Report on Public Meeting – June 8-9, 2017

Accounting Standards Oversight Council discusses the activities of Public Sector Accounting Board (PSAB), the Accounting Standards Board (AcSB) and related matters.

At its meeting in Vancouver on June 8-9, 2017, the Accounting Standards Oversight Council (AcSOC) received presentations on, and discussed, the following:

PSAB Activities
Survey of PSAB Stakeholders
Oversight Committees in Other Jurisdictions
AcSB Activities
Update on International Accounting Matters
The Relevance of Audited Financial Statements to Analysts
Public Private Partnerships
AASOC/AcSOC Joint Subcommittee on Oversight of Standard Setting
Issues and Agenda Items at this and Future AcSOC Meetings
Report-Back on AcSOC Members’ Attendance at AcSB Meetings

Public Sector Accounting Board Activities

Recent Activities

The AcSOC Chair, Peter Jewett, acknowledged Charles-Antoine St-Jean, the incoming PSAB Chair, who observed the proceedings.

In the absence of the PSAB Chair, Rod Monette, Andrew Newman, PSAB Vice-Chair, commented on recent key PSAB activities, including decisions, public interest considerations and other files. His comments included the following:

Key recent decisions

  • PSAB supported the proposals put forward by the Conceptual Framework Task Force regarding the recognition and measurement chapter for the statement of principles for a revised conceptual framework.
  • PSAB issued its 2017-2020 Strategic Plan, which lists its key strategic themes, in May 2017.
  • PSAB approved its 2017-2018 Work Plan, and a public version is being prepared to complement PSAB’s 2017-2020 Strategic Plan.

Key public interest considerations

  • The timeliness of standard setting is a public interest issue facing many standard-setting bodies. To address this issue, PSAB has initiated a review of the timeliness of its standards.
  • Regarding the timeline of its Employment Benefits project, PSAB in March 2017 discussed if the process can be streamlined and requested staff to provide options and related risks for its consideration at PSAB’s June 2017 meeting.
  • The staff will present an amended draft statement of principles for PSAB’s Public Private Partnerships project to PSAB for its approval at its June 2017 meeting.
  • At its June 2015 meeting, PSAB deferred the effective date for its Financial Instruments/Foreign Currency Translation standards to April 1, 2019, from April 1, 2016. As part of this deferral, PSAB’s staff conducted meetings with stakeholders to understand the challenges in applying the standards to specific transactions.
  • PSAB’s Public Sector Accounting Discussion Group focused on a number of technical submissions at its last meeting in March 2017.
  • At its meeting in June 2017, PSAB will consider a revised mandate for the Public Sector Accounting Discussion Group to reflect its evolving deliberations, such as emerging issues or other issues of significance to the public sector. The Group will remain non-authoritative and PSAB will remain the sole authoritative body. The Group intends to conduct a livestreaming test of its November 17, 2017 meeting to enable more observers across Canada to view the proceedings.

In reply to questions, Michael Puskaric, Director, Public Sector Accounting, stated the following:

  • Government not-for-profit organizations that have already applied the Financial Instruments/Foreign Currency Translation standards, have provided feedback that, in general, they are satisfied with the standards.
  • In order to address the timeliness of PSAB’s standards, PSAB has initiated a review in three distinct areas:
    • A Special Advisor has been engaged to review PSAB’s due process and procedures.
    • An assessment is being conducted regarding the possibility for overlapping phase 1 and phase 2 of the Employee Benefits project, modifying or removing the statement of principles step, and advancing phase 2 research.
    • An assessment is being conducted regarding modifying or removing the statement of principles step for the Conceptual Framework project.

Other key files

  • PSAB issued a survey in the second quarter of 2016 to evaluate its performance and seek input from a broad range of stakeholders. Overall, the responses were positive and largely supportive of PSAB.
  • Following the responses from many stakeholders to PSAB’s 2017-2020 Strategic Plan, PSAB’s 2017-2018 Work Plan focuses extensively on gathering information from not-for-profit stakeholders to identify further their needs and understand their perspectives.
  • PSAB is reviewing its international strategy over the 2017-2020 strategic planning period. PSAB intends to conduct research on the differences between its standards and the International Public Sector Accounting Standards (IPSASs) and learn about the experiences of other jurisdictions that have chosen to adopt IPSASs. Mr. Newman noted that it might be a challenge for Canada’s sovereign governments to accept international standards.

In reply to questions, Messrs. Newman and Puskaric commented as follows:

  • In some cases, but not all, there are significant differences between IPSAS’s and PSAB’s standards.
  • Owing to the variety of options available to PSAB, the review of PSAB’s international strategy will extend to 2020 to ensure the adequate engagement of stakeholders.
  • PSAB and AcSB share information in the development of standards for not-for-profit organizations. For example, the Director, Public Sector Accounting, and a PSAB staff member observe meetings of the AcSB’s Not-for-Profit Advisory Committee.

Members’ comments included the following:

  • As the AcSB did when it adopted its international strategy, PSAB’s main objective should be to explain the business case for its international proposals.
  • The International Public Sector Accounting Standards Board (IPSASB) is a relatively new organization. Canada and other important jurisdictions, such as Australia, New Zealand, France and Switzerland, provided IPSASB with a great deal of  assistance and it has made significant progress over the last four or five years.

2016-2017 Performance Report

Mr. Puskaric stated the following:

  • PSAB’s overall assessment is that it had a successful year in 2016-2017. PSAB substantially achieved the key objectives in its 2016-2017 Work Plan and the long-term outcomes in its 2013-2016 Strategic Plan (extended to 2017). PSAB conducted extensive outreach and engagement efforts across Canada to ensure appropriate consideration of stakeholders’ concerns. Mr. Puskaric noted the 83 per cent increase in the number of meetings with stakeholders.
  • PSAB made considerable progress on various projects, such as Public Private Partnerships and the Conceptual Framework, and issuing Exposure Drafts for Asset Retirement Obligations and Revenue, and an Invitation to Comment for Employment Benefits.
  • PSAB addressed the Performance Review Committee’s suggestions regarding the risk that Canada’s sovereign governments will not accept PSAB’s standards.

Richard Neville, the Performance Review Committee Chair, said that the Performance Review Committee met twice to review PSAB’s performance, and its members agreed that PSAB had a successful year in 2016-2017.

In reply to questions, Messrs. Newman and Puskaric commented as follows:

  • Bond-rating agencies are not a significant focus for PSAB. When rating governments, these agencies tend to focus on the tax base and the economic outlook, rather than the financial position of governments. A member commented that the average Canadian relies on the media for information and that regulators rely on the Auditor General’s report.
  • It is a challenge to identify end-users beyond broad groups, such as parliamentarians.
  • PSAB has reached out to First Nations. It has not consulted extensively with members of academe.
  • The Performance Review Committee reviews PSAB’s risk management activities.
  • Officials from Canada’s governments serve as PSAB members. PSAB meetings are not open to public observation. This enables members to express their views candidly.
  • PSAB’s revenue project excludes government transfers. The project deals with revenues in a broad sense, encompassing items such as revenues derived from the issue of drivers’ licenses and passports.
  • PSAB is keeping abreast of the difference of opinion between the Ontario provincial government and the Ontario provincial Auditor General as to whether the pension plan sponsor (the government) is able to benefit from surpluses in government pension funds and recognize them in its financial statements. A member noted that there is a difference of expert opinion among the accountants and the actuaries regarding the interpretation of the applicable standard, and if other parts of PSAB’s Handbook can be referred to by analogy.

The Council endorsed the Performance Review Committee’s conclusion and decided that PSAB’s 2017-2018 Work Plan provided a basis for AcSOC to assess PSAB’s performance for the year ending March 31, 2018.

Members commended the staff for the quality of the style and content of PSAB’s 2016-2017 Performance Report and 2017-2018 Work Plan.

Members thanked existing and past PSAB members and staff for their efforts to improve public sector financial reporting in Canada in the public interest. The Council also thanked the Performance Review Committee members for their work.

Survey of PSAB Stakeholders

Mr. Puskaric provided members with results of a PSAB stakeholder survey issued in May 2016. He said that nearly all the responses showed an improvement over the results of a previous survey conducted in 2011.

In general, the following areas received positive feedback:

  • stakeholder outreach;
  • due process;
  • PSAB’s technical agenda; and
  • the activities of PSAB’s Public Sector Accounting Discussion Group.

Based on feedback, PSAB has identified the following three key areas of focus:

  • PSAB’s responsiveness to stakeholders;
  • openness and transparency; and
  • the relevance of PSAB’s standards.

Mr. Puskaric said that PSAB’s 2017-2018 Work Plan provides further focus on standards for not-for-profit organizations, a review of PSAB’s due process and the timeliness of standard setting. He commented that the next meeting of PSAB’s Public Sector Accounting Discussion Group in November 2017 would be livestreamed across Canada.

In reply to a question, Mr. Newman said that PSAB does not meet in public owing to the volunteer nature of its membership and the need for members to express their views openly. He said that the time to translate these materials into French and the attendant cost are among the reasons for not making PSAB meeting materials available to the public.

Members’ comments included the following:

  • A member commented that PSAB’s focus appears to be on preparers, and suggested an increase in efforts to identify, and obtain input from, end-users.
  • Efforts should be made to increase the responses from stakeholders, via, for example, roundtables and webinars.
  • A member noted no adverse effects when the U.S. Financial Accounting Standards Board (FASB), which does not provide the full extent of its meeting material to public observers at its meetings, made public all meeting materials related to work undertaken jointly with the International Accounting Standards Board (IASB). (The FASB provides abbreviated versions of its meeting materials to public observers at its meetings.) It was noted that both the FASB and IASB are composed exclusively of paid full-time Board members.
  • A member commented that abbreviated meeting materials lead public observers to question why certain materials are not made public.

The AcSOC Chair commented that members expressed concern that the survey sample size was too small and suggested investigating the survey method before issuing the next one. In addition, attempts should be made to broaden the base of potential respondents.

Oversight Committees in Other Jurisdictions

Stephenie Fox, Vice-President, Standards, provided information regarding oversight practices in certain other major jurisdictions, to assist AcSOC in comparing the oversight structure in Canada with global practices. She said that the standard-setting process in Canada is unique among the G20 members, in that the Canadian process is free from government control and interference and government does not fund the process.

Ms. Fox discussed the activities of the following significant bodies:

  • AcSOC, which oversees the AcSB and the PSAB in Canada, and the Auditing and Assurance Standards Oversight Council, which oversees the Auditing and Assurance Standards Board in Canada. CPA Canada provides resources and support for the foregoing bodies, all of which act in an independent and arm’s-length manner from CPA Canada.
  • IFRS® Foundation Monitoring Board, which oversee the IASB, based in London.
  • Public Interest Oversight Board, which oversees the International Auditing and Assurance Standards Board, based in New York City.
  • Financial Accounting Foundation (FAF), which oversees the FASB and the Government Accounting Standards Board (GASB) in the United States.
  • Financial Reporting Council Board, which is responsible for setting standards for corporate reporting, audit and actuarial practices in the U.K.
  • Financial Reporting Council, which is responsible for overseeing the accounting and auditing standards-setting processes for the public and private sectors in Australia.
  • External Reporting Organization, which is responsible for overseeing the accounting and auditing standards-setting processes for the public and private sectors in New Zealand.

Ms. Fox’s comments included the following:

  • Looking at national practices, there is little consistency, particularly when the standard-setting boards are within the purview of the same body.
  • The IASB and FASB are composed of compensated members. Other than the Chairs, the AcSB and PSAB consist of volunteer members.
  • In the United States, different bodies perform accounting and auditing standard setting. This leads to differing oversight structures. This is arguably analogous to the situation in the international arena.
  • In the U.K., Australia and New Zealand, the governance structure is such that the accounting and auditing boards have a common oversight body. It is relevant to note that in each of these cases, accounting and auditing standard setting is part of government, whereas in Canada standard setting is in the private sector.

Members’ comments included the following:

  • The present standard-setting structure in Canada was set up following the final report of the Canadian Institute of Chartered Accountants (CICA) Task Force on Standard Setting issued in 1998. That report recommended, inter alia, the establishment of an independent oversight council and that a compensated Chair should lead the AcSB.
  • A significant difference between the practices of the IFRS Foundation and AcSOC is that one of the responsibilities of the Trustees of the Foundation is to raise funds for the organization. CPA Canada funds the process in Canada. The member noted that AcSOC addresses issues similar to those addressed by the IASB’s IFRS® Advisory Council.
  • The FASB’s Charter requires the establishment of an Advisory Council.
  • While the structure in Canada is simpler than that in the United States, it is subject to greater risk in that it lacks formal legal authority. Another member noted that there are many statutes that cover standard setting in Canada.
  • Regarding the aspect of greater risk, AcSOC’s current membership includes individuals from the Canadian Securities Administrators, the Office of the Superintendent of Financial Institutions and the Bank of Canada. These individuals would not sit idly by should circumstances require corrective actions.
  • There are two differences between the situations in Canada and the United States: (1) the FASB and GASB are funded by government, and (2) the FAF is responsible to the Securities and Exchange Commission for public company issuers only.
  • It might be useful for AcSOC and the FAF to discuss matters of common interest.
  • The importance of the investor community in the United States is demonstrated by the fact that many of the 18 FAF members have an investment background.

Accounting Standards Board Activities

Recent Activities

Linda Mezon, AcSB Chair, acknowledged AcSB members Paul Hargreaves and Christian Schaefer, and David Chang, Vice-President, Member Services, Chartered Professional Accountants of British Columbia, who observed the proceedings. She thanked Mr. Chang for his assistance in helping the AcSB arrange outreach and educational events in British Columbia.

Ms. Mezon commented on the AcSB’s recent activities, including the following matters:

Managing risks

  • An orientation session, including an update on AcSB projects, was held recently for new AcSB members.
  • The staff is at capacity and AcSB meeting agendas are full. The AcSB Chair is focused on managing meeting agendas to make effective use of the AcSB’s time, including ensuring that members are provided with succinct meeting materials.
  • Since AcSOC’s last meeting in February 2017, there is no change to the risks attached to the AcSB’s projects.

Implementing the AcSB’s 2016-2021 Strategic Plan

  • The AcSB is making every effort to provide opportunities for stakeholders across Canada to connect with the AcSB.
  • The AcSB is mindful of the time taken to produce and issue standards. This is a global issue and it concerns balancing the need for timeliness with quality. The AcSB is assessing the extent of the work required and is reviewing project timelines to maximize Board and staff member efficiencies.
  • The AcSB is considering various issues and related implications across its Accounting Frameworks, particularly for issues concerning both Parts II and III of the Handbook.

International activities – Insurance Contracts

Referring to the IASB’s issuance in May 2017 of IFRS 17 Insurance Contracts, which becomes effective on January 1, 2021, Ms. Mezon noted AcSOC’s support for the AcSB’s activities relating to the Canadian insurance industry’s concerns expressed during the project’s life. She noted that four large Canadian life insurers had presented to AcSOC on the industry’s concerns in October 2013 and the AcSB and the insurance industry worked together to support the IASB in considering those issues when finalizing the standard.

IFRS 17 represents a fundamental change to existing practice for most entities and is expected to require a significant implementation effort. As part of its activities to support the implementation of the standard, the IASB is establishing a Transition Resource Group, and the AcSB will nominate a Canadian individual for the IASB’s consideration. The AcSB is also forming a working group and will present a webinar in the fall.

The AcSB is monitoring the EU endorsement process. The Canadian insurance industry is concerned that the standard’s effective date in Europe might be delayed beyond January 1, 2021, and that Canada will be placed in the position of being a first adopter of IFRS 17.

The AcSB has also worked with, and provided input to, the FASB on its insurance proposals.

Members’ comments included the following:

  • AcSOC has been an important part of the AcSB’s effective stakeholder engagement efforts regarding the new insurance contracts standard.
  • The actuarial profession is an important player in the implementation of IFRS 17 and it remains to be seen how actuaries will implement IFRS 17. The Chair of the International Actuarial Association Insurance Accounting Task Force charged with writing the actuarial model standards on insurance, will likely present to AcSOC at its next meeting on October 26-27, 2017.
  • It would be unfortunate if the European Union unduly delays the endorsement of IFRS 17, particularly as IFRS 17 received priority treatment by the IASB because the European Union lacks a suitable insurance standard.

AcSB and FASB relations

The AcSB has excellent relations with the FASB and FAF, and both the AcSB and FASB are keen to contribute to the international standard-setting process. Members of the AcSB and FASB met in Toronto in March 2017, shared information on projects and discussed implementation issues.

Publically accountable enterprises – Part I of the CPA Canada Handbook – Accounting

Supporting implementation – Financial Instruments

The AcSB recognizes that new proposed amendments and additional non-authoritative guidance issued to respond to some implementation issues can be challenging for preparers and auditors as they work through implementing IFRS 9. As a result, the AcSB is actively monitoring these issues and is promoting awareness of such issues through its IFRS Discussion Group. On June 15, the AcSB Chair will lead a panel discussion, hosted by the Canadian Bankers Association, on the implementation of this new standard for analysts of financial institutions.

Disclosure Initiative

The AcSB is performing broad outreach on the IASB® Discussion Paper, “Disclosure Initiative—Principles of Disclosure,” to develop its response to the IASB. The Discussion Paper suggests principles to enhance the relevance of information in financial statements. In particular, the AcSB is reaching out to users of financial statements.

Rate-regulated Activities

The IASB is holding additional educational sessions for Board members about a possible accounting model for activities subject to “defined-rate regulation.” Defined-rate regulation establishes a basis for setting the rate that an entity can charge its customers for specified goods or services, using measures including a rate-adjustment mechanism.

The IASB reviewed an analysis that suggests that rights or obligations created by the rate-adjustment mechanism are assets or liabilities. The AcSB plans to issue an updated research paper that demonstrates the decision-usefulness of financial information that reflects the economics of rate-regulated activities in conjunction with the IASB’s next document for comment.

A few AcSOC members suggested the AcSB consider publishing its revised research paper independently to encourage interest in the topic. The AcSB Chair committed to discussing the suggestion with the AcSB.

Private enterprises – Part II of the CPA Canada Handbook – Accounting

Redeemable preferred shares

In May 2017, the AcSB decided on when the classification of redeemable preferred shares that initially qualify as equity under the proposed exception may need to be reassessed. The AcSB considered the advice from its Advisory Committee on the effect of the proposals on current practice and discussed the possible provision of different transitional approaches.

Financial instruments

In May 2017, the AcSB decided that the exposure draft for this project would:

  • address issues related to the scope of related party transactions;
  • clarify the measurement of related party compound financial instruments; and
  • improve the usefulness of disclosures about financial instruments.

Not-for-profit organizations – Part III of the CPA Canada Handbook – Accounting

The AcSB is undertaking additional research on the topic of revenue recognition (contributions), for which Canada permits two recognition methods. Users will be consulted so that the AcSB can understand their needs.

The AcSB’s compliance with due process

Ms. Mezon advised that there were no reportable departures from due process or “comply or explain” actions, but there was one unusual event in the application of due process during the February to April 2017 period.

As discussed with the Oversight Council in February 2017, the AcSB’s comment period was shorter than normal on its wraparound Exposure Draft “Prepayment Features with Negative Compensation” (previously called Symmetric Prepayments). The IASB thought a short comment period was appropriate, as the amendments were narrow in scope and urgent. The AcSB complied with its policy of using the same comment deadline as the IASB.

2016-2017 Performance Report

Ms. Mezon said that the AcSB’s overall assessment is that it had a successful year in 2016-2017. The AcSB stayed highly engaged with Canadian stakeholders on current and future standard-setting projects and the implementation of new standards. The AcSB continued to have strong international involvement regarding IFRS Standards as well as topics relevant to other parts of the Handbook. The AcSB achieved all key objectives and most other objectives in its 2016-2017 Annual Plan and took appropriate steps toward achieving the objectives set out in the AcSB’s 2016-2021 Strategic Plan.

Ms. Mezon’s comments included the following:

  • Challenges facing the AcSB include the time taken to produce and issue standards and the availability of resources, particularly as regards the translation into French of non-authoritative guidance.
  • Multiple approaches were used to assess the staff’s capacity to ensure that appropriate resources are available to carry out the AcSB’s planned activities in 2017-2018. The exercise indicated that the AcSB’s staff capacity appears to be adequate based on the AcSB deciding on the extent of work needed on major projects, but that the AcSB Chair and Director are likely to bear a heavy workload.

Richard Neville, the Performance Review Committee Chair, said that the Performance Review Committee met twice to review the AcSB’s performance, and its members agreed that the AcSB had a successful year in 2016-2017.

In reply to questions, members of the staff commented as follows:

  • All material on the AcSB’s and PSAB’s webpages is posted in both official languages. Language Services’ capacity to cope with the demands made on it is an issue. CPA Canada translators use technology to facilitate the translations, and focus on the translation and consistent use of terminology.
  • CPA Canada is taking various actions to address the concerns, including outsourcing translations when needed and hiring additional resources. A challenge is the time it takes to train translators to translate standards material.
  • CPA Canada is the official translator for IFRS® Standards. Based on experience, the quality of translations benefit from Canada being truly bilingual in English and French.
  • CPA Canada finances and is supportive of the Standards Groups.
  • The Standards Groups employ social media tools in a consistent manner by utilizing the services of their communications personnel.

A member commended the AcSB on its plan to use research to contribute to evidence-based standard setting.

The Council endorsed the Performance Review Committee’s conclusion and decided that the AcSB’s 2017-2018 Annual Plan provides a basis for AcSOC to assess the AcSB’s performance for the year ending March 31, 2018.

Members commended the AcSB Chair and staff for the quality of the style and content of the AcSB’s 2016-2017 Performance Report and 2017-2018 Annual Plan.

Members thanked existing and past AcSB members and staff for their efforts to improve financial reporting in Canada in the public interest. The Council also thanked the Performance Review Committee members for their work.

Update on International Accounting Matters

Sheila Fraser, Vice-Chair of the IFRS Foundation Trustees, provided an update on a number of matters discussed at meetings held in Tokyo on May 23-24, 2017.

Matters mentioned by Ms. Fraser included the following:

  • The IASB issued IFRS 17 Insurance Contracts on May 18, 2017. This is the first truly global insurance standard, developed to help investors and others to understand insurers’ risk exposure, profitability and financial position. The Trustees discussed the work of supporting, endorsing and implementing that standard as well as the importance of getting support from investors.
  • Balloting is underway, and the IASB expects to issue its revised Conceptual Framework for Financial Reporting later in 2017.
  • The IASB published its Discussion Paper, “Disclosure Initiative–Principles of Disclosure” in March 2017 with a comment period open until October 2017, as a first step in its “Better Communication in Financial Reporting” initiative. The IASB is also close to finalizing a Materiality Practice Statement and publishing the Exposure Draft “Definition of Material Information.”
  • The results of a survey of 50 significant stakeholders were generally positive, although there was some criticism of the time taken to produce and issue standards.
  • The IASB has instituted a new program utilizing the services of 18 large investors to enable the investment community to be more involved in the standard-setting process. The IASB is keen to obtain the insight and experience of these investors.
  • The Trustees discussed the following:
    • The U.S. Securities and Exchange Commission’s (SEC) recent announcement that foreign private issuers would be required to file electronic reports using the IFRS® Taxonomy. This is an important development. In addition, the SEC and the European Securities and Markets Authority are cooperating on the Taxonomy’s implementation.
    • The Memorandum of Understanding (MOU) with the World Bank, published on May 12, 2017. The MOU will help the IFRS Foundation support the needs of smaller developing economies.
    • Other operational and strategic considerations about funding and the IFRS Foundation’s intellectual property.

In reply to questions, Ms. Fraser’s comments included the following:

  • At this time, the IASB has not considered the issue of non-GAAP measures in financial statements.
  • The Trustees reaffirmed their view that the Foundation should remain in London in the short to medium term, and to reassess the situation at a later stage. They also agreed that staff should continue to engage with the U.K. authorities in order to deliver the best outcome for the Foundation.

Mr. Jewett thanked Ms. Fraser for her remarks.

The Relevance of Audited Financial Statements to Analysts

AcSOC member Tom Trainor and Ms. Mezon reported on two events related to the relevance of audited financial statements. Both individuals were involved in these events.

The CFA Society Toronto, the Auditing and Assurance Standards Board and the Canadian Public Accountability Board held joint panel discussions on “Audited Financial Information: Is It Losing Its Relevance?” in Toronto on February 14, 2017. Separate panel sessions were held for buy-side and sell-side analysts. On May 17, 2017, the Canadian Public Accountability Board hosted an Audit Quality Symposium, with the theme “Earning Investor Confidence.”

The following key messages emerged from the discussions:

  • The Audit is highly relevant (unanimous agreement).
  • But detailed knowledge about the audit scope, audit process and accountabilities is low.
  • Investors use a wide variety of information sources to make their decisions (including a variety of data aggregators).
  • While audited GAAP financials are fundamental, investment decisions are increasingly based on unaudited information.

Members’ comments included the following:

  • Analysts appear to need additional education on the scope of an audit, and the roles of the auditor, the securities regulators, the audit committee and the internal auditor.
  • Analysts derive a great deal of information from filings made under the securities regulatory frameworks that are unaudited. Much of this information’s validity is based on the principle of materiality. Some information might not be materially incorrect, but it could still be wrong. Because of analysts’ desire for comparability across enterprises, they utilize models and they could be populating them with wrong information.
  • It is in the public interest to take some sort of action prior to the inevitable next financial crisis. The lack of understanding is an international issue that affects Canada, particularly because of the extent of Canadian institutional funds invested outside Canada.
  • Analysts inform public confidence and sentiment, so in that sense there is a connection to the role of the standard setter. Nevertheless, it is unclear who should solve the problem of addressing the lack of understanding issue.
  • Securities regulators undertake robust review programs of mandated filings. Egregious misdemeanours could result in enforcement actions.
  • One member was not clear why AcSOC should be involved in the lack of understanding issue, stating that analysts derive much information from audited financial statements and are free to ask enterprises for additional information.
  • In the United States, most companies included in the S&P 500 index publish non-GAAP measures, many of which increase earnings significantly. Analysts have a challenge to identify non-operating and non-recurring amounts in non-GAAP earnings figures. Many non-GAAP measures are difficult to audit. The member was skeptical of many non-GAAP earnings measures, which are habitually greater than GAAP earnings.
  • There is a clear boundary between audited and non-audited information, and the responsibilities of the standard setter. The member suggested that the problem of the relevance of audited financial statements and the concerns about non-GAAP measures should be addressed by securities regulators, the analyst community and industry associations. The member suggested that AcSOC does not have a major role in this matter.
  • Although the matter under discussion is not within the scope of standard setting, the AcSB and CPA Canada might be able to play a role by identifying and shaping the direction of possible action. AcSOC should consider participating in any potential action.

The AcSB Chair said that the AcSB might consider raising awareness of the issue, but that possible next steps require more discussion.

The AcSOC Chair closed the discussion by stating that AcSOC will receive a follow-up report at its meeting on October 26-27, 2017. At that time, AcSOC will consider possible action.

Public Private Partnerships

Mr. Puskaric said that accounting for public private partnerships (P3s) was identified as a priority in PSAB’s 2014 Project Priority Survey, given the different accounting treatments for these arrangements across Canada. PSAB is undertaking a project to develop authoritative guidance specific to P3s and a Statement of Principles is scheduled for approval at the PSAB meeting later in June 2017.

P3s are long-term performance-based contracts to procure public infrastructure. While the government usually retains ownership and control, P3s combine aspects of design, planning, construction, financing, operations and maintenance for which the private sector assumes a major share of the risks.

Mr. Puskaric introduced Chan-Seng Lee, Vice-President, Finance and Administration, Partnerships British Columbia, and David Little, Partner, Fasken Martineau. Mr. Lee discussed P3s, the mandate of Partnerships British Columbia Inc. and provided details of P3s in British Columbia and Canada.

Mr. Little provided details of the key legal concepts involved and the legal structure of P3s. He commented that the necessary documentation and structure are complex and both are established for the long-term life of a P3 project.

Members discussed the presentations and the Chair thanked Messrs. Lee and Little for the time and effort put into the presentations.

AASOC/AcSOC Joint Subcommittee on Oversight of Standard Setting

The Auditing and Assurance Standards Oversight Council (AASOC) and AcSOC established a joint subcommittee to undertake a review of the oversight processes of each Council. The subcommittee comprises an equal number of members from each Council. The joint subcommittee’s terms of reference highlight the goal of assessing and making recommendations to AcSOC and AASOC about the operations of the two oversight Councils. This includes assessing the structure of the oversight of the development of financial reporting, and auditing and assurance standards in Canada. In addition, the review includes considering how the two Councils might effectively share best practices.

The subcommittee has met a number of times, reviewed a detailed comparison of the terms of reference of both Councils and identified a number of substantive matters for consideration by both Councils. Regarding the latter, members decided the following:

  • The two Councils’ Terms of Reference should be aligned so that any differences in wording or process are purposeful and reflect substantive differences in the Councils’ mandates and approaches.
  • AcSOC should monitor regulatory developments in Canada as well as developments related to accounting and auditing and assurance standard setting in other jurisdictions that might affect Canadian entities.
  • As required by its Statement of Operating Procedures, AcSOC carries out an annual self-assessment to identify needed improvements in its operating policies and practices, including reporting to the public. AcSOC should consider whether changes should be made to its self-assessment process in light of the slightly different process followed by AASOC.
  • AcSOC should consider a number of amendments to its Terms of Reference to align with AASOC’s Terms of Reference; final language to be considered at AcSOC’s next meeting on October 26, 27, 2017.

Issues and Agenda Items at this and Future AcSOC Meetings

Members discussed the merits of a number of potential future agenda items, including the following:

  • The need for a follow-up agenda item on the relevance of audited financial statements, including the role, if any, of standard setters and AcSOC.
  • The issue of environmental and social governance.
  • The public’s understanding of government accounts.
  • A presentation from PSAB on the financial reporting issues related to public private partnerships.

Report-Back on AcSOC Members’ Attendance at AcSB Meetings

Two members reported on their attendance at recent AcSB meetings, noting that they were impressed with the quality of the presentations and the discussions. Both meetings were very well chaired.

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The Accounting Standards Oversight Council (AcSOC) is an independent, volunteer body established by the Canadian Institute of Chartered Accountants (CICA)* in 2000. It serves the public interest by overseeing and providing input on the activities of the Accounting Standards Board (AcSB), which sets financial reporting standards for profit-oriented enterprises and not-for-profit organizations, and the Public Sector Accounting Board (PSAB), which sets financial reporting standards for governments and their organizations. AcSOC's responsibilities include appointing the AcSOC, AcSB and PSAB members. Reporting to the public and made up of representatives that include regulators, investors and other users, preparers and auditors of financial reports, AcSOC brings a broad perspective to complex issues facing standard setters in both the private and public sectors.

* The CICA, CGA-Canada and CMA Canada have since consolidated under the CPA Canada banner as the profession’s national body.