The Accounting Standards Oversight Council (AcSOC) discussed the activities of the Accounting Standards Board (AcSB) and the Public Sector Accounting Board (PSAB), and related matters.
At its meeting in Edmonton, Alberta, on June 6-7, 2019, AcSOC received presentations on, and discussed, the following:
- Chairman’s Opening Remarks
- AcSB Activities
- Cannabis Accounting
- Not-for-Profit Accounting
- PSAB Activities
- Update on Livestreaming Activities
Chairman’s Opening Remarks
AcSOC took a moment of silence for D-Day.
AcSOC Chair Miville Tremblay welcomed all attendees, including the Council’s in-person observers.
Mr. Tremblay gave a special welcome to new Council members George Addy, Stephanie Bowman, Michael Horgan, Clare Isman, and Erica Teklits.
He also announced Catherine Riggall’s recent resignation from AcSOC.
AcSB Activities
Recent Activities
AcSB Chair Linda Mezon commented on the Board’s recent activities related to achieving its strategic objectives, its international work, its domestic projects, and its compliance with due process.
Strategic Objectives
Ms. Mezon highlighted that the AcSB successfully released its 2018-2019 Annual Report on May 1, 2019, 30 days after the Board’s year-end. This is consistent with the timelines that stakeholders are required to meet. She also noted that the Board is achieving its strategic objectives through the level of Board-member participation in key projects and by progressing those key projects domestically and internationally.
The AcSB held its March 2019 meeting in Vancouver at the Chartered Professional Accountants (CPA) British Columbia offices. The Board also held a reception for stakeholders and a professional development session, which 400 individuals attended.
In April and June 2019, Ms. Mezon participated in Deloitte-sponsored breakfast sessions in Toronto and Calgary. She met with several senior preparers to discuss the Framework for Reporting Performance Measures and the AcSB’s work in influencing international standards.
She informed AcSOC that, in July 2019, the AcSB will host Darrel Scott, an International Accounting Standards Board (IASB) Board member and advisor on the IASB’s insurance project, in Toronto. The Board is sponsoring this activity as part of its ongoing work to ensure Canadians are supported during the implementation phase of new standards, and to ensure Canadian views are heard.
The AcSB Chair reminded the Council that the Board will initiate its strategy session in November 2019. In its next strategic plan, the Board will consider:
- the relevance of financial information (users of different parts of the Handbook, tiering, and whether the Board’s standards are fit for purpose);
- its responsibility as a Canadian standard setter (moving out of silos and coordinating with other Canadian standard-setting boards); and
- the implications of the CPA Canada Foresight project on standard setting.
International Activities
The AcSB continues to undertake various activities to support Canadian preparers and auditors in implementing standards and addressing emerging accounting topics in practice. The Board continues to ask various industry groups, committee volunteers, and other stakeholders about the challenges of implementing new standards, including IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers, and IFRS 16 Leases.
Ms. Mezon informed AcSOC that companies are finding that they have many more leases than they initially thought once IFRS 16 was implemented. This has led to increased disclosures and increased implementation costs. She noted that the AcSB is undertaking a large communication effort on this matter.
One Council member representing the preparer community noted that from her experience, users were not ready for the new leases standard. Several companies, including her own, held conference calls to explain the impact of the new standard on the financial statements to users.
With regards to insurance, Ms. Mezon noted that the AcSB received a letter from the Canadian Life and Health Insurance Association. It requested that the Board provide a Canadian-only deferral of the new insurance standard. The Board noted that it was too early to make this decision. Ms. Mezon will take part in a panel in Hong Kong on insurance hosted by the Hong Kong standard setter. She will meet with the local executives of SunLife Financial and Manulife Financial and will attend roundtables with the local standard setters. Ms. Mezon also advised that during his visit to Toronto, Mr. Scott will meet with stakeholders, industry groups, and regulators. The IASB plans to issue an exposure draft on insurance by the end of June 2019.
The AcSB Chair said that Canada has more extractive entities than any other jurisdiction, the majority of which are dual listed. For these reasons, the IASB has requested some assistance from the AcSB on this project. The Board issued a report to the IASB on its updated work on extractives. The AcSB later summarized this report and posted it on its website. Ms. Mezon noted that concerns have been raised on the summarized report. She said that activities are underway to clarify concerns and take appropriate actions regarding this matter.
Domestic Activities
Ms. Mezon said that the AcSB continues to leverage the staff work being done on Parts II and III of the Handbook. She is happy with the flow of these projects and is particularly satisfied with the Exposure Draft, “Revenue.”
She stated that the AcSB issued the Exposure Draft on May 1, 2019. It proposes additional guidance on:
- multiple-element arrangements;
- percentage of completion method;
- bill and hold arrangements;
- reporting revenue gross or net; and
- upfront non-refundable fees/payments.
She noted that the proposed guidance retains the principles-based approach currently used in Section 3400, Revenue. The Exposure Draft is open for comment until July 31, 2019.
In discussing employee future benefits, Ms. Mezon said that the AcSB approved a project. The Board will be taking standard-setting action to address recent changes in pension legislation for defined benefit plans with a funding valuation requirement as well as issues with defined benefit plans without a funding valuation requirement. The Board plans to issue this exposure draft no later than the third quarter of 2019.
With regards to hedging, Ms. Mezon noted that the AcSB deliberated and decided not to undertake a hedge accounting project. This decision stemmed from feedback from its outreach and from its Advisory Committees, which indicated that the current guidance meets stakeholder needs. Preparers indicated they do not intend to expand their use of hedge accounting and users are not concerned about the effect of volatility in the financial statements.
Compliance with Due Process
The Board Chair advised the Council members that there were no reportable departures from due process or “comply or explain” actions, nor were there any unusual events when applying due process during the February 2019 to April 2019 period.
AcSB’s 2018-2019 Performance Report
Tom Linsmeier, Chair of the Performance Review Committee, informed AcSOC that the Committee met twice to review the AcSB’s performance. The Committee members agreed with the overall assessment that the AcSB had “a very successful year” in 2018-2019.
AcSOC endorsed the Committee’s conclusion and decided that the AcSB’s 2019-2020 Annual Plan provided a basis for the Council to assess the Board’s performance for the year ending March 31, 2020.
Cannabis Accounting
AcSB Senior Principal, Kelly Khalilieh updated AcSOC on the cannabis industry and the accounting implications of this relatively new sector.
Ms. Khalilieh stated that Canada is a leader in this sector by being the first country to legalize cannabis federally. The total cannabis market in Canada, including medical and legal recreational products, is expected to generate up to $7.17 billion in sales in 2019. As at January 31, 2019, all the entities in the cannabis sector that publicly traded on the Toronto Stock Exchange (TSX) and TSX-V applied IFRS as their financial reporting framework. The entities that cultivate cannabis apply IAS 41 Agriculture up to the point of harvest whereas the entities that purchased this crop apply IAS 2 Inventories.
One Council member advised that there are other jurisdictions in the world that have legalized cannabis, including the Netherlands and some American states. Ms. Mezon responded that Canada is in a distinct position compared to other jurisdictions because it has legalized both the production and distribution of this product.
Ms. Khalilieh noted that Canadian entities in the cannabis sector are expected to grow as the market expands to opportunities in recreational and medical cannabis. However, the AcSB has seen continued scrutiny of licensed producers since legalization, diversity in calculating the fair value of cannabis within the growth cycle, and diversity in calculating subsequent expenditures related to biological assets. She said that the Canadian Securities Administrators staff noted several issues in their review of disclosures of entities operating in the cannabis industry. These issues include the need to improve fair value-related disclosures and the inadequate disclosure of the composition of production costs and capitalized costs. Ms. Khalilieh informed AcSOC that the Board has submitted an issue related to cannabis accounting to the IFRS Interpretations Committee.
After a question and answer period, Mr. Tremblay thanked Ms. Khalilieh her presentation.
Not-for-Profit Accounting
Stephenie Fox, Vice-President, Standards, FRAS Canada updated AcSOC on PSAB and the AcSB’s plan to coordinate their activities for not-for-profit accounting due to the similarities in the sector. She highlighted that the Boards are at very different stages in their work on this sector. PSAB recently issued its “Government Not-for-Profit Consultation Paper” to its stakeholders. The AcSB is developing several projects for this sector and many other standards that could affect not-for-profit entities. For example, the AcSB plans an exposure draft on combinations in January 2020 and a consultation paper on contributions in March 2020.
Ms. Fox informed the Council that PSAB and the AcSB will be discussing not-for-profit accounting at their upcoming June meetings. She noted that there is additional research required for this sector. Rebecca Villmann, Director, Reporting Initiatives and Research, will coordinate research and gather data. At the June meetings, Ms. Villmann will provide the Boards with relevant information collected on the not-for-profit landscape in Canada. She will seek the Boards’ feedback on further information required to support the future activities relating to this sector.
Ms. Fox said that PSAB and the AcSB have committed to keeping the Council updated on their progress as it relates to this sector.
PSAB Activities
Recent Activities
PSAB Chair Charles-Antoine St-Jean commented on recent Board activities, including strategies, key files, public interest considerations, and governance and operations matters.
PSAB Key Strategies
International Strategy
At its February 2019 meeting, AcSOC provided feedback on the draft version of PSAB’s second International Strategy Consultation Paper. One area of feedback was to carefully assess the appropriateness of outlining a preferred international strategy option. PSAB approved the second Consultation Paper at its March 2019 meeting and released it on May 8, 2019, with comments due by September 30, 2019. Mr. St-Jean noted that the Board has committed to its stakeholders and to the Council that it will be in a position to decide on its approach toward International Public Sector Accounting Standards by March 2020.
Government Not-for-Profit (GNFP) Project
In updating AcSOC on PSAB’s activities relating to the GNFP project, Mr. St-Jean stated that the “Government Not-for-Profit Consultation Paper” was approved at the March Board meeting. It was released on May 8, 2019, in conjunction with Consultation Paper 2, “Reviewing PSAB’s Approach to International Public Sector Accounting Standards.” He also noted that the AcSB issued a communication encouraging private sector not-for-profit organizations to review and respond to the Consultation Paper. The Board intends to collaborate with the AcSB by sharing the outreach plan, presenting the Consultation Paper to their Not-for-Profit Advisory Committee, and sharing comments received.
Conceptual Framework
Mr. St-Jean informed AcSOC that PSAB’s Concepts Underlying Financial Performance Task Force meets twice every quarter to discuss the feedback received on the Statement of Concepts and the Statement of Principles. The Board plans to complete an exposure draft by June 2020.
Key Files
Employment Benefits
PSAB issued the third Invitation to Comment, “Employment Benefits: Non-Traditional Pension Plans,” on October 19, 2018, with comments due by February 1, 2019. Canada is at the forefront of non-traditional pension plans. These are plans that involve employers sharing different degrees of risk related to pension benefits with other parties, including employees and other employers. The Board received 46 comment letters. These letters voiced strong and diverse views from different stakeholder groups and reflected the complexity of some pension arrangements and the continuous evolution of public sector pension plans.
The Employment Benefits Advisory Group met in late March 2019 and has scheduled three-day meetings in June, September, and November 2019. It will deliberate responses and develop a consultation paper. PSAB will receive an update on the Task Force’s discussions and approach at its June 2019 meeting.
Public Private Partnerships
Mr. St-Jean informed AcSOC that the Exposure Draft “Public Private Partnerships,” is scheduled for PSAB’s approval on September 2019. A preliminary draft of the exposure draft is currently being developed and an accompanying basis for conclusions will be presented to the Board at its June 2019 meeting for initial feedback.
In response to questions, Mr. St-Jean noted that PSAB will be able to issue an exposure draft in September 2019 for final approval of the standard in September 2020.
Financial Instruments/Foreign Exchange
As AcSOC recommended, PSAB is proceeding with an independent process review of the financial instruments standard to identify lessons learned and propose recommendations. The Board discussed and approved the Terms of Reference at its March 2019 meeting and contracted to conduct the review. The review’s results will be presented to the Board at its September 2019 meeting and to Council in October 2019.
Public Interest Considerations
Public Sector Accounting Discussion Group
The PSAB Chair informed AcSOC that PSAB thinks the Public Sector Accounting Discussion Group is an effective outreach and research vehicle. On April 26, 2019, the Group met with 205 registered observers to discuss topics such as cryptocurrencies, developer agreements and contractual rights, and taxes levied for a specific purpose. The Board received the five-year review of the Group’s work at its March 2019 meeting and approved that the Group continue as a Board committee for another five years. At that time the Group’s work will be reviewed again to determine if it remains a priority use of the Board’s resources.
PSAB AASB Project
PSAB and the Auditing and Assurance Standards Board (AASB) established a joint working group consisting of each Boards’ Chairs and Directors and the Vice-President, Standards. The Group will develop a common understanding of the issues pertaining to legislated accounting policies as set out in paragraph 19 of Canadian Auditing Standard (CAS) 210, Audit Opinion. The Group met for the first time on September 6, 2018.
An independent consultant was secured by PSAB to develop an “Issues Analysis,” which was presented to the Group in January 2019. The Group concluded that CAS 210.19 opinions is isolated to two provinces and only applies to certain GNFPs. PSAB should monitor the use of the CAS 210.19 opinions and that this issue is not a major priority at this point. At its March 2019 meeting, the Board agreed with the Group’s overall findings.
Rate-Regulated Accounting
At its March 2018 meeting, PSAB requested that staff monitor rate-regulated accounting developments in the Canadian public sector environment and present monitoring results to PSAB bi-annually. In conducting a jurisdictional scan for the period of September 2018 to February 2019, the Board has not identified a systemic issue with public sector accounting standards where its immediate action is required.
Governance and Operations Matters
Stakeholder-Engagement Framework
Mr. St-Jean advised the Council that PSAB is currently developing a framework for communicating and consulting with stakeholders. The framework will provide guidance on factors to consider when developing outreach initiatives to help ensure its resources are used efficiently and effectively. The Board will use the “International Strategy” and the “Government Not-for-Profit” Consultation Papers to test the stakeholder-engagement framework. Results will be reviewed by the Board after the Consultation Papers’ comment periods end on September 30, 2019.
In response to questions, Mr. St-Jean noted that the Stakeholder-Engagement Framework is a tool to better understand the needs of PSAB’s stakeholders. As part of the framework, key performance indicators will be established for key communication and consultation activities and planned targets will be provided based on experience.
PSAB’s 2018-2019 Performance Report
Mr. Linsmeier informed AcSOC that the Performance Review Committee met twice to review PSAB’s performance for the year ended March 31, 2019. The Committee agreed that the Board achieved its 2018-2019 work-plan objectives and is on track to meet its 2017-2020 Strategic Plan objectives. The Committee Chair noted that the Committee encouraged the Board to develop a business case for additional staffing resources as this concern was raised in its 2018-2019 performance report.
AcSOC endorsed the Committee’s conclusion and decided that PSAB’s 2019-2020 Annual Plan provided a basis for the Council to assess the Board’s performance for the year ending March 31, 2020.
Update on Livestreaming Activities
AcSOC reviewed the results of its 2018-2019 livestreamed meetings and decided to continue livestreaming its 2019-2020 meetings in the spirit of transparency and public interest.
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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.