Armand Capisciolto: Sorry … I believe I’m going a little bit for memory here, Eric. We have both retrospective or perspective option, right, in the transitional provisions of that one?

Eric English: I’d have to check on that myself. I’m not sure off the top of my head.

Armand Capisciolto: I believe we have that option. I’m again going for memory. I believe we provided the option, because we didn’t expect people to go back to related party business combination that occurred 15 years ago. Right? Because some of these things impact forever, and going back in time would be very difficult. If something happened, if there was a transaction that happened last year, and that’s the only related party business combination, and the accounting is going to be different, maybe it does make sense to do retrospective. But you're not going back to the dawn of time. You’re going back one year. And therefore, what do I think people are going to do? I think they're going to, I generally think they're going to whatever is easier for them to do, at the same time balancing that against the information needs and make sure the financial statements tell the appropriate story. So, I would think they’re not going to go back in time for things that happened 15 years ago, but things that happened a year ago, maybe they will.

Eric English: Okay, thanks, Armand. So we’re nearing the end of the webinar. So we probably won’t have time to get to all the remaining questions. I do want to make sure that we have time to provide you with a link to the quiz you can complete based off of today's presentation.

Successful completion of this quiz could count towards your CPD requirements. You can find the quiz via the QR code on the screen or the link in the chat function. The link will also be available in the slide available for download off of our event page. If you weren't able to, grab it here now. So I’ll just leave the QR code up for a moment here so you can either scan that or alternatively grab the link in the chat function as I mentioned.

Okay. Okay, great. Well, that’s all we have for today’s session. Thank you, Armand, for your time today and taking all of your time to answer all the questions that came in today. I know we had some really interesting topics discussed. Thank you to the audience for taking the time to join us.

And the on-demand version of this presentation will be made available shortly after today’s live webinar.

The slides will be available to download on the webinar registration page. There are some helpful links that you can access through the slides. I believe they’re also sent out in an email earlier today too. That you should be able to access.

If you have any questions, you can reach out to the staff list on the earlier slide at any time.

So thank you once again for participating in today's webinar and have a great afternoon, everyone.

Armand Capisciolto: Thanks everyone.