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Accounting Standards for Private Enterprises

Related Party Combinations

Summary

In September 2023, the Accounting Standards Board (AcSB) issued amendments to Section 3840, Related Party Transactions, in Part II of the CPA Canada Handbook – Accounting Standards for Private Enterprises. The amendments allowed an option in paragraph 3840.44(b) to either retrospectively restate prior periods when carrying amounts are used to account for a combination under common control, or to prospectively account for these transactions from the date the transfer occurred.

Since issuing the amendments, the AcSB received an application question regarding the comparative figures to be presented, if any, when a transaction is accounted for prospectively from the date the transfer occurred in accordance with paragraph 3840.44(b)(i).

The AcSB discussed the application question with its Private Enterprise Advisory Committee and is aware of differing views emerging in practice.

The AcSB considered the Committee’s feedback and decided to develop an exposure draft for a narrow-scope amendment to Section 3840.

Staff Contact(s)

Danielle MacLeod, CPA, CA Associate Director, Accounting Standards Board

Phone number  +1 416 204 3951
Email address  [email protected]

Project Status

  • Information gathering
  • Approving project

    The AcSB approved the project in June 2024

    The AcSB is developing narrow-scope proposals to address accounting for combinations under common control when carrying values are used and an enterprise chooses to account for a combination prospectively

  • Engaging Communities
  • Deliberating feedback
  • Final pronouncement

Meeting & event summaries

September 11, 2024

AcSB Decision Summary – May 22, 2024

Related party business combinations

The AcSB discussed and considered input from its Private Enterprise Advisory Committee on an application issue raised regarding the amendments to Section 3840 , Related Party Transactions, in Part II of the Handbook issued in September 2023. These amendments added an option in paragraph 3840.44(b) to either retrospectively restate all prior periods when carrying values are used to account for a combination or prospectively account for these transactions. The question discussed is, when the new option is applied to account for a combination prospectively from the date that the transfer occurred, what comparative figures, if any, are presented?

Committee members advised that this is a common scenario arising in practice.

The AcSB considered various options to address the issue through authoritative or non-authoritative guidance. The Board directed staff to gather further information and decided to continue discussing the question at its June 2024 meeting.

September 11, 2024

AcSB Decision Summary – June 19-20, 2024

Application Question – Guidance Framework

The AcSB continued discussing an application question from practice regarding the amendments issued in September 2023 to Section 3840, Related Party Transactions, in Part II of the Handbook. These amendments added an option in paragraph 3840.44(b) to either retrospectively restate all prior periods when carrying values are used to account for a combination, or prospectively account for these transactions from the date that the transfer occurred.

The question raised is, when the new option is applied to account for a combination prospectively from the date that the transfer occurred, what comparative figures, if any, are presented?

The AcSB discussed the feedback from the Private Enterprise Advisory Committee and the following views have emerged:

  • an enterprise must identify an acquirer and report comparative figures of the acquiring entity; or
  • an enterprise should apply professional judgment to consider the needs of financial statement users, and, in some scenarios, there could be no comparative figures.

Given the diverse views, the Committee recommended that the AcSB issue guidance to clarify the application of the amendment.

The AcSB considered this feedback and noted that the current language in paragraph 3840.44(b) could infer that determining an acquirer is required when carrying values are used to account for the transaction prospectively from the date that the transfer occurred. The Board discussed that in some scenarios, identifying an acquirer could be complex or onerous for private enterprises.

The AcSB tentatively decided to develop an exposure draft for a narrow-scope amendment to Section 3840. The Board will discuss the exposure draft proposals at its meeting in September 2024. The Board expects to issue an exposure draft in Q4 2024.

Disclaimer

This project summary has been prepared for information purposes only. Decisions reported are tentative and reflect only the current status of discussions on this project, which may change after further Board deliberations. Decisions to publish Handbook material are final only after a formal voting process.