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A brief summary of recent news and publications from standard-setters on the topics of Accounting Standards for Private Enterprises (ASPE), Not-for-profit Organizations (NFPO) and Pension plans [December 17, 2012]
Private enterprises, NFPOand pension plansDecember 2012FlashFlash bulletins provide a summary of the most recent news and publications from standardsetters on accounting standards for private enterprises (ASPE), not-for-profitorganizations (NFPO) and pension plans. International Financial Reporting Standards(IFRS) are not covered by the Flash bulletins, but we continue to issue IFRS Newsletters,dedicated exclusively to new IFRS developments, and Adviser alerts on specific topics ofimportance.This publication is intended to inform readers about recent changes in accounting;however, it cannot deal with all topics. Readers are always encouraged to refer to theoriginal publications mentioned in the articles before making any decisions.Private enterprises (Part II)2012 Annual improvementsIn October 2012, the Canadian Accounting Standards Board (AcSB) updated Part II ofthe CICA Handbook – Accounting (CICA Handbook), i.e., ASPE, for amendments approvedfrom the Exposure Draft entitled 2012 Improvements to Accounting Standards for PrivateEnterprises. The CICA Handbook update also included additional minor amendments,which were not proposed in the original Exposure Draft. The following paragraphssummarize significant amendments made.Section 1520, Income StatementThis Section is amended to clarify the items that should be presented separately in theincome statement and those items that may either be presented separately in the incomestatement or disclosed in the notes to the financial statements. In addition, minoramendments to other Sections were made to correct inconsistencies with Section 1520.The amended Sections are notably Section 1400, General Standards of Financial StatementPresentation; Section 3064, Goodwill and Intangible Assets; Section 3465, Income Taxes andSection 3856, Financial Instruments.Audit • Tax • Advisory© Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd. All rights reserved.
Flash – December 2012 2Section 1582, Business CombinationsThe amendment extends the exception to the general requirement to expense acquisitioncosts to the cost of issuing debt securities and requires those costs to be recognized inaccordance with Section 3856, Financial Instruments. Prior to the amendment, only costs toissue equity securities were subject to the exception.Section 1590, SubsidiariesThe amendments, when an entity uses the cost or equity method to account for itsinvestment in subsidiaries, require• acquisition costs to be expensed (except for costs to issue debt or equity securities); and• contingent consideration to be measured at fair value at the date of acquisition and accounted for as part of the investment in the subsidiary. In subsequent periods, any contingent consideration will be accounted for in accordance with Section 1582.The amendments are based on the AcSB’s decision that the initial accounting for asubsidiary should be the same, regardless of which accounting policy choice is selected foraccounting for investments in subsidiaries.Section 1651, Foreign Currency TranslationThe amendments to Section 1651 remove an inconsistency with Section 1602, Non-controlling Interests, and clarify the accounting for foreign exchange gains and lossesaccumulated in a separate component of shareholders’ equity for different scenariosinvolving a full or partial reduction in an entity’s interest in a foreign operation. The mostsignificant amendment to Section 1651 affects the accounting in situations where an entitydisposes of a portion of a subsidiary that includes a foreign operation but does not losecontrol; in these situations, there is no impact on net income. However, a portion of theaccumulated amount of exchange gains and losses related to the subsidiary is reattributedto the non-controlling interests in the foreign operation. This approach is a significantchange in practice.Section 3051, InvestmentsThe amendment requires dilution gains and losses resulting from the dilution of an entity’sinterest in an investee accounted for using the equity method to be recognized in netincome. This approach is consistent with accounting for a gain or loss arising from thesale of a portion of an investment.All of the amendments made in the October 2012 update must be applied for fiscal yearsbeginning on or after January 1, 2013. Early adoption is permitted. Most amendmentsmust be applied retrospectively; however, the amendments made to Section 1651 andSection 3051 may be applied prospectively.The CICA Handbook update, where relevant, also applies to NFPO that use Part III of theCICA Handbook.Audit • Tax • Advisory© Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd. All rights reserved.
Flash – December 2012 3Future amendments to ASPEThe AcSB is continuing various amendment projects to ASPE in order to preserve thequality and credibility of private enterprises’ financial statements.During 2012, the AcSB issued an Exposure Draft entitled Employee Future Benefits whichproposes to replace current Section 3461, Employee Future Benefits, in Part II by new Section3462 of the same title. An article on this project was published in the May 2012 Flashedition. Furthermore, in July, the AcSB issued an Exposure Draft entitled DiscontinuedOperations which is summarized in a separate article in this edition of Flash. Final standardsfor both of these exposure drafts are expected for 2013.The following is a summary of the projects for which the AcSB plans to issue exposuredrafts or invitations to comment by the end of 2013:Current projects Summary2013 annual improvements Minor improvements to ASPE. This project addresses the accounting for biological assets; anAgriculture industry segment for which there is no guidance in current ASPE. This project focuses on a simpler approach to identify and account for variable interest entities. New guidance, based on the international standard on consolidation in Part I of the CICAConsolidations Handbook, would be integrated into Section 1590 to address enterprises that are controlled through mechanisms other than voting rights. This project plans to modify Section 3055, Interests in Joint Ventures, so that the nature of an entity’s interest in a joint venture is faithfully represented. An entity should account for its interest in a jointJoint arrangements arrangement (previously called joint venture) in accordance with its rights and obligations arising from the joint arrangement, based on principles found in IFRS 11 Joint Arrangements in Part I.In 2011, the AcSB had planned a project on financial statement concepts but hassubsequently decided to defer this project pending further progress on the conceptualframework of IFRS and further experience with the application of ASPE beforereassessing the need to continue the project.Several of these projects could also affect the financial statements of NFPO that applyPart III. These organizations must therefore keep abreast of the proposed amendments.For more information on ASPE amendments, go to the Financial Reporting & AssuranceStandards Canada website.Discontinued operationsIn July 2012, the AcSB issued an Exposure Draft entitled Discontinued Operations, whichproposes to modify the definition of a discontinued operation in Section 3475, Disposal ofLong-lived Assets and Discontinued Operations, in ASPE. The current definition of adiscontinued operation in Section 3475 results in the presentation of more disposals asdiscontinued operations by private enterprises applying ASPE than by enterprises applyingIFRS. The AcSB noted that the proposed change creates a higher threshold for a disposalAudit • Tax • Advisory© Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd. All rights reserved.
Flash – December 2012 4to be classified as a discontinued operation by making the definition consistent with thatcontained in the international standard IFRS 5 Non-current Assets Held for Sale andDiscontinued Operations. Consequently, only major disposals would be classified asdiscontinued operations.A discontinued operation would be defined as follows: ...a component of an enterprise that either has been disposed of, or is classified as held for sale, and: i represents a separate major line of business or geographical area of operations; ii is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or iii is a subsidiary acquired exclusively with a view to resale.The AcSB plans to issue the revised standard in 2013 and has indicated that the effectivedate of the change would be no earlier than fiscal years beginning on January 1, 2014.Earlier application would however be permitted.The proposed amendment would also apply to NFPO using Part III.Private Enterprise Advisory CommitteeThe Private Enterprise Advisory Committee (the “Committee”) was established by theAcSB to assist the AcSB in maintaining and improving ASPE and advise when non-authoritative guidance is needed with respect to the standards. The Committee’s mostrecent meetings were held on June 18, 2012, September 21, 2012 and December 11, 2012.The following paragraphs summarize certain topics discussed at the June andSeptember meetings. The minutes of the December meeting have not yet been madeavailable and will be discussed in our next Flash publication in 2013.ConsolidationAt both meetings, the Committee continued its discussions on how to account for variableinterest entities. The Committee reviewed guidance on the control model used in IFRS 10Consolidated Financial Statements and the description of a special purpose entity in theInternational Financial Reporting Standard for Small and Medium-sized Entities. The Committeefelt a narrower, more focused description of a special purpose entity, incorporatingelements from the criteria for determining whether control exists in IFRS 10, would makeit easier for private enterprises to identify a special purpose entity.Employee future benefitsAt the September meeting, the Committee recommended to the AcSB that the finalstandard eliminate the deferral and amortization approach and require plan assets andAudit • Tax • Advisory© Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd. All rights reserved.
Flash – December 2012 5obligations to be measured as of the balance sheet date, similar to the proposals in theExposure Draft. The Committee also recommended minor changes from the proposals inthe Exposure Draft.2013 annual improvementsDuring its June and September 2012 meetings, the Committee discussed various issues forinclusion in the 2013 annual improvements project:• Disclosure in Section 1582 The Committee agreed that the Section 1582 requirement to disclose a condensed balance sheet showing the amounts recognized as at the acquisition date for each major class of assets acquired and liabilities assumed may be too onerous for entities that prepare non-consolidated financial statements.• Purchase of tax losses The Committee noted diversity in practice with respect to the initial and subsequent measurement of tax losses purchased in a non-business combination transaction. The Committee was uncertain whether this issue would qualify as an annual improvement, but agreed a detailed analysis of the issue should be completed for future consideration.• Redeemable preferred shares issued in tax planning arrangements The Committee noted that a scope expansion to the current equity classification requirement for retractable preferred shares issued in specific tax planning arrangements has been debated several times; however, given recent changes in corporate law, further consideration should be given to this issue.• Contingent consideration The Committee proposed amendments to Section 1582 to clarify the meaning of the word “settlement” for arrangements that defer payment of contingent consideration subsequent to resolution of the contingency.• Change in ownership interest of a subsidiary The Committee noted that Section 1602, Section 3051 and Section 3856 give different accounting results when a change in ownership of a subsidiary occurs. The Committee agreed that the accounting for subsidiaries subsequent to initial recognition should be addressed holistically.Other itemsThe Committee also discussed various other technical issues including agriculture, post-implementation review, government assistance, joint arrangements and loans at below-market interest rates. For more information on the Committee, go to the FinancialReporting & Assurance Standards Canada website.Audit • Tax • Advisory© Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd. All rights reserved.
Flash – December 2012 6Not-for-profit Organizations (Part III)Many of the topics covered in section “Private Enterprises (Part II)” may also be relevant for NFPO that applyPart III of the CICA Handbook.Reminder—Transition to Part III, Accounting Standards for Not-for-profitOrganizationsNFPO, other than government not-for-profit organizations (GNFPO), are required toadopt either Part I, International Financial Reporting Standards, or Part III, AccountingStandards for Not-for-profit Organizations, for fiscal years beginning on or afterJanuary 1, 2012. After this date, Part V of the CICA Handbook, i.e., pre-changeoveraccounting standards, is no longer considered Canadian generally accepted accountingprinciples (GAAP) for these types of entities and an NFPO needs to apply Part I orPart III in order to be considered in compliance with Canadian GAAP. The application ofPart III requires an NFPO to also apply accounting standards in Part II to the extent thatthe topics in those standards are not specifically addressed in Part III. NFPO should alsoensure they are applying the version of Part II and Part III that is effective at the end ofthe year of adoption of Part III, as there have been some minor amendments to bothParts since their introduction into the CICA Handbook.GNFPO, which are NFPO controlled by a government entity, are required to adopt theCICA Public Sector Accounting Handbook with or without the NFPO series of accountingstandards (Sections PS 4200 to PS 4270) for fiscal years beginning on or after January 1,2012.The Canadian Institute of Chartered Accountants (CICA) has issued the followingdocuments to help NFPO make their transition to Accounting Standards for NFPO:• Guide to Accounting Standards for Not-for-Profit Organizations in Canada;• Accounting Standards for Private Sector Not-for-profit Organizations (Part III) – Transition Considerations for Non-complex Entities.Joint NFPO projectThe AcSB and the Public Sector Accounting Board (PSAB) have formed a Joint Not-for-Profit Task Force to review the current not-for-profit accounting standards andrecommend improvements to these standards so they better meet users’ needs. The topicsbeing discussed are• contributions;• tangible capital assets;• intangible assets;• tangible and intangible capital assets size exemption;• works of art, historical treasures and similar items;• controlled and related entities;• financial statement presentation.Audit • Tax • Advisory© Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd. All rights reserved.
Flash – December 2012 7The task force presented their proposals to the AcSB and PSAB at their September About Grantmeetings. The AcSB and PSAB continued the discussions on the proposals at their Thornton in Canadasubsequent meetings. A statement of principals will be issued to the public for comment Grant Thornton LLP is ain the first quarter of 2013. For further information on the project, go to the Financial leading CanadianReporting & Assurance Standards Canada website. accounting and advisory firm providing audit, tax and advisory services toA Guide to Financial Statements of Not-for-profit Organizations: Questions private and public organizations. Togetherfor directors to ask with the Quebec firmThe financial reporting of an NFPO is communicated mainly through the use of its Raymond Chabot Grantfinancial statements. It is therefore essential that directors of NFPO understand the Thornton LLP, Grant Thornton in Canada hascontent of the financial statements so that they can effectively assess and oversee the approximately 4,000financial affairs of the NFPO. people in offices across Canada. Grant Thornton LLP is a CanadianThe Risk Oversight and Governance Board of the CICA published the above-mentioned member of Grant Thornton Internationalguide to help directors of NFPO understand financial statements. The guide includes a Ltd, whose member firmspresentation of the following elements operate in close to 100 countries worldwide.• an overview of the process of financial reporting; We have made every• the role and responsibilities related to financial reporting; effort to ensure information in this• the concepts and terminology of financial reporting; publication is accurate as• the ways in which contributions can be accounted for; of its issue date. Nevertheless, information• a description and a sample of financial statements; and or views expressed• items for directors to watch for and questions to ask. herein are neither official statements of position, nor should they be considered technicalPension Plans (Part IV) advice for you or yourAmendments to Part IV—Disclosures organization without consulting a professionalPension plans will have to apply the guidance in international standard IFRS 13 Fair Value business adviser. ForMeasurement for annual periods beginning on or after January 1, 2013, with earlier adoption more information about this topic, please contactpermitted. However, a pension plan does not have to apply IFRS 13 disclosure your Grant Thorntonrequirements. Disclosures for pension plans are discussed in Section 4600, Pension Plans, in adviser. If you do not have an adviser, pleasePart IV and refer notably to IFRS 7 Financial Instruments: Disclosures. However, IFRS 7, as contact us. We areamended by IFRS 13, no longer includes some of the disclosures on the fair value of happy to help.financial instruments (in particular, fair value hierarchy disclosures).In July 2012, the AcSB issued amendments to Section 4600 which indicate that some ofthe fair value disclosure requirements in IFRS 7 that had been deleted as a consequence ofthe issue of IFRS 13 will continue to be required for pension plans. These disclosurerequirements are now included in the appendix of Section 4600.For more information on IFRS 13, refer to the special edition of IFRS Newsletter issuedearlier in 2012.Audit • Tax • Advisory© Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd. All rights reserved.