Background
In May 2024, the International Accounting Standards Board (IASB) issued amendments to IFRS® Accounting Standards (IFRS). The IFRS amendments clarify that, except for certain electronic payment transfers for which relief was granted, financial liabilities paid in cash are extinguished upon settlement – the date on which payment is completed – and the creditor has control of the cash received. The IASB explained its reasoning for not extending the exception to other payment methods in paragraph BC3.55 of IFRS 9 Financial Instruments – Basis for Conclusions, noting, “For other payment methods, such as cheques, completion of the payment remains subject to settlement risk that is more than insignificant until the cash is delivered (that is, transferred from the payer’s account).”
In September 2024, the AcSB discussed a concern that some private enterprises may refer to the amended IFRS guidance when applying requirements in Section 3856, Financial Instruments, related to the extinguishment of financial liabilities. This concern arises because the wording in paragraphs 3856.26 and 3856.A49 is the same as the corresponding wording in IFRS.
The AcSB understands that there may be diversity in practice in terms of the application of these requirements. Some entities applying Accounting Standards for Private Enterprises (ASPE) may derecognize financial liabilities settled through common payment methods, such as cheques and electronic fund transfers, when the payment is initiated or issued, rather than upon settlement. The date used to extinguish financial liabilities paid in cash may have practical implications for Canadian entities. For example, when a trade payable is paid by cheque, applying a settlement-date approach would result in the liability being derecognized only when the cheque is cleared by the counterparty’s bank. Until that time, the trade payable would continue to be recognized, and the entity would not report the cheque as outstanding at the balance sheet date.
In its September 2024 Decision Summary, the AcSB noted there had been no changes to ASPE and, accordingly, it did not expect changes in how these transactions are accounted for in Canada by entities applying Section 3856. The Board directed staff to further discuss concerns related to the derecognition of financial liabilities in ASPE with its advisory committees.
The AcSB considered input from its Medium and Small Practitioners Advisory Committee, its Private Enterprise Advisory Committee and its Not-for-Profit Advisory Committee, at its November 2024 meeting. The Board asked staff to assess the issue using the criteria in its Guidance Framework to determine whether additional clarification was necessary given the wording is the same in IFRS as in ASPE. Following this assessment, staff recommended that the Board proceed with standard setting. At its March 2025 meeting, the Board agreed with staff’s recommendation.
At its March 2026 meeting, the AcSB decided to address this issue through a narrow-scope amendment project. Accordingly, the Board proposes to issue a narrow-scope amendment to Section 3856 to address this issue.