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]

1. Private enterprises, NFPO
and pension plans
December 2012
Flash
Flash bulletins provide a summary of the most recent news and publications from standard
setters on accounting standards for private enterprises (ASPE), not-for-profit
organizations (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 of
importance.
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 the
original publications mentioned in the articles before making any decisions.
Private enterprises (Part II)
2012 Annual improvements
In October 2012, the Canadian Accounting Standards Board (AcSB) updated Part II of
the CICA Handbook – Accounting (CICA Handbook), i.e., ASPE, for amendments approved
from the Exposure Draft entitled 2012 Improvements to Accounting Standards for Private
Enterprises. The CICA Handbook update also included additional minor amendments,
which were not proposed in the original Exposure Draft. The following paragraphs
summarize significant amendments made.
Section 1520, Income Statement
This Section is amended to clarify the items that should be presented separately in the
income statement and those items that may either be presented separately in the income
statement or disclosed in the notes to the financial statements. In addition, minor
amendments to other Sections were made to correct inconsistencies with Section 1520.
The amended Sections are notably Section 1400, General Standards of Financial Statement
Presentation; Section 3064, Goodwill and Intangible Assets; Section 3465, Income Taxes and
Section 3856, Financial Instruments.
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2. Flash – December 2012 2
Section 1582, Business Combinations
The amendment extends the exception to the general requirement to expense acquisition
costs to the cost of issuing debt securities and requires those costs to be recognized in
accordance with Section 3856, Financial Instruments. Prior to the amendment, only costs to
issue equity securities were subject to the exception.
Section 1590, Subsidiaries
The amendments, when an entity uses the cost or equity method to account for its
investment 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 a
subsidiary should be the same, regardless of which accounting policy choice is selected for
accounting for investments in subsidiaries.
Section 1651, Foreign Currency Translation
The amendments to Section 1651 remove an inconsistency with Section 1602, Non-
controlling Interests, and clarify the accounting for foreign exchange gains and losses
accumulated in a separate component of shareholders’ equity for different scenarios
involving a full or partial reduction in an entity’s interest in a foreign operation. The most
significant amendment to Section 1651 affects the accounting in situations where an entity
disposes of a portion of a subsidiary that includes a foreign operation but does not lose
control; in these situations, there is no impact on net income. However, a portion of the
accumulated amount of exchange gains and losses related to the subsidiary is reattributed
to the non-controlling interests in the foreign operation. This approach is a significant
change in practice.
Section 3051, Investments
The amendment requires dilution gains and losses resulting from the dilution of an entity’s
interest in an investee accounted for using the equity method to be recognized in net
income. This approach is consistent with accounting for a gain or loss arising from the
sale of a portion of an investment.
All of the amendments made in the October 2012 update must be applied for fiscal years
beginning on or after January 1, 2013. Early adoption is permitted. Most amendments
must be applied retrospectively; however, the amendments made to Section 1651 and
Section 3051 may be applied prospectively.
The CICA Handbook update, where relevant, also applies to NFPO that use Part III of the
CICA Handbook.
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3. Flash – December 2012 3
Future amendments to ASPE
The AcSB is continuing various amendment projects to ASPE in order to preserve the
quality and credibility of private enterprises’ financial statements.
During 2012, the AcSB issued an Exposure Draft entitled Employee Future Benefits which
proposes to replace current Section 3461, Employee Future Benefits, in Part II by new Section
3462 of the same title. An article on this project was published in the May 2012 Flash
edition. Furthermore, in July, the AcSB issued an Exposure Draft entitled Discontinued
Operations which is summarized in a separate article in this edition of Flash. Final standards
for both of these exposure drafts are expected for 2013.
The following is a summary of the projects for which the AcSB plans to issue exposure
drafts or invitations to comment by the end of 2013:
Current projects Summary
2013 annual improvements Minor improvements to ASPE.
This project addresses the accounting for biological assets; an
Agriculture 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 CICA
Consolidations 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 joint
Joint 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 has
subsequently decided to defer this project pending further progress on the conceptual
framework of IFRS and further experience with the application of ASPE before
reassessing the need to continue the project.
Several of these projects could also affect the financial statements of NFPO that apply
Part III. These organizations must therefore keep abreast of the proposed amendments.
For more information on ASPE amendments, go to the Financial Reporting & Assurance
Standards Canada website.
Discontinued operations
In July 2012, the AcSB issued an Exposure Draft entitled Discontinued Operations, which
proposes to modify the definition of a discontinued operation in Section 3475, Disposal of
Long-lived Assets and Discontinued Operations, in ASPE. The current definition of a
discontinued operation in Section 3475 results in the presentation of more disposals as
discontinued operations by private enterprises applying ASPE than by enterprises applying
IFRS. The AcSB noted that the proposed change creates a higher threshold for a disposal
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4. Flash – December 2012 4
to be classified as a discontinued operation by making the definition consistent with that
contained in the international standard IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations. Consequently, only major disposals would be classified as
discontinued 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 effective
date 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 Committee
The Private Enterprise Advisory Committee (the “Committee”) was established by the
AcSB 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 most
recent meetings were held on June 18, 2012, September 21, 2012 and December 11, 2012.
The following paragraphs summarize certain topics discussed at the June and
September meetings. The minutes of the December meeting have not yet been made
available and will be discussed in our next Flash publication in 2013.
Consolidation
At both meetings, the Committee continued its discussions on how to account for variable
interest entities. The Committee reviewed guidance on the control model used in IFRS 10
Consolidated Financial Statements and the description of a special purpose entity in the
International Financial Reporting Standard for Small and Medium-sized Entities. The Committee
felt a narrower, more focused description of a special purpose entity, incorporating
elements from the criteria for determining whether control exists in IFRS 10, would make
it easier for private enterprises to identify a special purpose entity.
Employee future benefits
At the September meeting, the Committee recommended to the AcSB that the final
standard eliminate the deferral and amortization approach and require plan assets and
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5. Flash – December 2012 5
obligations to be measured as of the balance sheet date, similar to the proposals in the
Exposure Draft. The Committee also recommended minor changes from the proposals in
the Exposure Draft.
2013 annual improvements
During its June and September 2012 meetings, the Committee discussed various issues for
inclusion 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 items
The 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 Financial
Reporting & Assurance Standards Canada website.
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6. Flash – December 2012 6
Not-for-profit Organizations (Part III)
Many of the topics covered in section “Private Enterprises (Part II)” may also be relevant for NFPO that apply
Part III of the CICA Handbook.
Reminder—Transition to Part III, Accounting Standards for Not-for-profit
Organizations
NFPO, other than government not-for-profit organizations (GNFPO), are required to
adopt either Part I, International Financial Reporting Standards, or Part III, Accounting
Standards for Not-for-profit Organizations, for fiscal years beginning on or after
January 1, 2012. After this date, Part V of the CICA Handbook, i.e., pre-changeover
accounting standards, is no longer considered Canadian generally accepted accounting
principles (GAAP) for these types of entities and an NFPO needs to apply Part I or
Part III in order to be considered in compliance with Canadian GAAP. The application of
Part III requires an NFPO to also apply accounting standards in Part II to the extent that
the topics in those standards are not specifically addressed in Part III. NFPO should also
ensure they are applying the version of Part II and Part III that is effective at the end of
the year of adoption of Part III, as there have been some minor amendments to both
Parts since their introduction into the CICA Handbook.
GNFPO, which are NFPO controlled by a government entity, are required to adopt the
CICA Public Sector Accounting Handbook with or without the NFPO series of accounting
standards (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 following
documents 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 project
The 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 and
recommend improvements to these standards so they better meet users’ needs. The topics
being 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.
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7. Flash – December 2012 7
The task force presented their proposals to the AcSB and PSAB at their September
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meetings. The AcSB and PSAB continued the discussions on the proposals at their Thornton in Canada
subsequent meetings. A statement of principals will be issued to the public for comment
Grant Thornton LLP is a
in the first quarter of 2013. For further information on the project, go to the Financial leading Canadian
Reporting & Assurance Standards Canada website. accounting and advisory
firm providing audit, tax
and advisory services to
A Guide to Financial Statements of Not-for-profit Organizations: Questions private and public
organizations. Together
for directors to ask with the Quebec firm
The financial reporting of an NFPO is communicated mainly through the use of its Raymond Chabot Grant
financial statements. It is therefore essential that directors of NFPO understand the Thornton LLP, Grant
Thornton in Canada has
content of the financial statements so that they can effectively assess and oversee the approximately 4,000
financial affairs of the NFPO. people in offices across
Canada. Grant Thornton
LLP is a Canadian
The Risk Oversight and Governance Board of the CICA published the above-mentioned member of Grant
Thornton International
guide to help directors of NFPO understand financial statements. The guide includes a Ltd, whose member firms
presentation 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 technical
Pension Plans (Part IV) advice for you or your
Amendments to Part IV—Disclosures organization without
consulting a professional
Pension plans will have to apply the guidance in international standard IFRS 13 Fair Value business adviser. For
Measurement for annual periods beginning on or after January 1, 2013, with earlier adoption more information about
this topic, please contact
permitted. However, a pension plan does not have to apply IFRS 13 disclosure your Grant Thornton
requirements. Disclosures for pension plans are discussed in Section 4600, Pension Plans, in adviser. If you do not
have an adviser, please
Part IV and refer notably to IFRS 7 Financial Instruments: Disclosures. However, IFRS 7, as contact us. We are
amended 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 of
the fair value disclosure requirements in IFRS 7 that had been deleted as a consequence of
the issue of IFRS 13 will continue to be required for pension plans. These disclosure
requirements are now included in the appendix of Section 4600.
For more information on IFRS 13, refer to the special edition of IFRS Newsletter issued
earlier in 2012.
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