2021 Annual Improvements

The AcSB discussed stakeholders’ responses to the Exposure Draft, 2021 Annual Improvements to Accounting Standards for Private Enterprises and Accounting Standards for Not-for-Profit Organizations. The Board decided, subject to written ballot, to:

• amend Illustrative Example 3 in Section 3856, Financial Instruments, to use an assigned value of $45,000 in the case facts of the example;
• issue the amendments to Section 1510, Current Assets and Current Liabilities, as exposed, with the exception of a consequential amendment to Section 1521, Balance Sheet; and
• issue the amendments to Section 1500, First-time adoption, Section 1501, First-time Adoption by Not-for-Profit Organizations, and Section 1540, Cash Flow Statement, and, as exposed.

The AcSB provided approval to begin the balloting process. The Board plans to issue the final amendments in April 2021.

The AcSB discussed the Private Enterprise Advisory Committee’s feedback on the issues addressed in the 2021 annual improvements cycle and provided comments on the draft exposure draft.

The AcSB decided to remove one issue from the annual improvement cycle related to the measurement of investments in a related party transaction accounted for in accordance with Section 1591, Subsidiaries, Section 3051, Investments, or Section 3056, Interests in Joint Arrangements. The Board decided this issue is outside the scope of an annual improvement and will consider whether a separate project is warranted in the context of its Part II priorities. 

The AcSB also decided to propose that the amendments be effective for fiscal years beginning on or after January 1, 2022, with early application permitted. The Board plans to issue the Exposure Draft, “2021 Annual Improvements,” in Q4 2020.

The Private Enterprise Advisory Committee discussed the five issues the AcSB is considering for annual improvements. A summary of the issues and the Committee’s recommendations on staff’s draft of the proposals are as follows:

• Presentation of Related Party Balances: The Board proposes to clarify that an enterprise may present amounts owing on loans from directors, officers and shareholders, and amounts owing to parent and other affiliated companies, either separately on the face of the balance sheet or in the notes to the financial statements. The Committee recommended clarifications to the staff’s draft proposals.
• First-time adoption: The Board proposes to permit an enterprise re-adopting ASPE could re-apply the first-time adoption provisions in Section 1500, First-time Adoption. The Committee advised that the Board also require note disclosure about why an enterprise re-adopted ASPE.
• Section 1540, Cash Flow Statement disclosures: The Board proposes to remove a requirement in Section 1540 to disclose the total assets and total liabilities acquired or disposed of in a business combination or in a disposal of assets. The Committee didn’t recommend any changes to staff proposals and noted similar disclosure requirements also exist in the underlying standards Section 1582, Business Combinations, and Section 3475, Disposal of Long-lived Assets and Discontinued Operations to meet users’ information needs.
• Measurement of investments in a related party transaction: Illustrative Example 3 in Section 3840, Related Party Transactions, illustrates the accounting for newly issued shares in a related party transaction by the enterprise receiving the shares. Section 3856, Financial Instruments, specifically excludes from its scope the measurement of interests in subsidiaries, enterprises subject to significant influence and jointly controlled enterprises. Therefore, the Board proposes to clarify in the illustrative example which standard applies for the measurement of the investment by the enterprise receiving the shares. The Committee made recommendations on staff’s proposals for the Board to consider at a future meeting.
• Measurement of newly issued common shares in a related party transaction: Illustrative Example 3 in Section 3840 also demonstrates the initial measurement of share capital from the issuers’ perspective. However, the measurement basis is different from illustrative Example 3 in Section 3856 for a similar fact pattern. The Board seeks to make the Illustrative Examples consistent. The Committee had no further recommendations on the staff’s proposal to remove references to assigned value as the basis for measuring the shares in Section 3856.

The AcSB discussed which issues to include in its 2020-2021 Annual Improvements cycle considering stakeholders’ ability to provide feedback in the current environment. The Board decided to include all five issues it was considering for annual improvements as these will provide clarity to stakeholders in areas where they have asked for guidance. The Board will issue an exposure draft no later than the fall of 2020.

The AcSB discussed issues its Private Enterprise Advisory Committee recommended for annual improvements. This included implementation matters related to the financial instruments amendments issued in December 2018. The Board considered the need to provide amendments and stakeholders’ ability to provide feedback on the proposals in the current environment. The Board decided to proceed with the annual improvements cycle for the current year, as it will provide clarity to stakeholders in areas where they have asked for guidance. At its July 7, 2020, meeting, the Board will discuss which issues to address this year.

The Committee also discussed the following:

1. Section 1540, Cash Flow Statement: The Committee considered whether disclosing the total assets and total liabilities acquired or disposed of in a business combination or in a disposal of assets provides decision-useful information. The Committee noted that disclosure requirements also exist in the underlying standards Section 1582, Business Combinations, and Section 3475, Disposal of Long-Lived Assets and Discontinued Operations. The Committee advised the AcSB to remove the disclosure requirement in Section 1540 through an annual improvement, as the disclosures in the underlying Sections were sufficient.
2. Section 3840, Related Party Transactions, and Section 3856, Financial Instruments: The Committee discussed Illustrative Example 3 in Section 3840, which shows how the “Investment in Company B” is measured. As paragraph 3856.03(a) specifically excludes from its scope interests in subsidiaries, enterprises subject to significant influence, and jointly controlled enterprises, the Committee thought that it was unclear whether the example illustrates measuring the investment using Sections 1591, 3051 and 3056, as required in the standard. The Committee advised the AcSB to clarify which standard to use in the example. 
   The Committee also considered the initial measurement of share capital in conjunction with Illustrative Example 3 in Section 3856, and noted that there is no guidance in Part II for the initial measurement of share capital. The Committee advised the AcSB to clarify the measurement of share capital in the illustrative examples and to consider a project on the initial measurement of share capital.
3. Section 3065, Leases: The Committee discussed the accounting for sale-leaseback transactions and the guidance for these transactions in Part II. The Committee noted that sale-leaseback transactions are not common for private enterprises. However, Committee members thought that when they do occur, the guidance in Section 3065 allows stakeholders to effectively reflect the economics of the transaction in the financial statements. The Committee recommended that the AcSB not undertake any standard-setting activity on this topic.

The AcSB discussed three implementation issues with Accounting Standards for Private Enterprises (ASPE) that its Private Enterprise Advisory Committee recommended for discussion as follows:

• Liquidation basis: The Board discussed whether the liquidation basis of accounting is considered ASPE or not. It decided that current practice in this area already provides users with decision-useful information. Therefore, no standard-setting activities will be undertaken.
• Separate presentation of related party balances on the balance sheet: The Board discussed whether amounts owing on loans from directors, officers and shareholders, and amounts owing to parent and other affiliated companies, must be shown separately on the face of the balance sheet or if these can be detailed in the notes to the financial statements. The Board thought the presentation guidance is clear but decided that further clarification could be provided as an annual improvement.
• First-time adoption: The Board discussed whether an enterprise re-adopting ASPE after having previously applied ASPE in a year prior to the comparative year, but not prepared ASPE financial statements in that prior year, could apply the first-time adoption provisions in Section 1500, First-time Adoption, again. The Board decided to clarify as an annual improvement that the provisions in Section 1500 can be applied on re-adoption of ASPE.

The AcSB also decided to consider the timing of annual improvements in conjunction with its other domestic standards priority topics at its Annual Plan discussions in December 2019 and January 2020.