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Jamie Goodman: Alright, well, we’ll just give people a minute to get connected to this webinar.
But as you would have seen when you registered, this webinar is being delivered in English with simultaneous translation to French, so you can select the language that works best for you by clicking the Interpretation button on Zoom.
You can also enable closed captioning for this webinar, and there’s actually a link to enable the closed captioning in the chat, so you can access it there.
But with that, I guess, we’ll begin.
So, hello everyone, and welcome to the Accounting Standards Board’s webinar on the Detailed Review of Accounting Standards for Private Enterprises.
We thank you for taking time out of your busy day to attend this webinar, and hope that it provides some clarity on topics and questions in the Consultation Paper, which is currently out for comment.
Please note that attending this webinar and successfully completing the post-webinar quiz may count towards your CPD requirements. The link to the quiz is provided in one of the slides, and if you pass the quiz, you will receive a certificate of completion by email.
It is my pleasure to introduce you to today’s webinar facilitator, Armand Capisciolto.
Armand is the Chair of the Canadian Accounting Standards Board. He’s served on the Board since 2015, including as a member, Vice-Chair, and now as Chair.
His extensive experience as a standard-setter also includes chairing the Board’s Private Enterprise Advisory Committee and membership on the IFRS Accounting Standards Discussion Group.
A quick introduction of myself as well. I am Jamie Goodman, a Principal with the Accounting Standards Board.
I work closely with the Board, external interested and affected parties, and volunteers to develop high-quality accounting standards and other guidance for public companies, private enterprises, and not-for-profit organizations.
I also am the current Secretary of the Accounting Standards Board’s IFRS Accounting Standards Discussion Group.
On today’s agenda, we will first discuss the background of this project, including why the Board is undertaking this project, the purpose of the Consultation Paper, how the Board identified issues, and the scope of the project.
Then we will talk about application issues addressed in the Consultation Paper.
Next, we will discuss how the AcSB will prioritize potential projects it has identified through this Consultation Paper.
And finally, we will discuss different ways you can respond to this document.
Many people think the only way to respond is through written comment letters; however, we are providing a few other options for those who would like to provide feedback in different ways.
So I will now go over the background of the project.
On this slide, you will find a link to the Consultation Paper. When you click that link, you will find information on how to provide feedback. And as noted on this slide, the comment period deadline is January 31, 2026.
So, I will first discuss why the AcSB is undertaking this project, and it all starts with the Board’s 2022–2027 Strategic Plan.
Every five years, the Board creates a strategic plan, which influences its standard-setting activities over the next five-year period.
One of the core strategies in the current strategic plan is to deliver relevant and high-quality accounting standards that promote confidence in the information reported by Canadian entities.
As part of this strategy, the Board committed to exploring scaling the standards for non-listed entities to better meet their diverse reporting needs.
The Board noted that entities vary widely in size and complexity, and therefore the information needs of financial statement users can vary significantly.
So, in the context of accounting standard-setting, scalability refers to having frameworks and standards that meet the financial reporting needs of interested and affected parties in entities of all sizes, types and levels of complexity.
When the Board started to explore scalability, it noted that scaling the standards could take many forms. It could involve providing entities with additional recognition and measurement or disclosure options within the existing frameworks, or it could include adding new frameworks to the Handbook to fill a financial reporting gap.
As a first step to explore the types of scalability solutions that Canadians would support, the Board released a Consultation Paper entitled Exploring Scalability in Canada.
In this Consultation Paper, the Board cast a wide net by considering several ways to incorporate scalability into the Handbook.
Four high-level solutions proposed by the Board in that Consultation Paper were
Simplified Recognition and Measurement Requirements and Selected Standards,
Reduced Disclosure Requirements,
an Intermediary Accounting Framework Option between IFRS Accounting Standards and Parts II and III,
and the Introduction of a New Framework for Small Entities.
Through outreach on this Consultation Paper, the Board received the most support for the first solution.
The Board repeatedly heard that several standards in Part II of the Handbook are challenging to apply or result in information that is not useful to financial statement users.
Respondents noted that introducing tiering in Part II might reduce financial reporting challenges while still meeting users’ needs.
The Board heard similar feedback through outreach on other projects and activities.
The Board also received some support for the second solution, as some respondents thought the Board should consider reduced disclosure requirements, along with simplified recognition and measurement requirements.
The Board received little support for adding new frameworks to the Handbook, so decided not to pursue those solutions further.
In response to this feedback, the Board initiated a new project to identify the most complex requirements in ASPE and to explore practical solutions to reduce their complexity while maintaining the overall usefulness of information produced for users.
Recognition and measurement, and disclosure requirements would be within the scope of this review.
And so that’s how the detailed review of ASPE came to be.
So, what is the purpose of this Consultation Paper?
This Consultation Paper outlines the key issues with ASPE that the AcSB has identified to date, and presents potential solutions that the Board is considering.
It seeks to gather feedback to ensure the Board has a complete picture of the issues within the scope of this project and that any proposed solutions are feasible and effectively address concerns raised.
The AcSB will evaluate the feedback received on this Consultation Paper and determine which solutions it should develop into standard-setting projects.
The Board will then consider the consultation feedback when setting future project priorities.
We will talk about this a bit more later in the webinar, but the Board does not plan to immediately address all issues identified during this consultation, as it would not be feasible to do so.
Rather, it will seek… it will use this feedback when setting its project priorities over the coming years.
Determining which issues are highest priority for Canadians is an important part of this consultation.
In considering the feedback from this Consultation Paper, the AcSB might propose to address issues in one or more of the following ways:
It might consider issues as part of an existing standard-setting project. For example, if there’s an existing project on a similar topic, the Board might expand the scope of that project to include an issue.
It might bundle several issues together in one Exposure Draft. And the Board may use this approach when it is best to address several issues through narrow-scope amendments.
Or it might initiate separate projects or develop separate Consultation Papers for issues to explore them further. The Board may use this approach for issues that are complex or broader in scope.
Therefore, this Consultation Paper will likely result in multiple standard-setting projects, and ultimately Exposure Drafts.
So you may be wondering how the Board identified the issues that it analyzed in this Consultation Paper.
As you will see on this slide, the Board consolidated feedback received on all standards in ASPE from multiple sources.
Many of the issues were raised by respondents to the Scalability Consultation Paper to back up their support for simplifying ASPE.
However, the Board also considered feedback it heard on other Consultation Papers and Exposure Drafts from its advisory committees, and through both formal and informal meetings with other interested and affected parties.
The Board is interested in hearing about other issues with ASPE that meet the project’s scoping criteria that were not already analyzed in the Consultation Paper.
The last thing I’ll discuss regarding project background before we dive into the key proposals in the document is the project’s scoping framework.
The Board developed a framework to identify which issues it intends to address within the scope of this project.
This framework takes the form of a decision tree in the Consultation Paper.
Detailed explanations on how to apply this decision tree are provided in Table 1 within the Consultation Paper.
Those explanations are an integral part of the scoping framework, so I encourage you to read them along with the decision tree.
When applying this framework for each issue analyzed, the Board might come to one of three conclusions, which are highlighted in the grey boxes within that decision tree:
The issue might be within the project scope.
The issue might not be within the project scope, and no further action is required.
Or the issue might not be within the project scope, but might be within the scope of the Board’s guidance framework for domestic standards.
The Board thought it was critical to establish a clear scope for this project, as it does not intend for this project to resolve every issue identified within each standard in ASPE, and it would not be practical to do so.
The scoping approach is meant to identify the most significant and widespread issues that entities face when applying ASPE.
The Board intends for this framework to serve as a guide rather than strict rules, and therefore the Board apply judgment when evaluating whether each issue is within the project scope.
So, now that I’ve gone over the project’s background, I will hand it over to Armand, who will go over the key proposals in the Consultation Paper. So, over to you, Armand.
Armand Capisciolto: Okay, thanks, Jamie, and I’m really excited to talk about this Consultation Paper. We’ve been talking about scalability for a long time. It was part of our strategic plan that we issued back in 2022.
And we’ve had another Consultation Paper, but this is the first Consultation Paper that we’re issuing that actually has real proposals in it, that we can actually say, this is what scalability could look like.
So what I’m going to do now is, as Jamie said, I’m going to go over the various issues we discussed as a Board. This is educational, and I hope you all attend a roundtable, you all submit a letter, and you find this session helpful to give you some insights as you take a deeper dive into the Consultation Paper and come up with a response, or giving your feedback at a roundtable.
That being said, you can ask questions of us today through the Q&A feature. So feel free to ask away as we go.
So, let’s start with the first set of issues we dealt with, and they’re related to inventories. And what I’m going to do is I’m actually going to go through this one in a little bit more detail, so you get a sense of the process we went through as a Board, and what we considered, and how we worked through kind of the criteria and determining something was in scope, whether we should do something or not do something. And I actually think these two inventory issues are really interesting. It’s an old standard, a standard people don’t ask a whole lot of questions about, but I think these are two great issues to illustrate how this process works. So let’s talk about these issues.
So, the first one is the allocation of overhead costs to inventories. So as you know, you have to allocate systematic allocation of fixed and variable production overheads to inventory, and that flows through cost of goods sold, and so forth.
And what we’ve heard, and we’ve heard this from multiple people, is that this can be very difficult, this can be burdensome, especially for, entities that, the owners, the related parties are actually involved in the production of the materials. They are part of delivering the product. And because they, as owners or related parties, their time might not be tracked precisely, their salary it might not be able to be allocated effectively or sufficiently to the inventory. So people say, “What do we do in these situations?” Which is very common in a lot of owner-managed businesses.
And so when we’ve spoken with users about this, some have told us, and in many cases, not all, but in many cases, they would find the financial statements equally useful if the entity expensed the overhead costs instead of allocating them to inventories. I really think it’s important that I say “in many cases they thought this would be more useful”, and that’s why the Board is proposing to explore an accounting policy choice that would allow entities to exclude overhead costs from the cost of manufactured inventories. This, for those of you in the ag sector, this might sound very familiar to an option that we actually put in the agricultural standard. So we’re asking for your feedback on it. We want to know what you think about the accounting policy choice. We want you to think about should this be available to all entities, or should there be qualifying criteria? These are all the things we want you to think about when you’re showing up at an outreach session or responding to the Exposure Draft. That’s what we really want to hear about.
The other issue that relates to inventory is a disclosure requirement and the requirement to disclose the amount of inventory recognized as an expense during the period.
When we think of this disclosure, what I would say is it is not done in a consistent fashion.
Some just repeat the cost of goods sold. And then you’d say, “Well, what’s the purpose of that if you already have cost of goods sold on the income statement?” There tends to be confusion about what does the cost of inventory expensed means. That confusion leads to diversity. And the intention is for this to be applied consistently. So, we contemplated, “Is this disclosure required? Are users getting the information in another way?”
So, we spoke to the users. What the users told us is they know this disclosure is somewhat flawed, but they generally find it helpful in helping them understand the entity’s inventory-related expenses. So they told us, “Don’t take it away unless you’re going to give us something else.” And what’s interesting about this, although most entities that are in manufacturing or have inventory probably report cost of goods sold, there actually is not a requirement to actually report cost of goods sold in ASPE. So, what we’re doing with this is we’re not touching this. We have said, “You know what? Users have told us they want this information.” So based on this feedback, the Board is saying, well, this is maybe a project outside the scope of this project, and maybe in the future, we need to consider replacing some of this disclosure requirement with something that better meets the users’ needs as part of a separate standard-setting project—maybe on the income statement or something like that.
So again, we’re asking for feedback. Do you agree that we should keep this, or if you don’t, maybe give us some insights on what you think would be a better approach.
So, anyway, those are the two inventory issues. I went in a little bit more detail than I’m probably going to go on the rest of the issues, but I just wanted to walk you through that process, because there’s a lot of issues to cover. So, with that, that’s Inventory.
Let’s go to the next one: Impairment of Long-Lived Assets.
So, Impairment. When I think about the discussions that we had at the Board, the discussions we’ve had with committees, I think everybody kind of was on the same page—Impairment.
It’s hard. Impairment of Long-Lived Assets isn’t the easiest standard to apply. Anytime you’re dealing with estimation, when you’re dealing with judgment, it’s going to be hard to apply.
But when we looked at the word, so the two issues that people asked us about: When I actually have to do an impairment test, when is there indicators, and do we need to do something around the indicators, and then if you get to indicators, actually performing the impairment test?
So, when we look at these things, these two things are… What do they have in common? Judgment and estimation.
But when we look at the requirements and the standards, we think the requirements are clear, we think the requirements are difficult to apply. However, when we’re talking about impairment, when we’re talking about something that might not be recoverable, maybe it should be hard, because we’re asking for estimations, we’re asking for these things.
So, what we are proposing, we’re not saying we’re not doing anything, what we are proposing is that we issue additional guidance to help people apply the requirements of the standard.
So, what does guidance mean? That could be illustrative examples. That could maybe be a little bit more detail on how you deal with cash flow estimates. It could be a whole bunch of things.
So, all we’re saying in the Discussion Paper is we’re going to issue guidance. What do we want to hear from you? What will be helpful as guidance for you? Is it morale examples? What is it?
If we do issue guidance, where should that guidance be located? Do you want these as illustrative examples that accompany the standard and therefore in the Handbook, or are you looking for maybe a non-authoritative publication outside of the Handbook? So, all of which could be options that we pursue under this project.
So, again, our proposal is we’re going to issue non-authoritative guidance. The question is what exactly type of guidance do you want, and where should it be located?
Okay, so the next issue is Leases.
Now… What we heard, and what people asked us to look at is the straight-lining of lease expense. So, we’re talking about operating leases. We’re not talking about capital leases here; we're talking about operating leases. So, people have said straight-lining leases can be difficult.
I’m going to give my own personal opinion here. Straight-lining and lease expense is math. It’s determining the average lease expense. I think we all can do math. That being said, we acknowledge that if you have a lot of leases, that can be challenging. You have to have spreadsheets, all that stuff to maintain it.
That being said, when the Board looked at this and looked at what could we do to alleviate some of those… the cost of maintaining a number of spreadsheets if you have a number of operating leases, we could not think of a way to deal with this that wouldn’t be a departure from accrual accounting. And departing from accrual accounting is much farther than we would want to go in this project, and therefore we are proposing no action on leases, and therefore it’s outside the scope of this project.
Okay, another issue, another topic that we talked about. And again, an issue like Leases, if you disagree with that, let us know, but let us know why. Give us a rationale, give us some other options to think about when you’re responding. Just don’t say we disagree with you. If you disagree, why? And give us some practical solutions. This is what we do as standard-setters: We go out; we put proposals out; we listen to what people say. You’re not always going to agree with us, but if you’re not going to agree with us, give us something to work with.
Why that’s important here is because I’m going to talk about another standard where we’re not doing… we’re proposing not to do anything with asset retirement obligations. So, two issues people asked us to look at here:
One was actual measuring of an asset retirement obligation. It can be really challenging. Again, we get it. It’s challenging. There’s estimation involved. There’s long-time periods involved. All of which bring complexity to account… the accounting standard.
What I’ve often thought of when I think about this project, is that complexity warranted? And if there is an obligation that exists, a user of those financial statements need to know what that obligation is, how that obligation will eventually impact this entity. Therefore, we couldn’t think of a way to simplify this. That wouldn’t be too much of a departure from providing that important information to users.
The other issue that people asked us to look at was discount rates, and they said there’s a lot of diversity in the discount rates used by entities, and maybe you need to narrow those choices.
Now, I know this is an ASPE presentation, but I did look at the attendee list, and there are definitely some people that names I recognize, and they might know that the IASB is actually looking at their provision standard, and they are reducing the choices in discount rates.
And what I would tell you, as Canadians, we responded that we don’t like that idea. So when I think about ASPE, and I think about the fact that we leave some judgment, some professional judgment, for entities to choose the discount rate they think best reflects the situation and the obligation they’re measuring, we think that is important. We do not want to take that judgment away. Therefore, again, we decided to do nothing on the issue of discount rates.
Okay.
I’m now going to talk about some topics we are doing something about. So it’s not all we’re not doing anything. There is definitely some stuff that we’re doing, definitely some standards we are doing things on.
Revenue Recognition.
So, two topics come up to us regularly as being difficult: (1) the accounting for arrangements that have multiple deliverables and (2) the percentage of completion method.
So, when we looked at both of these, what users told us is that when we’re dealing with longer-term contracts, the information they get from proper accounting for multiple deliverables, the information they get from the application of the percentage of completion is critical. They do not want to lose that information.
However, when contracts are shorter term, especially if there’s a regular churn of those contracts, what users told us is: “They’re probably not the incremental information they get from applying multiple deliverables, or doing the percentage of completion probably doesn't warrant the cost that the preparers and auditors and practitioners are dealing with to do those things.”
So what we’re proposing is a policy choice. For both, if there’s multiple deliverables or a percentage completion, if the contract is short-term to basically use a completed contract type method, even if it would have met the criteria to do something else.
Now, what we haven’t said in the Discussion Paper is what the “short-term” means.
We would really like your input—if you agree with providing this choice. We’d like your input on what would that… what’s that magic number? Is it three months? Is it six months? Is it nine? Is it two? We’d love to hear your input on that, and if there should be any other criteria associated with this policy choice.
So, again, this is a place where if I think about the way I think about this standard, is the complexity warranted? What we’ve heard is the complexity is likely not warranted in short-term contracts, and therefore, a policy choice could be very helpful to preparers without impairing the information to the user.
Now, it’s the details. What exactly does that mean? So, if you could provide us input into the number of months, and the criteria, and what that might look like, we’d love to hear that.
Okay.
Employee Future Benefits.
So, some interesting discussions on this topic as well. The first topic that we spent a lot of time chatting about was Individual Pension Plans, or IPPs.
And, in my past life, I had many discussions with people on IPPs. And a lot of individual pension plans, they are defined benefit plans. And, therefore, you have to do defined benefit plan accounting, and that can be complex.
And we talk to people, and they’re like: In most cases, the IPP is held by an owner of the business, and therefore, what information needs are you dealing with here?
So on the surface, if we just look at the complexity, there is something to do here.
However, what we heard when we talked to our committees is, although IPPs were quite prevalent a number of years ago and were a very common retirement-planning and tax-planning strategy for owner-managed businesses, they’re no longer a prevalent tax-planning and retirement-planning tool. Not saying they’re not used at all, but it’s not near as prevalent as it was a number of years ago.
So, again, when we look at the criteria and look at the fact that we are dealing with limited resources, and we can’t deal with everything under the sun, because we’ve heard it’s not prevalent, we’re saying it doesn’t meet the criteria, it’s not within the project scope.
If you disagree with that, if you do think it’s prevalent, tell us. Respond. Show up at a no-reach session to tell us that you think it’s prevalent.
We dealt with two other issues in Employee Future Benefits. The other one was related to the disclosure requirements. When you have a defined benefit plan, we heard from some that these are complex, these are difficult to complete. However, when we speak to users, they were: “No, we need this information. This is important information. If an entity has a pension, has a defined benefit pension plan, the information that’s provided in this disclosure is really important to predict future cash flows.” Therefore, users said, this is needed information, and therefore we’re not proposing any simplifications there, because we believe it’s outside the scope of the project.
The last one was really interesting, because some of the things that we were having discussions about these various topics, we found out about things that people are just struggling with and potentially missing. And one thing we heard, and this is probably what we heard from some is this might actually be more prevalent in not-for-profit organizations, and… but let’s not forget, not-for-profit organizations also look to Part 2 for Accounting for Employee Future Benefits, and it’s related to termination benefits. A lot of not-for-profits might have some sort of termination benefit built into a contract for an executive director or something like that. But they’re not… it doesn’t say “termination benefits.” The contract doesn’t say “termination benefits.” Therefore, what we’ve heard, especially from practitioners, is that a lot of preparers are missing this. And they shouldn’t be missing this. So, this is one of these ones where we’re saying what we’re going to do is we are actually going to look at the words and say, Are the words clear enough? And is maybe using some accounting jargon making people miss it when we can be clearer in our words, and being clearer in our words is one of the approaches, and looking at the drafting of the words is one of the approaches that is a potential solution that we consider as part of this plan. So that is what we’re talking about doing with termination benefits.
And I would just say, I haven’t seen any questions come in yet. So please don't hesitate to ask any questions through the Q&A function. I’m leaving time for questions at the end.
Okay. Income Taxes.
So, a few issues that we were asked to look at here.
The first one is, if you’re using the income taxes payable method, there is a disclosure requirement related to reconciling either the statutory rate or reconciling net income to taxable income.
And every time I’m part of these discussions, I’m somewhat blown away by what we hear. Because what we heard multiple times in these discussions was that this disclosure is as difficult to do as if I was actually applying the future income tax method.
I do not believe—and putting these requirements in this disclosure requirements before my time on the Board—but I do not believe that was the intention of the Board at the time when developing this disclosure for this to be as difficult as applying future income taxes. That’s why if it was going to be just as difficult as applying future income taxes, why give the option of the income taxes payable method? So, we think people might be reading too much into the words and thinking this is much more complex than it really is.
So what we are proposing is additional guidance, maybe through an illustrative example, to give a little bit more context on the level of disclosure that is expected, related to this requirement.
Jamie Goodman: Armand, not to interrupt you, but we do have a question in the chat on this topic. I was wondering, did you want to wait till the question period to address questions, or do you want to address this one now?
Armand Capisciolto: Because we’re talking about disclosure right now, Jamie, so it’s probably a good time to respond to this one. So, they’re just curious about the groups we’re hearing from that have challenges with disclosure requirement, is it user preparers, etc.
When we hear about disclosure requirements, it is typically we’re hearing it from preparers and practitioners that are telling us this is a difficult disclosure to comply with, there’s a cost to providing this disclosure. What I will say is we generally never hear from users about difficulties with disclosure requirements. Users will generally say, “We want more. We want more disclosure. We want more information so we can make better decisions.”
That being said, in the private company world, we work on an assumption that a user can always ask for more if they need to, but we still need to make sure that disclosure is adequate enough that they know what questions to ask.
For those of you who read my Inside Standard-Setting articles and those of you who are fans of Saturday Night Live, I always compare users to Christopher Walken in the cowbell sketch. They just want more to cowbell. They want more disclosure.
Sorry for that. I had to do it.
So, continuing on Income Taxes.
We’ve heard people say, “Future income taxes is complex. Can you make it less complex?
We don’t believe that’s in the scope of this project, because we already have an option to make it less complex—the income taxes payable method.
The last issue that people bring up quite regularly when it comes to income taxes is accounting for uncertain tax positions.
So, I want to be clear: This is not in the scope of this project. That doesn’t mean we’re ignoring uncertain tax positions. The reason this is not in the scope of this project is there is currently no guidance to simplify, to provide optionality for, to do any of that related to uncertain tax positions in ASPE. Therefore, we continue to monitor that and deter, and it’s one of these topics. It’s on our future project list, and we constantly consider. We look at it every year and say, “Does that fall within a priority to deal with this year?” We haven’t got to it yet. It hasn’t elevated itself to the top of our priority list. But that doesn’t mean we’re ignoring it. But at this point, it’s not in the scope of this project, because there isn’t guidance to simplify or deal with otherwise.
Okay. So, this Disposal of Long-Lived Assets and Discontinued Operations was… I’m an accounting nerd, so I found this discussion to be one of the most interesting discussions of all the discussions we had. Because in talking about some of these standards, you get to realize that most people that are in the private company space probably don’t spend their days reading accounting standards like I do, and then you find out little things about how they perceive a standard. So, this is one where, when we talk to people, what they said was this doesn't happen: Discontinued Operations doesn't happen that often. Therefore, it’s not something I deal with or have any comments on.
And what became evident as we explored a little bit more into those discussions was there was a misconception that the requirements related to disposal of long-lived assets only applied when you had discontinued operations. But within this standard, you’re actually dealing with two somewhat related topics, but they are distinct topics:
You can have something that meets the criteria to be accounted for as a disposal of long-lived assets, and potentially accounted for before you actually dispose of it if it meets the criteria, and it not be discontinued operations.
And so when we heard that, our response was, “Oh, wow, that’s troubling that people are missing this!”
So this is one, again, where we are exploring whether it’s a drafting issue, exploring whether even having these as one standard is part of the problem, maybe exploring whether there should be two standards: one that deals with disposal of long-lived assets, one that deals with discontinued operations. So that’s the first issue that we talked about.
The second topic that people said, “Well, accounting for discontinued operations is hard.” And it is. But it doesn’t come up that often, especially not in the private company space. So from a prevalence standpoint, not in the scope of our project, so we’re not considering that.
Again, if you disagree with any of these things, let us know.
Okay. Financial Instruments.
Lots of topics on Financial Instruments. I think in total, I think six issues we’re going to talk about in Financial Instruments. Maybe it’s five. I might be wrong. We’ll get to the next slide, and we’ll find out for sure. So, a few things that came up in Financial Instruments.
The first one, and this is the one where I think you’ll cheer. At least, I hope you’ll cheer on this one.
We hear a lot about the complexity of dealing with non-market loans—loans that have zero-percent interest; they’re off-market; whatever they’re at. Some will be with related parties; some won’t be with related parties. There’s various scenarios where these arise.
When we chat with users about this topic… From a practicality standpoint, you have to estimate a discount rate, discount the loan, add some complexity to the accounting.
When we talk to users about this, especially in the private company space, and they tell us, “Well, what do you actually want to know?”
They say we actually want to know how much they owe.
And when you discount it, when you discount it at a different interest rate, the amount reflected on the financial statements is no longer what they owe.
That being said, in some cases, there might be a reason to do it. So, this is another scenario where we’re proposing an accounting policy choice to account for off-market rate loans at their face value versus fair value at initial recognition.
So, again, policy choice. Want to hear what you think about that policy choice. Again, the proposal right now is to make it a free choice. We want to hear if you agree if it should be a free choice, or if there should be criteria related to applying that.
The next issue we dealt with was determining the fair value of derivatives when a quoted market price from derivatives is not provided. A lot of discussion on this one.
At the end of the day, if you’re a private company and you’re entering into derivative transactions, and you’re entering into derivative transactions that don’t have a quoted market price, or at least you’re not getting a price from the counterparty, we think that’s a complex derivative. And we think the complexity of accounting for fair values is warranted and therefore not in the scope of the project.
The third issue we talked about is the guidance in 3856 related to determining whether something is a liability or equity. And that liability and equity classification is really important, and we hear it’s often misapplied.
This is one where the initial thoughts of the Board is the issue, is the drafting And can we redraft the application guidance that exists within the standard to make it simpler to read and simpler to apply, not necessarily changing the requirements but just making it more understandable for the practitioner, for the preparer to understand how to apply the standard. It is very complex—paragraphs referring to other paragraphs. It is not an easy group of paragraphs to read. Even as someone, like I said, who spends their day reading accounting standards, I find it difficult to read.
So what we’re proposing there is: Without necessarily changing the requirements, looking at the drafting, can we make this more understandable?
Okay. A few more financial instrument issues to talk. Two more. It's five, not six. I apologize.
So, a couple of other issues that people asked us to look at was assessing whether an arrangement meets the criteria to qualify for hedge accounting.
Again, hedge accounting is an option. So, hedge accounting is complex. It’s less complex in ASPE than it is in other standards, but hedge accounting is still complex. It’s optional, and you have the option to not apply hedge accounting. We did not feel this was in the scope of the project to take on, because there is already a simpler option: Just don’t apply hedge accounting.
And the last issue that comes up all the time, and it’s been coming up for, I think, as long as these disclosure requirements have been in the Handbook, is the disclosures related to financial risks is often boilerplate. And we’ve attempted to fix these disclosures in the past. And it hasn’t made what actually happens in practice to be less boilerplate. But what was interesting in our discussions, especially with practitioners on this one, is that they didn’t think the boilerplate disclosure was problematic. And the reason they didn’t think it was problematic was: As they’re going through their clients’ financial statements, it’s almost a reminder for them within the financial statements, almost like a disclosure checklist within the financial statements when they’re reading it. Oh, they’re talking about credit risk. There is something significant related to credit risk, let's actually expand on that.
So when we talked to practitioners, they said, “When there truly is a risk, we are going beyond the boilerplate disclosure.” But does that mean that there isn’t some boilerplate in the financial statements? Yes, there is, because it’s almost like a placeholder in disclosure. In my ideal world, you wouldn’t have that placeholder in disclosure in the financial statements, but I get what practitioners are telling us. And I’m not sure we can do anything to change that behaviour as a standard-setter. Therefore, we’re looking at this as not within the scope of the project.
Okay. Stock-Based Compensation.
This is one probably… Again, your comments are absolutely critical. And why they’re critical? This is probably the topic where the Board was probably most divided in the discussion. Obviously, we’re putting something in the proposals, and we came to a conclusion on that, and so forth. But this was an interesting discussion. And to be honest, even the input we received from committees and others we talked to was also very mixed. So your comments could change our preliminary proposals on this, because we were that close in this.
So, when we talked about stock-based compensation, there was definitely people who were saying it doesn’t give any information, especially in really early-stage companies where it’s a shot in the… we have no idea. We’re looking at it, we’re trying to figure out the fair value, we have no idea what the fair value is, so we’re questioning what is the information value of that.
There’s others who’ve said, “Well, no, it is important, because if we were not compensating these employees through a stock-based compensation, we would have to compensate them with some other benefit in some other way,” and then therefore felt that the information was important so that users understood what the true cost of the employees were.
So, given that mixed view, I personally found the arguments more compelling for those that said it does provide information value. We are not proposing to do anything. We do believe the complexity is warranted, and therefore outside the project’s scope.
Like I said, we want to hear from you. We want to hear what your thoughts are. And, like I said, this was probably the topic that garnered the most debates, whether at committees or at the Board level.
Okay, so, as Jamie said, we can’t do all of this all at once, even though we’re not doing everything we looked at. There’s still a lot here. This project in addition to kind of getting your thoughts on the proposals, we actually also want your thoughts on what are the most important of these proposals so that we can properly prioritize and deal with the most important topics earlier in the process than others.
So, there is a question in the document, asking for your feedback on which issues are of the highest priority. I think it’s really important. When you give us this feedback, we want you to consider some of the things we would consider: Is it a widespread issue? If it’s something you rarely see and it’s complex, that’s not that widespread, and therefore it might not be that urgent. The urgency of enhancing financial reporting in that area, the alignment of the solution with concepts, and whether we can come to a practical, timely solution, and implement this—those are some of the things we want you to consider. But it’s critically important: We don’t want you to say, “Everything is important. Do it all!” If that’s the case, you want us to do it all, we still need to know what is the highest priority, because that’s going to determine the when.
So, that’s what we want. We want to hear from you. Jamie will cover how you can respond, how you can participate. We don’t care how; we just want to hear from you. Show up to an outreach. Respond formal response, send us an email. I think there’ll be a survey on this. Whatever you have to do, do. We really need to hear you. This is a critically important project for us. This is a strategic project for us; therefore, it is essential that we hear from you. So, Jamie, back to you, and I’m going to scan the questions while you’re covering how to respond.
Jamie Goodman: Great, thank you, Armand. And a very, very good summary of all the issues in the Paper. I think you did a great job!
So we have a few ways that you can respond to this document, and they’re listed on the screen here. First is you can submit a common letter, a comment letter. The deadline to respond is January 31, 2026.
Note that if you do submit a comment letter, you do not need to answer every question that’s in the Consultation Paper. There are a lot of questions, there are a lot of issues that we cover, and there may be only one or two of them that you actually have a lot of experience with that you want to provide a comment on. So just know that by submitting a comment letter, we don’t require you to answer every question.
You can sign up for one of our virtual roundtables that will be upcoming. We have not finalized the dates yet for the roundtables, but they will be taking place through November and up to early December. But check out our project page for updates on when the roundtables will be.
We will also be shortly launching a survey on our connect.frascanada.ca platform. And I think that’s just an easier or simpler way for people to provide feedback. If you don’t have the time to attend a roundtable or to draft a comment letter, I think the Connect survey is a great way for us to collect data on your responses.
And then finally, if you would like to connect directly with staff, you can do so, and we can set up a meeting.
So I have here on the next slide: These are the staff contacts for the project. It’s myself as well as Kimberley, so you can get in touch with us.
And on this slide, we have links to our post-webinar quiz. So by completing this quiz, you will get a certificate of completion, and this may count towards your CPD requirements.
So, with that, that brings us to our formal question and answer period.
So, I don't know, Armand, I think while I was giving the ways to respond, you looked through the questions?
Armand Capisciolto: Yes, so maybe I’m going to cover two additional topics that I haven't covered yet. People haven’t asked about, which I’m surprised they haven't asked about. But I’m going to cover them, because I know they’re topics close to people’s heart.
I did not cover Related Party Transactions in this. That doesn’t mean it’s not mentioned in the Discussion Paper. There are a lot of questions, a lot of challenges, a lot of topics that people raised with the Board about related party transactions.
There’s too many to deal with on a one-on-one basis, because there’s so many moving parts in that standard. You fix one thing; you might break something else. So what we're proposing, and we'd like to hear from you on the priority of this as well, is saying, “You know what? Related Party Transactions probably needs a project unto itself.” So we talk about that in the Discussion Paper.
The other topic that people like to talk to us about is Retractable or Mandatorily Redeemable Shares in a Tax-Planning Arrangement, commonly referred to as “roamers.”
Again, we’re currently considering whether or not we need to do a formal post-implementation review on that. We’ve been gathering feedback from our committees on that, and that will be considered separately. All this being said, all of this—the results from this document; the results, kind of what you tell us about related party transactions responding to this document; and what we decide to do related to our roamers PIR—will all kind of flow into our annual plans over the next number of years. So, I just wanted to make sure people are aware that we’re not forgetting about those things.
So, a couple things, there are questions here:
Are there plans to develop specific application guidance for key standards, like the guidance available in IFRS?
It’s a great question, and again, we have to find that balance of level of detail. I don’t think anybody wants to read a 300-page standard, and when I think about IFRS 15 as an example, there is a lot of illustrative examples. There is a lot of application guidance that goes along with that. We still want judgment applied. And not that there isn’t judgment in IFRS 15, but we do want professional judgment, we do want to maintain the kind of core principles, so we’re trying to find that balance where we talk about something like guidance on impairment. We need to find that balance. That line between enough and too much is a very fine line to find, and we’re managing that, but by no means are we talking about the level of guidance in IFRS that exists and all the external guidance that exists whether it’s firm books and other things. It’s a different world, and we acknowledge that the private company world is a different world.
Another question related to guidance. People think robust guidance would be helpful, especially for those that are not used to applying those standards that often. One hundred percent agreed. If you’re not, if you have one client that you’re dealing with defined benefit plans, that’s tough for a practitioner. I get it. We’re aware of that, but we still need to balance that—again, the level, the level of requirements there.
Question related to hedge accounting. And we’ve had this question before. It’s a tough one. So the question is about… Yes, it’s one thing to say you don’t have to use hedge accounting, but what if you want to use hedge accounting because the hedge accounting in ASPE is much simpler than the hedge accounting in IFRS as an example? The number of hedging relationships that qualify to use it is actually limited. So the question is, well, what about those of us who are doing more complex hedging, and therefore, the restrictive nature of ASPE prevents us from it and then forces us into typical, normal financial instrument accounting, and therefore volatility in net income, and that sort of stuff.
We’ve had this debate at the Board a number of years ago. We have put this question out there in the past. There is a handful of companies, very large companies, that have said they would love to be able to do more with hedge accounting. But I think the key there is there is a handful of companies. There isn’t a groundswell of people saying, “Give me more complex hedge accounting. I need to use it.” So again, when we think about our priorities and managing the time we have and doing the most, trying to do something that’s going to have the most bang for its buck, as far as impacting the most number of people applying ASPE, expanding hedge accounting, making it for those more complex arrangements doesn’t make our priority list. And we get it; we understand that that’s a challenge for those larger entities that are are applying ASPE to not have that option. And I’m probably going to give out an answer that you’re not going to like: There is another option. You have a choice as a private company: You can apply IFRS, and then you would have those requirements to do more complex hedge accounting. However, the other complexity comes with that. So you have to make your choices there.
And, Jamie, I think that’s all we have time for, as we’re a little bit over time right now. But thank you for the questions. If you have more questions, you want to talk about more of these issues, show up at a roundtable. We would love to have it much more interactive, where we can actually have a debate on these topics. Can’t wait to see you all out at roundtables. Can’t wait to see your responses. We are hoping for a lot of responses, because this is a critically important project for us, a strategic project for us. And thank you for taking the time to join us today, and again, hope to see you at one of our outreach sessions.
Thanks, everyone.