Highlights
The Accounting Standards Board (AcSB) conducted a post-implementation review (PIR) of the amendments to Accounting Standards for Private Enterprises (ASPE) related to retractable or mandatorily redeemable shares issued in tax planning arrangements (ROMRS). The Board’s outreach confirmed that the amendments are operating as intended, with no significant systemic issues identified. Based on its findings, the Board decided not to issue a formal PIR document for comment, as further public consultation was deemed unnecessary.
The AcSB emphasized that its decision does not preclude ongoing consideration of application questions. Through its various mechanisms, the Board remains attentive to issues that arise in practice and will continue to advance previously identified ROMRS application matters, as well as any new issues through the AcSB’s Guidance Framework. Additionally, the Board will monitor issues related to ROMRS that extend beyond the scope of these amendments, including those that may surface through the Detailed Review of Accounting Standards for Private Enterprises Consultation Paper.
Background
In December 2018, the AcSB approved amendments to ASPE Section 3856, Financial Instruments; Section 1591, Subsidiaries; and Section 3251, Equity, introducing new guidance for ROMRS. These amendments were effective for annual reporting periods beginning on or after January 1, 2021.
The amendments specify that an enterprise that issues ROMRS may classify these shares as equity only when all of the following conditions are met:
- Control of the enterprise issuing the ROMRS remains with the shareholder receiving the shares under the arrangement;
- the enterprise issuing the ROMRS receives no consideration other than shares of the enterprise; and
- no other arrangement exists, such as a redemption schedule, that requires the enterprise to redeem the shares.
If any of these conditions are not satisfied, the enterprise must classify ROMRS as a financial liability.
In developing the ROMRS amendments, the AcSB reaffirmed its view that ROMRS generally represent a financial liability because they are redeemable on demand. However, the Board introduced a narrow exception for certain instruments. When the three conditions outlined above are met, ROMRS may be classified as equity rather than a liability in the financial statements.
This exception reflects the Board’s intent that, for ROMRS to qualify for equity classification, nothing of substance should change in the management or operations of the enterprise before and after the tax planning arrangement.
In May 2025, the AcSB began consultations with its advisory committees and carried out research to inform its decision on whether the standard was working as intended or whether a formal document for comment is needed.
What is the Post-implementation Review Process?
The objective of a PIR is to evaluate whether the amendments are understandable and being applied as intended, and whether preparers can report information reliably. However, issuing a formal PIR document for comment is not mandatory. In accordance with the AcSB’s Due Process Manual, and based on the Board’s initial research on how ROMRS is working in practice, the Board may decide not to issue a formal PIR document, or it may conclude that a formal PIR document for comment is premature at the current time. The purpose of a PIR process is not to revisit the AcSB’s original decisions unless significant new information emerges.
Research Activities
To inform its decision, the AcSB conducted outreach with its advisory committees, including the Private Enterprise Advisory Committee (PEAC), Medium and Small Practitioners Advisory Committee, and Canadian Private Enterprise User Advisory Committee (CPUC). These discussions explored application challenges, user perspectives, and emerging transaction types such as estate re-freezes. The Board also explored complexities associated with the control assessment in layered ownership structures.
The AcSB undertook a broad review of available firm application guidance resources and engaged with practitioners to gain deeper insights into practical implementation issues. Furthermore, the Board considered matters that had been brought to its attention following the release of the ROMRS amendments, including issues identified by the Board and its advisory committees prior to the formal introduction of the AcSB’s Guidance Framework.
Findings Overview
Overall Feedback
Outreach with the AcSB’s advisory committees confirmed that the ROMRS amendments are operating as intended, with no significant systemic issues identified. Committee members largely supported using professional judgment when assessing control and the substance of ROMRS transactions.
The emerging issues, which are outlined in further detail below, were considered nuanced and tied to specific fact patterns rather than indicative of structural weaknesses in the standards. Committee members also emphasized that existing resources remain adequate to support consistent application, including guidance on substantive rights, unit of account when assessing control, and the measurement principles.
Following its evaluation, the AcSB decided that further public consultation would not provide additional insights beyond its advisory committees’ feedback and that a formal document for comment on the PIR of the ROMRS amendments is not required. The Board emphasized that this decision does not preclude addressing ROMRS application-related questions. The Board will advance previously identified issues through the AcSB’s Guidance Framework. It will also continue using this framework to monitor and respond to emerging matters, ensuring ongoing responsiveness to the needs of interested and affected parties.
Application Challenges
Control Assessments
Several ROMRS application questions have arisen regarding indirect control and layered ownership structures. To better understand these, PEAC members reviewed various examples illustrating the practical challenges of assessing control. These examples focus on situations when significant judgment is required, particularly in scenarios involving a holding company that owns all or some of the ROMRS.
Overall, advisory committee members highlighted the importance of applying professional judgment in analyzing these complex scenarios. While the AcSB noted that existing guidance is clear, it acknowledged that applying the guidance requires careful consideration of the specific facts and circumstances in each transaction.
Reclassification Oversights
As part of its outreach, the AcSB learned that enterprises often fail to reassess ROMRS classified as equity when key conditions change, such as the activation of redemption rights. The Board emphasized the importance of continuously reviewing the conditions for equity classification and ensuring timely reclassification of equity classified ROMRS to ensure accurate financial reporting.
Estate Re-freeze Transactions
Estate re-freeze transactions involve exchanging existing ROMRS for new redeemable preferred shares to lock in a revised corporate valuation. While not widespread, these transactions do occur, and Committee members raised concerns about potential manipulation and inconsistent application. For instance, in estate re-freeze transactions, the newly issued ROMRS might be used to convert liability-classified ROMRS into equity. Judgment is necessary to decide if such transactions, intended to achieve a specific accounting result, would qualify as a “tax planning arrangement” and thus fall within the scope of Financial Instruments, paragraph 3856.23. Overall, Committee members confirmed that classification typically remains unchanged following re-freeze if control is retained. Even though some transactions may require professional judgment, the feedback suggested that the standard provides sufficient guidance to account for these transactions in practice.
User Perspectives
CPUC members observed that users generally have access to sufficient information to make informed decisions. ROMRS are typically treated as financial liabilities for debt covenant purposes irrespective of their accounting classification, unless a formal postponement agreement exists that restricts or delays redemption until the lender’s claims are satisfied. CPUC members also noted that financial statement disclosures provide adequate detail on redemption rights and the conditions that lead to reclassification, particularly when ROMRS are presented as equity.
Non-authoritative Resources
The AcSB’s podcast series, webinars, and Basis for Conclusions were widely recognized as valuable resources. However, advisory committee members suggested enhancing their accessibility and visibility by reminding interested and affected parties of these materials.
AcSB Response
The AcSB carefully considered the feedback and findings arising from its outreach and research activities. Application questions regarding control assessments, particularly in the context of layered ownership structures, continue to emerge. The Board concluded that these complexities are best addressed through the exercise of professional judgment and the application of existing guidance. Issuing additional non-authoritative guidance at this time would likely be ineffective given the diversity of corporate structures and the facts and circumstances applicable to each scenario.
The AcSB also acknowledged feedback that enterprises often overlook the need to reassess ROMRS classified as equity when circumstances change, such as the initiation of redemptions or shifts in control. The Board reaffirmed that reassessment is required whenever events or transactions occur that may indicate that the conditions for equity classification may no longer be met. The Board emphasizes the importance of ongoing evaluation and timely reclassification and will reinforce this message in upcoming webinars.
With respect to estate re-freeze transactions, the AcSB observed that while these arrangements occur, they are not widespread and do not exhibit significant diversity in accounting treatment. The Board determined that enterprises and their advisers are well-positioned to apply professional judgment in assessing whether such transactions qualify as tax planning arrangements. Accordingly, the Board decided not to issue additional guidance, noting that the existing requirements and non-authoritative resources are sufficient to prevent misuse or misinterpretation.
The AcSB further acknowledged users’ feedback that they generally have access to sufficient information to make informed decisions. The Board concluded that current disclosure requirements are adequate and provide transparency about the nature and risks associated with ROMRS.
Based on its findings, the AcSB decided not to conduct a formal PIR of the ROMRS amendments. The rationale for this decision includes:
- the amendments are functioning as intended, with no significant systemic issues identified;
- there is broad support for the use of professional judgment in applying control tests;
- emerging issues are nuanced and relate to specific fact patterns, rather than indicating structural flaws in the standard; and
- existing resources are sufficient to support consistent application.
The Board emphasizes that this decision does not preclude consideration of application questions. Some known issues have already been identified and will be addressed through the AcSB’s Guidance Framework. The Board will continue to monitor emerging matters under this framework to ensure ongoing responsiveness to interested and affected parties’ needs.
Conclusion
The AcSB completed its evaluation on whether a formal document for comment on the PIR of the ROMRS amendments should be conducted and concluded that it was not needed. While a public document for comment will not be issued, the Board will highlight key reminders in its next domestic accounting standards webinar. These communications will reinforce awareness of reclassification requirements and direct interested and affected parties to existing resources. No further standard setting is planned at this time, but the Board remains committed to monitoring emerging issues and supporting the consistent application of the ROMRS amendments through the Board’s guidance framework process.