The Accounting Standards Oversight Council (AcSOC) discusses the activities of the Accounting Standards Board (AcSB) and the Public Sector Accounting Board (PSAB), and related matters.
At its meeting in Wendake, Quebec (near Quebec City), on October 25-26, 2018, AcSOC received presentations on, and discussed, the following:
- Opening Remarks
- AcSB Activities
- Update on International Accounting Matters
- Framework for Reporting Performance Measures
- Non-GAAP and Other Financial Matters
- PSAB Activities
- PSAB Standard-setting
- Due Process Manual
- Province of Ontario Rate-regulated Accounting Issue
- PSAB’s Proposed Conceptual Framework and Reporting Model
- AcSOC Risk Assessment
- Oversight Council Crisis Communication Plan
- Financial Reporting and Assurance Standards (FRAS) Canada Website
- Report on AcSOC Members’ Attendance at a PSAB Meeting
AcSOC Chair Peter Jewett welcomed attendees, including those observing the meeting via the livestreaming video platform.
Mr. Jewett extended a special welcome to new members the Hon. Diana Whalen and Shelley Brown, and to the new AcSB Director, Lester Cheng. He also thanked AcSOC member Jean Vincent, Vice-Grand Chief of the Huron-Wendat Nation, for hosting today’s meeting on the Huron-Wendat Nation’s territory.
AcSB Chair Linda Mezon commented on the activities related to achieving the Board’s strategic objectives, its international work, and its domestic and other activities.
The AcSB continues meet its strategic objectives by staying relevant in world financial reporting matters through monitoring and discussing emerging issues. These issues include cloud computing, crypto currencies, and accounting for cannabis. It also focuses on communicating with its stakeholders, leveraging its international and other relationships, being innovative, and making the best use of technology.
As advised at previous meetings, the AcSB has undertaken a project to enhance the relevance of financial reporting and published its Draft Framework for Reporting Performance Measures on June 14, 2018. The Draft Framework is designed to help all parties in the financial reporting process improve the reporting of performance measures outside of financial statements. Parties that would benefit include management, directors, contributors, owners, lenders, investors, auditors, regulators, academics, and others. The Board is currently considering feedback on its draft proposals and intends to publish a revised draft framework in December 2018.
In September 2018, the Board met in Montreal at the Ordre des CPA du Québec offices. It was the first time it has met outside Toronto in many years. The AcSB Chair and the staff have attended many international and domestic meetings and conferences, and presented to leading academics and others. In addition, Board members participated in many roundtables, virtual roundtables, podcasts, and webinars.
Mr. Jewett commended the AcSB Chair and the Board members for their increased efforts to engage stakeholders and others at the domestic and international levels. He asked Ms. Mezon to convey the Council’s appreciation for these efforts to Board members.
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 remains committed to help Canadians adopt new complex IFRS® Standards, including IFRS 17 Insurance Contracts. The Board is performing additional outreach activities during the European Union’s IFRS 17 endorsement process. The aim is to understand potential concerns and explain the Board’s activities to support the new standard’s implementation. The Board encourages the early identification and resolution of implementation issues. It does so through its Insurance Transition Resource Group and by supporting the Canadian member on the International Accounting Standards Board (IASB) Transition Resource Group. The Board is highly engaged with the IASB and standard setters around the world to encourage a common global adoption date of January 1, 2021.
An AcSOC member, who is also a member of the Canadian Actuarial Standards Oversight Council, noted that the Actuarial Standards Board (ASB) issued its Exposure Draft in May 2018, The document incorporates changes to relevant actuarial standards required by the Canadian adoption of the new insurance contracts standard. The Exposure Draft’s comment period has been extended to October 31, 2018. The ASB is preparing education guidance on IFRS 17 for actuaries. It is focused on having actuaries ready to cope with the standard’s January 1, 2021, adoption date.
The AcSB continues to work, and has a good interaction, with national standard setters around the world on topics beyond insurance. For example, the Board is actively engaged with an international staff working group that is researching hybrid pension obligations. The working group is finalizing a letter encouraging the IASB to address concerns raised, or monitor for innovations, accounting challenges and other developments. It will share its research with the IASB by the end of 2018.
The Board’s IFRS® Discussion Group continues to attract increased attention. Guy Jones, the Group’s Vice-Chair, was recently appointed to the IASB’s IFRS® Interpretations Committee (IFRIC). Mr. Jones joins another Canadian on IFRIC.
The IASB has a project underway to address the classification of complex financial instruments that contain characteristics of both equity and a liability. In June 2018, it published the Discussion Paper, “Financial Instruments with Characteristics of Equity.” The AcSB is reaching out to stakeholders, including via roundtables conducted in October 2018 that included IASB member Tom Scott as a participant.
The AcSB is assisting the IASB ascertain whether to start developing proposals to replace IFRS 6 Exploration for and Evaluation of Mineral Resources. The Board plans to report its findings in November 2018. In reply to questions, Ms. Mezon said that Canada can play an extensive role in accounting for extractive industries, given the number of Canadian entities in this industry.
A Council member suggested that the AcSB should not expend resources on the topic of extractive industries unless the IASB had committed to undertake a project. Ms. Mezon replied that the Board is well aware that resources should only be allocated to key priorities.
In June and October 2018, the AcSB’s IFRS Discussion Group addressed the topic of accounting for the mining of cryptocurrencies, owing to the prevalence of these transactions in Canadian markets. In July 2018, the IASB discussed matters relating to the holding of cryptocurrencies, initial coin offerings, and the mining of cryptocurrencies.
Regarding the European Commission’s Consultation Document, “Fitness Check on the EU Framework for Public Reporting by Companies,” there is an increasing focus on Europe’s desire to amend IFRS Standards as issued by the IASB. The IASB is concerned that national versions of the standards will detract from the original purpose of using IFRS Standards. It feels that comparability can only be achieved if entities are applying the same standards. Various events are affecting decisions in the European Union (EU), such as Brexit, the upcoming EU parliament elections, and the necessary EU endorsement of the new insurance contracts standard.
Ms. Mezon stated that the AcSB has responded to the EU regarding the Consultation Document. She noted that the Board has not made any changes to IFRS Standards and its policy remains to adopt the standards as issued by the IASB.
A Council member expressed concern about the United Kingdom’s possible exit from the EU, noting Britain’s moderating effect on the EU’s apparent desire not to always endorse IFRS Standards as issued by the IASB.
The AcSB has completed its financial statements concepts diagnostic for Parts II and III of the CPA Canada Handbook – Accounting. The Board will consider updates to the concepts in conjunction with its research on priority topics for these Handbook Parts.
The AcSB’s amendments to Section 3856, Financial Instruments, will be published in December 2018. These amendments pertain to the accounting for related party financial instruments and significant risk disclosures, and its standard on retractable or mandatorily redeemable shares issued in a tax planning arrangement. The Board plans to issue one set of amendments to the financial instrument standard from both projects. Suitable transitional relief has been provided.
In July 2018, the AcSB issued the Exposure Draft, “Agriculture.” Comments are due by October 31, 2018, and preliminary feedback is positive. In September 2018, the Board issued the Exposure Drafts, “Income Taxes” and “Investments,” with comments due by December 5, 2018.
Not-for-profit organizations (NFPOs) must apply Parts II and III of the Handbook, and the AcSB is focused on coordination among projects relating to these Parts. The Board is actively seeking feedback from NFPOs on relevant Part II projects, such as Revenue and Financial Instruments – Hedging. Considering relevant topics in tandem improves the projects’ efficiency and effectiveness.
AcSB research program
The Board continues to build out its research program, designed to support evidence-based standard setting, although progress has been somewhat slower than planned.
Progress should speed up now that former AcSB Director Rebecca Villmann has been appointed to the position of Director, Reporting Initiatives and Research.
The AcSB’s compliance with due process
Ms. Mezon advised that that there were no reportable departures from due process, nor was there any unusual event in the application of due process from May to September 2018.
Regarding “comply or explain” actions, because of stakeholder feedback, the Board made changes to the amendments proposed in its Exposure Drafts:
The Board discussed the significance of these changes at its June and July 2018 meetings and concluded that re-exposing the amendments was not necessary.
Ms. Mezon responded to many questions and observations from members regarding the Board’s activities.
Update on International Accounting Matters
Sheila Fraser, Vice-Chair of the Trustees of the IFRS® Foundation, provided an update on several matters discussed at the Trustees’ meetings in Johannesburg, South Africa, on October 16-18, 2018. They included:
- Michel Prada, whose term has ended, chaired the Trustees’ meeting. His successor, Erkki Liikanen, began his initial three-year term as Chair in October 2018. Mr. Liikanen took up the position after having served two seven-year terms as Governor of the Bank of Finland.
- Technical activities:
- The Transitional Resource Group for IFRS 17 has met three times and considered 25 issues relating to the new insurance contracts standard. During its October 2018 meeting, the IASB discussed feedback from stakeholders about IFRS 17. The IASB will consider whether further steps are required. It is too early to say whether these discussions will result in any proposals to change the standard.
- After noting its urgency, the IASB has added a research project on interbank offered rate (IBOR) reform and its effects on financial reporting.
- Following the post-implementation review of IFRS 13 Fair Value Measurement, the Due Process Oversight Committee concluded that the IASB followed due process. Although there are some difficulties implementing aspects of IFRS 13, the IASB found that the information is useful.
- The IFRS Foundation Due Process Handbook is under review. A draft is expected to be issued in May 2019.
- The Trustees announced the new composition of the Accounting Standards Advisory Forum for 2018-2021. The AcSB has been reappointed to this body.
- The European Commission received 38 responses on its Consultation Document, “Fitness Check on the EU Framework for Public Reporting by Companies." The Commission expects a feedback statement soon. The IASB and the IFRS Foundation are concerned about the possibility of the EU not always accepting IFRS Standards as issued by the IASB.
- A high-level conference on the future of corporate reporting in a digital and sustainable economy will be held in Brussels on November 30, 2018
Ms. Fraser’s responses to questions included the following:
- Amendments to the IFRS Foundation Due Process Handbook consist largely of updates to rationalize due process. The intent is to shorten the time taken to complete projects.
- Regarding the IBOR research project, the IASB is unable to propose accounting guidance until it knows what will replace the London Interbank Offered Rate.
- Regarding the EU Fitness Check, currently the EU has the ability to “carve out” guidance. However, the possibility to “carve in” guidance is extremely troubling to the IASB and the IFRS Foundation. It detracts from having a single set of high-quality international accounting standards.
- Regarding the possible effect of Brexit, there is currently no intention to move the IFRS Foundation from London to elsewhere in Europe.
Mr. Jewett said that AcSOC valued Ms. Fraser’s perspectives on international reporting matters and thanked her for her update.
Framework for Reporting Performance Measures
Ms. Mezon stated that the AcSB is engaged in a robust consultation process regarding its Draft Framework for Reporting Performance Measures. Public comment closed on October 1, 2018. The Board received feedback from Canadian and international stakeholders. The consultation process involved:
- Board committees;
- two CPA Canada committees;
- NFPO stakeholders;
- public company preparers;
- three international groups; and
- the Canadian Auditing and Assurance Standards Board.
In addition, five in-person roundtables were held in Vancouver, Toronto, and Montreal. Three virtual sessions were also held.
The responses were generally favourable. Most respondents indicated that they were likely to use the guidance, and that it will improve consistency, comparability and transparency in reporting an entity’s performance.
Common themes were that:
- separate frameworks should be prepared for public companies, private companies, and NFPOs (the AcSB is not yet persuaded on this suggestion);
- a hierarchy is required for different types of performance measures; and
- the Draft Framework could be clarified.
The Board will consider the feedback and it intends to publish a revised Draft Framework in December 2018. Thereafter, the Board will monitor developments to ascertain if updates are required.
Ms. Mezon’s responses to questions included the following:
- The Draft Framework is a principle-based document that is complementary to, and not in conflict with, the proposed Canadian Securities Administrators’ (CSA) National Instrument (NI) 52-112, “Non-GAAP and Other Financial Measures Disclosures.”
- CSA Instrument NI 52-112 will be a rule. The CSA’s domain deals with non-GAAP measures disclosed by public issuers, while the Draft Framework is intended to be used by public companies, private companies, and NFPOs.
- The Board believes that the best way forward is to work with other interested parties.
A member commented that the Draft Framework might not be within the purview of the Board’s mission as stated in its Terms of Reference. Ms. Mezon replied that the Board views its work as an initial step to start a conversation and to move away from the status quo. A member said that the public might view the word “Framework” in the title with undue significance. Another member suggested that adding a suitable subtitle might give more context to the document’s purpose and title.
Mr. Jewett closed the discussion. He stated that there is growing concern, as expressed in several past AcSOC meetings, about the use of unaudited information and performance measures in investment and other decision making. He said that many feel there has not been a vigorous enough response from regulators and other relevant bodies. Mr. Jewett commended the AcSB for starting the dialogue.
Non-GAAP and Other Financial Matters
Lara Gaede discussed the CSA proposed NI 52-112 “Non-GAAP and Other Financial Measures Disclosure,” and the relationship between the proposed NI and the AcSB’s Draft Framework for Reporting Performance Measures. Ms. Gaede is the Chief Accountant and CFO of the Alberta Securities Commission, a member of the CSA Chief Accountants Committee, and Co-chair of the CSA’s Committee that published the document for comment for NI 52-112. She noted that she was a former AcSB member and that her term as a member ended on March 31, 2018.
Ms. Gaede acknowledged that AcSOC’s mandate is one of oversight and said that her presentation focused on examining the current landscape.
CSA disclosure practices
The CSA’s mandate is to set authoritative securities law and related guidance, to ensure compliance with securities regulations, and to take enforcement action when there is a material lack of compliance with its laws.
The basic disclosure practices, with suitable amendments to accommodate new information and changes in the environment, have been in operation since 2002. Staff Notice (SN) 52-306 (Revised) Non-GAAP Earnings Measures is built on the requirement in securities law that an issuer’s disclosure must not mislead investors. While this SN is useful and contains detailed guidance for issuers on how to report these measures, it is more difficult to enforce than a NI, which is prescriptive securities legislation.
The CSA has monitored the development of non-GAAP measure disclosures, and the continued negativity that certain disclosures have garnered. The CSA has responded to deficiencies in various ways. However, despite these actions, it has observed disclosure practices inconsistent with the guidance in SN 52-306. The CSA also recognized the call for enhanced regulatory action that came from the 2016 Veritas report and other sources around the same time.
Proposed NI 52-112 “Non-GAAP and Other Financial Measures Disclosures”
In early 2017, the CSA formed a project team comprising CSA members in British Columbia, Alberta, Ontario, and Quebec. Its job was to convert SN 52-306 into a mandatory regulation for all issuers that disclose performance measures outside the financial statements. The result is the proposed NI 52-112 for non-GAAP and other financial measures.
The proposed rule has broad application and will apply to all issuers, except for those meeting the definition of a U.S. Securities and Exchange Commission Foreign Issuer. The proposed rule pertains to the disclosures in all documents and written communications.
Confusion between the proposed NI 52-112 and the AcSB’s Draft Framework
There are concerns about inconsistencies between proposed NI 52-112 and the Draft Framework. For example, some terms and definitions in the Draft Framework are not aligned with those in the proposed NI 52-112. The Chief Accountants are concerned that these inconsistencies could confuse stakeholders. Some stakeholders say that there is confusion about how the AcSB’s Draft Framework relates to the proposed NI 52-112.
The Chief Accountants believe that the AcSB’s guidance may be misleading if there are references to an “audit”, “review”, or “other verification” in public documents without accompanying disclosure of what procedures were performed, or without a public accountant certification being made available.
The Chief Accountants’ goal is to ensure that the the AcSB’s Draft Framework guidance complements the CSA’s rules and it does not conflict with Canadian securities regulations. Once enacted, the CSA’s proposed rule will become securities law. The Chief Accountants do not wish users to believe that compliance with the AcSB’s Draft Framework equals compliance with the law.
Ms. Gaede thanked members for the opportunity to present to them.
Members’ comments included the following:
- The CSA and AcSB documents should be complementary. A global effort is required to address the matter of non-GAAP measures.
- The AcSB Draft Framework is not a standard. It is a statement of principles. The Board should make this abundantly clear. One member was surprised to hear that users would read the Draft Framework as if it was a standard, and think that by following it they would be complying with securities law. Another member commented that he was not surprised. Given the large number of small public companies in Canada, many may be unclear how these publications relate to each other.
- Robust communication processes are essential to disseminate the Draft Framework and NI 52-112 and to gather input.
- The use of similar terms with differing definitions in the CSA and AcSB documents is a concern.
- Some members expressed concern that issuing the CSA and AcSB documents at more or less the same time may cause confusion among stakeholders.
Ms. Gaede’s responses to questions included the following:
- The proposed NI does not address non-financial operating measures, which are not part of the CSA’s mandate.
- The Chief Accountants are doing their best to reach out and engage with a wide variety of end users.
- The Chief Accountants’ intent is to issue a value-added document.
Mr. Jewett thanked Ms. Gaede and said that the matter of non-GAAP measures and measures to address related concerns is an important AcSOC priority.
In an in camera discussion following Ms. Gaede’s presentation, Ms. Mezon noted that the AcSB had proposed changes to the Draft Framework prior to the current meeting for incorporation into a revised Draft Framework to be issued in December 2018. Many of these amendments should alleviate the Chief Accountants’ concerns.
PSAB Chair Charles-Antoine St-Jean provided an update on the Board’s priorities:
- communications and outreach (international strategy and conceptual framework);
- government not-for-profit organization strategy; and
- progress on key files (employee benefits and financial instruments).
Strategic plan considerations
At its September 2018 meeting, PSAB approved a one-year extension of its 2017-2020 Strategic Plan to 2021. The rationale for the extension is that the Board’s future direction, its Government Not-for-Profit Organization Strategy, the Concepts Underlying Financial Performance project, and ultimately its next Strategic Plan, could vary significantly depending on the Board’s decision on its International Strategy project in March 2020.
PSAB asked the staff to review the Strategic Plan’s extension process and ascertain if it can be streamlined. The Board expects to issue a consultation paper on the extension of its Strategic Plan in March 2019, with comments due in May 2019. Final Board approval of the extension is expected in June 2019, once all responses from stakeholders have been reviewed and considered.
Some members suggested that PSAB consider extending its 2017-2020 Strategic Plan by more than one year. They said that the 2017-2020 Strategic Plan encompassed matters in addition to International Strategy and that it should consider how the extension affects these other matters. AcSOC requested more time to consider the implications of a one-year extension and asked Mr. St-Jean to consider raising the matter at the next Council meeting in February 2019.
Mr. St-Jean thanked AcSOC for the suggestion, but respectfully expressed some reservations. He said that a longer delay might be counterproductive to PSAB’s efforts to build momentum to accelerate the delivery of standards’ solutions on a timelier basis. Stakeholders frequently ask about the excessive time taken to produce and issue standards. Mr. St-Jean said he would share the Council’s concerns at the next Board meeting and report to Council at its meeting on February 21-22, 2019.
PSAB will issue a second government not-for-profit organization consultation paper in 2019 to inform the international strategy decision in March 2020.
On May 28, 2018, PSAB issued “Reviewing PSAB’s Approach to International Public Sector Accounting Standards,” the first of two consultation papers. PSAB staff is reviewing and analyzing stakeholder responses. The Consultation Paper’s purpose is to inform stakeholders of the criteria that the Board will consider when determining an appropriate option for its future international strategy, and to solicit stakeholder input. The Board is considering offering a position in the second consultation paper.
The second consultation paper will:
- communicate feedback on the first Consultation Paper;
- compare PSAB’s and the International Public Sector Accounting Standards Board’s (IPSASB) international strategies;share the experiences of other jurisdictions; and
- define and finalize various criteria and options.
Stakeholder comments on PSAB’s Statement of Concepts, “A Revised Conceptual Framework,” and its Statement of Principles, “A Revised Reporting Model,” close on November 28, 2018. The Board has developed robust communications and outreach programs to inform and interact with stakeholders. The programs include stakeholder presentations, webinars, podcasts, and roundtable discussions.
Government not-for-profit organization (GNFPO) strategy
In 2017 and 2018, the PSAB staff consulted with a diverse group of financial statement preparers and users, across Canada. They include GNFPOs, associations, governments and other users such as banks and lenders. The objective was to understand the fiscal environment in which GNFPOs operate, as well as their financial reporting needs and perspectives. Through teleconferences and in-person meetings, staff consulted with more than 100 GNFPOs and their stakeholders. There appears to be a lack of consensus among stakeholders on the best way forward, and the staff consultations provide an opportunity to explore different models.
PSAB expects to approve a penultimate draft of its consultation paper at its December 2018 meeting, then approve its final consultation paper at its March 2019 meeting. The Board expects to release the paper in April 2019 in conjunction with the second international strategy consultation paper. This will allow stakeholders to consider the interrelationship of the documents.
Mr. Jewett noted that PSAB should coordinate its efforts on this project with those of the AcSB on the topic of NFPOs.
PSAB approved the third Invitation to Comment, ““Employment Benefits: Non-traditional Pension Plans,” at its September 2018 meeting. The Board expects to publish the document in October 2018. 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 is responding to developments in the Canadian environment regarding non-traditional pension plans and is considering a novel principles-based approach, rather than a classification. This approach will reflect appropriately risk and potential benefits.
Extensive communication activities are planned to promote this document. They include articles, presentations and discussions, podcasts, social media posts, and email mail-outs to stakeholders.
In response to questions, Michael Puskaric, Director, Public Sector Accounting, said that the AcSB and PSAB exchange some staff to facilitate work on this project. He said that PSAB expects to approve a final standard in 2022, with an effective date a few years later.
PSAB reviewed and confirmed its support for its existing financial instruments and foreign currency translation standards. However, the Board extended the effective date of the standards by two years to April 1, 2021, to incorporate non-hedging improvements based on feedback during stakeholder consultations.
A PSAB Advisory Group is working on an exposure draft that incorporates specific narrow-scope amendments and minor improvements to address non-hedge accounting issues related to the financial instruments standard. The Board expects to approve this exposure draft at its December 2018 meeting.
PSAB has endorsed an independent process review of its financial instruments standard. The review will identify lessons learned and propose recommendations, if appropriate. This represents the first time an independent party, excluding PSAB members and staff, will conduct such a review. It is in response to an earlier AcSOC recommendation.
PSAB’s compliance with due process
Mr. St-Jean advised that there were no reportable departures from due process nor were there any unusual events in the application of due process during the April to September 2018 period.
PSAB Standard-setting Due Process Manual
Michael Puskaric presented a draft of the updated PSAB Standard-Setting Due Process Manual for AcSOC’s review and comment. According to PSAB’s Statement of Operating Procedures, a due process procedure review is required every three years.
The AcSB approved its Due Process Manual in March 2018 and PSAB’s current review has used that Manual as a starting point. The Board made suitable amendments to reflect differences in its due process. The intent is to keep the Manuals of both Boards as consistent as possible.
The main changes in the updated Manual include the following:
- The content has been simplified using plain language as much as possible so that stakeholders can easily read and understand PSAB’s procedures. Repeated information has been removed. Information captured in other documents, such as PSAB’s Terms of Reference, has been deleted.
- Descriptions of various stakeholder consultation documents have been changed to match those used by the AcSB and the Auditing and Assurance Standards Board.
- Terms such as “major amendments”, “narrow-scope amendments”, and “annual improvements” and their processes have been defined.
- The Board’s existing option to forego the exposure of an exposure draft has been removed.
PSAB will consider AcSOC’s feedback for the document’s next draft. The Board plans to review the document at its December 2018 meeting. It expects to approve the final version of its Standard-Setting Due Process Manual at that meeting. The Manual will not be exposed, given there are no substantive changes to the due process.
The Council made several minor suggestions for PSAB’s consideration. Mr. Jewett thanked the PSAB Chair and the Director for revising the Manual and substantially improving its clarity and usefulness.
Province of Ontario Rate-regulated Accounting Issue
At its June 7-8, 2018 meeting, Auditor General of Ontario Bonnie Lysyk gave a presentation to AcSOC. After the presentation, the Council asked PSAB to provide confirmation of its due process regarding the Ontario rate-regulated accounting issue about which Ms. Lysyk expressed concerns.
Mr. St-Jean provided the following background:
- PSAB considers rate-regulated activities from two perspectives:
- under its Public Sector Accounting Standards (PSAS), used by governments and government organizations; and
- under Part I of the CPA Canada Handbook – Accounting, used by government business organizations applying Part I.
- The Board has no specific standard on rate-regulated activities.
- The majority of public sector regulated entities are government business enterprises (GBEs).
- GBEs are consolidated using the modified equity method.
- In 2010, the Board amended the Introduction to the CPA Public Sector (PSA) Handbook, directing GBEs to follow Part I of the Handbook.
- In 2014, the IASB issued IFRS 14 Regulatory Deferral Accounts, permitting regulatory deferral accounting in accordance with previous GAAP.
- In a 2014 project survey the Board conducted, stakeholders did not rank rate-regulated accounting as a priority.
- In December 2014, the Board deferred considering guidance on rate-regulated accounting until the IASB decides to issue guidance on the tropic.
- The IASB is developing a new accounting model to give financial statements users better information about an entity's incremental rights and obligations arising from its rate-regulated activities.
The relevant areas of PSAB‘s due process include setting priorities, monitoring the environment for unexpected issues, and reviewing its existing guidance.
Mr. St-Jean said that the Ontario rate-regulated accounting issue involved the following factors:
- The issue represented a new and complex unique structure.
- The entity applying rate-regulated accounting was not a GBE.
- The structure utilized multiple existing PSAS.
- The overall structure had a potential effect on the Province of Ontario’s consolidated public accounts.
Mr. St-Jean provided a detailed timeline of the activities related to the Ontario rate-regulated accounting issue. The timeline covered the period from August 2017 to September 2018. It included:
- meetings with the Auditor General of Ontario, the Controller General of Ontario and the entity level’s auditor;
- correspondence from legislative auditors across Canada;
- the results of discussions at PSAB meetings; and
- updates to AcSOC during this period.
At its March 2018 meeting, PSAB decided to institute biannual monitoring of rate-regulated accounting and that the topic should be identified in the Board’s next project-priority survey in 2021. In addition, the topic will be considered in the Board’s next strategic plan, and the IASB’s and AcSB’s activities on rate-regulated accounting will be monitored.
Mr. St-Jean’s response to questions included the following:
- The new Ontario government has undone the Fair Hydro Plan, which was a structured transaction designed to record future increases in electricity prices as an asset. The issue has thus disappeared.
- The Canadian Securities Regulators have permitted Canadian enterprises with rate-regulated activities to use U.S. GAAP until the earlier of January 1, 2024 or the effective date the IASB prescribed for mandatory application of an IFRS Standard specific to entities with activities subject to rate regulation.
Members’ comments included the following:
- The transaction to raise funds for the Fair Hydro Plan raised substantial funds for the Province of Ontario and could result in the creation of similar transactions.
- The current provincial government has appointed a Select Committee on Financial Transparency to investigate and report on the accounting practices, decision-making and policy objectives of the previous government. One member suggested that PSAB and AcSOC should monitor the Committee’s report, because its findings might affect standard-setters’ reputations.
Mr. Jewett noted that the dispute between the Province of Ontario and the Auditor General of Ontario appeared to be a standards-application matter and did not concern the integrity of PSAS.
AcSOC concluded that PSAB had followed due process regarding the Province of Ontario rate-regulated accounting issue. Mr. Jewett asked Stephenie Fox, Vice-President, Standards, to monitor developments and keep the Council informed.
PSAB’s Proposed Conceptual Framework and Reporting Model
Clyde MacLellan (former Chair of PSAB’s Concepts Underlying Financial Performance Task Force) and Nickie Young (current Chair of the Task Force) presented an overview of some of the key proposals for a revised conceptual framework and reporting model included in PSAB’s:
- Statement of Concepts, “A Revised Conceptual Framework for the Canadian Public Sector”; and
- Statement of Principles, “A Revised Reporting Model for the Canadian Public Sector.”
The comment period for both documents ends on November 28, 2018.
The presenters noted that the proposed Conceptual Framework and Reporting Model are interrelated with the Board’s other initiatives and projects, such as its International Strategy, Government Not-for-Profit Organization Strategy and its key projects.
The proposals are:
- inclusive of all public sector entities applying the PSA Handbook;
- responsive to stakeholder feedback received by the Board;
- responsible in how the Board dealt with this feedback;
- adaptable, as they allow the Board to deal with current and future issues;comparable to the IPSASB’s conceptual framework and reporting model and are conceptually sound (the Board has also examined, and noted the work on, the IASB’s conceptual framework);
- comprehensive and well thought out; and
- in the public interest.
The need for change
The reasons for this major initiative include:
- challenges with the development and acceptance of certain standards;
- more public sector entities, such as local governments, Indigenous governments, and GNFPOs have been brought into the PSA Handbook;
- the increasingly complex accounting environment; and
- the review of their frameworks by other national standard setters.
A concerted effort was made to include all public sector entities. The Statement of Principles includes five different sets of illustrative financial statements, each representing a key public sector entity:
- senior governments;
- local governments;
- Indigenous governments; and
- two types of GNFPOs (health and education).
The journey to the proposals
In December 2010, PSAB approved the project to review the conceptual framework and reporting model. In December 2017, it approved the Statement of Concepts, “A Revised Conceptual Framework,” and the Statement of Principles, “A Revised Reporting Model.”
During the course of the project, the Board and its Concepts Underlying Financial Performance Task Force conducted significant consultations with stakeholders to receive feedback and obtain buy-in. The intent was to build a conceptual framework and reporting model from the ground up.
Listening to stakeholders
The model is responsive, responsible, and adaptable, as stated below:
- In line with most stakeholders’ views, PSAB created a reporting model based on assets and liabilities and changes to them. The model excludes deferrals.
- The reporting model clearly identifies the surplus or deficit related to the reporting period.
- The calculation of net debt has been revised to make that indicator more meaningful and move it off the statement of financial position to its own statement.
- The new conceptual framework and reporting model will be adaptable, allowing the Board to deal with emerging issues. The proposals remove the current prohibitions to recognize inherited natural resources, inherited Crown lands, art, and historic treasures purchased and inherited, and all intangibles.
PSAB’s reporting model is also adaptable in that it introduces a new recognition alternative for complex accounting issues. The Board is proposing that net assets comprise the following:
- accumulated surplus/deficit;
- accumulated remeasurements; and
- accumulated other.
The presenters concluded by asking AcSOC for its continued support for this project. They noted that stakeholders hold varying views about the acceptability of the proposals and anticipate the receipt of mixed views.
Members’ comments included the following:
- Sovereign governments are likely to be pleased with the proposals, although other relevant parties might be uncomfortable.
- The public interest has been considered and the proposals auger well for PSAB’s future.
- A member expressed satisfaction that Indigenous government accounting was considered.
The presenters’ responses to questions included the following:
- The senior governments were one of the proponents of the project and are likely to be pleased with the outcome.
- There are similarities and differences with IPSASB’s conceptual framework. These have been posted on PSAB’s website.
- The Board has good relations with stakeholders, which will help in obtaining their buy-in for the proposals.
Mr. Jewett thanked the presenters for an interesting and useful presentation.
AcSOC Risk Assessment
In Cathy Riggall’s absence, the AcSOC ad hoc Risk Review Committee’s Chair, Annie Giraudou, a Council and Committee member, presented a report on the Committee’s activities. The Committee was formed to assess the Council’s risk, following AcSOC’s March 1-2, 2018 meeting.
Ms. Giraudou said that the Committee evaluated the risks facing AcSOC in achieving its mission together with mitigating actions, policies, and processes. The Committee also analyzed and identified the risk elements related to each item of the Council’s Terms of Reference. In addition, the Committee prepared a SWOT (strengths, weaknesses, opportunities, and threats) analysis.
Ms. Giraudou asked AcSOC members to provide the Committee with input on the probability of each identified risk occurring and the potential impact. The Committee will map the results onto a grid to create a consensus view of the Council’s risk profile. It will present the final view for approval at the AcSOC meeting on February 21-22, 2019. Members were also asked to indicate whether, in their opinion, risk levels are increasing, stable, or declining.
The Council discussed and, subject to minor modifications, agreed with the risks and mitigating factors identified by the ad hoc Risk Review Committee.
Mr. Jewett thanked the Committee members for their efforts.
Oversight Council Crisis Communication Plan
Following comments at the AcSOC meeting on June 7-8, 2018, Stephenie Fox, Vice-President, Standards, presented an Oversight Council proposed crisis communication plan to members for discussion. She noted that the Standards Group has had procedures in place for some time to deal with media inquiries and crisis management.
Members discussed the proposed crisis communication plan and made some suggestions to improve the content, including removing the word “crisis” from the title.
Financial Reporting and Assurance Standards (FRAS) Canada Website
Daniella Girgenti, Communications Manager, Standards, provided details of the new FRAS Canada website, FRASCanada.ca. It will be launched later this year, following extensive research. Additional stakeholder research will be conducted in 2019 to determine if the new site meets stakeholder needs.
The revised site will maintain the overall organization of the old site, but make navigation more obvious, and align with the Boards’ and Oversight Councils’ branding. The site will also be mobile-friendly and use plain language to enhance stakeholders’ understanding of its content.
Mr. Jewett thanked Ms. Girgenti and congratulated her on her team’s efforts to improve and modernize FRASCanada.ca.
Report on AcSOC Members’ Attendance at a PSAB Meeting
Two members reported on their attendance at the PSAB meeting on September 27-28, 2018. They said that the discussion was professional and Board members discussed matters in an independent manner divorced from their day jobs. Members’ comments on the Board’s international strategy were particularly thoughtful. The Chair managed the agenda effectively and allowed all members to express their views.
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.