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Accounting Standards Oversight Council supports the AcSB’s changeover date to IFRSs for profit-oriented publicly accountable enterprises At its meeting in Toronto on February 7-8, 2008, the Accounting Standards Oversight Council (AcSOC) received presentations on, and discussed, the following: AcSB’s Strategy for Publicly Accountable Enterprises
AcSB’s Strategy for Private Enterprises
Financial Reporting by Owner-managed Enterprises
Asset-backed Commercial Paper
Update on PSAB/Deputy Ministers Joint Working Group (JWG)
Recent Activities in Standard Setting
Canadian Performance Reporting Board – EBITDA and Free Cash Flow Accounting Standards Board’s (AcSB’s) Strategy for Publicly Accountable Enterprises AcSB Progress review – final report
Karen McCardle, a Principal with the AcSB, provided a final report on the progress review on implementing International Financial Reporting Standards (IFRSs) in Canada for publicly accountable enterprises. The purpose of the agenda item was to seek the advice of members as to whether there were any additional matters that the AcSB should take into account before setting the changeover date to IFRSs for Canadian publicly accountable enterprises. Ms. McCardle outlined the progress in Canada, commented on lessons from other countries’ experiences and stated that IFRSs appeared to be of sufficiently high quality to serve Canadian investors adequately. She said that although there were a number of risk factors (such as unforeseen major developments, a lack of certainty regarding regulatory requirements and activities in the US), no untoward matters had arisen that would suggest that the previously proposed changeover date of January 1, 2011 should not be confirmed by the AcSB. AcSOC members observed that meeting the proposed date would be challenging but they expressed support for the AcSB’s proposal to require publicly accountable profit-oriented enterprises to use IFRSs for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. Emerging Issues Committee (EIC)
Peter Martin, Director, Accounting Standards, updated members on the future need for EIC Abstracts. He said that the AcSB had decided to defer any final decisions concerning the EIC until discussions on the strategies for private companies and not-for-profit organizations are further advanced. In the interim, the AcSB had decided that it should approve any decision to add an issue to the EIC’s agenda. This arrangement places the EIC in substantially the same position relative to the AcSB as the equivalent bodies are to the International Accounting Standards Board (IASB) and the United States Financial Accounting Standards Board (FASB). AcSB’s Strategy for Private Enterprises Greg Edwards, a Principal with the AcSB, updated members on activities undertaken in respect of the AcSB’s strategy for private businesses since AcSOC’s last meeting in October 2007. More than 100 replies had been received to the AcSB’s Invitation to Comment, which had a comment deadline of October 31, 2007. He said that the responses did not reveal a consensus as to which of the three potential approaches to developing standards for private enterprises outlined in the ITC would serve private enterprises best. Mr. Edwards stated that two significant developments since AcSOC’s last meeting were that the IASB staff would be proposing further simplifications of the proposed IFRS for Small and Medium-sized Entities (SMEs), and the Canadian Institute of Chartered Accountants (CICA) had developed a proposed financial reporting framework for owner-managed enterprises (see below). Since the IFRS for SMEs is the basis for one of the potential approaches identified in the ITC, changes to the substance of the IFRS for SMEs might affect the arguments for and against adopting this approach in Canada. Similarly, the development of a financial reporting framework for owner-managed enterprises might have implications for the AcSB’s strategy for private enterprises. Paul Cherry, the AcSB Chair, said that the AcSB would be discussing potential strategies for private enterprises over the next few months and would probably be ready to present a proposal to AcSOC members at their next meeting in June 2008. Financial Reporting by Owner-managed Enterprises Ron Salole, Vice President, Standards of the CICA, updated members on the CICA’s initiative to develop a proposed financial reporting framework for the use of owner-managed enterprises; that is, enterprises that do not have significant external users of their financial statements. As currently proposed, this guidance would not be considered part of GAAP. - He said that over 1000 people had participated in a series of presentations and roundtables across Canada and that close to 300 comment letters on the proposals had been received. The responses had not yet been analyzed fully, but, in general, they appeared to support the CICA’s proposals. They also identified a number of contentious issues, including:
- the definition of a significant external user;
- referring to the proposals as a non-GAAP solution; and
- the need to provide a level of assurance.
Mr. Cherry commented that the AcSB will be looking at the CICA’s proposal and will consider whether it should be part of its broader private enterprises project. An analysis of respondents’ comments will be discussed by the AcSB at its meeting later in February 2008. The AcSB will consider whether non-GAAP guidance is needed, and, if so, whether such guidance should be issued by the AcSB. Asset-backed Commercial Paper Paul Cherry updated members on the non-bank-sponsored asset-backed commercial paper (ABCP) situation from a financial reporting perspective. He said that the financial reporting commentary issued by the AcSB staff on the key accounting issues that had been identified in connection with the September 30, 2007 quarter-ends of many Canadian public companies had been well-received by stakeholders. He said that a second AcSB staff commentary, issued on January 18, 2008, built on the first commentary, and focused on providing further guidance on the basis for determining a fair value of ABCP holdings as at December 31, 2007 and improved disclosures about the valuation methods and related assumptions used by reporting entities. Some members suggested that the AcSB staff should consider issuing a third commentary on the application of the AcSB’s standards to restructuring situations. Update on PSAB/Deputy Ministers Joint Working Group (JWG) Tim Beauchamp, Director, Public Sector Accounting, updated members on the activities of the JWG, which was formed recently by Deputy Ministers of Finance across Canada and PSAB. The Deputy Ministers have selected members from each province to work with PSAB in seeking solutions to concerns of the fiscal planning community with various aspects of PSAB’s existing conceptual framework and its current technical agenda. The JWG has held two meetings, at which it approved terms of reference and agreed that the Deputy Ministers’ and PSAB staff would prepare papers jointly to specifically identify the issue(s), explore alternatives, propose recommendations, set out the rationale for recommendations, and indicate the expected implications of any proposals. The JWG’s final report is expected in October 2008. The Chair commented that, if requested, AcSOC would be happy to contribute to the process. Recent Activities in Standard Setting - PSAB activities
- Nola Buhr, Chair of PSAB, provided an update on PSAB’s recent activities. Significant items mentioned were as follows:
- The Province of Quebec is now using the Public Sector Accounting Handbook; accordingly, all senior governments in Canada are committed to following that Handbook.
- PSAB has reaffirmed that Statements of Recommended Practice are not part of GAAP and therefore not mandatory.
- The convergence of Canadian auditing standards with International Auditing Standards (ISAs) issued by the International Auditing and Assurance Standards Board could unintentionally open the door for some governments in Canada to use less rigorous foreign accounting standards for the public sector because the form of new audit report being proposed as a result of convergence with ISAs allows other sources of GAAP to be used in certain circumstances.
- AcSB activities
- Peter Martin updated members on matters of interest to the AcSB, including the following:
- The AcSB’s varied international activities and work program. The latter included the implementation of the AcSB’s strategy for publicly accountable enterprises.
- The proceedings at recent meetings of the AcSB’s Emerging Issues Committee and other Advisory Groups.
- The AcSB’s decision to expose the IASB’s Exposure Draft ED 9, Joint Arrangements, that proposes to eliminate the proportionate consolidation method as a free choice under IAS 31, Interests in Joint Ventures, for accounting for interests in a jointly controlled entity. The reactions of Canadian stakeholders to the proposals in ED 9 and the AcSB ED are not yet clear as the comment periods have just ended.
- The AcSB’s very active communications program.
- IASB activities
Tricia O’Malley provided an update on IASB-related activities that will affect the activities of the AcSB, including details of the current IASB technical agenda. She also stated that in December 2007 the IASB decided not to add projects on intangible assets and extractive industries, but voted to add the following projects to its technical agenda: - common control transactions;
- emission trading schemes and government grants; and
- management commentary.
Ms. O’Malley reminded members that the International Accounting Standards Committee Foundation, in collaboration with the CICA, will hold its North American Conference in Toronto on April 23-25, 2008. Speakers will include Sir David Tweedie, Chair, and five other IASB Board members; Bob Herz, US Financial Accounting Standards Board Chair; Paul Cherry, AcSB Chair; and several other members of the AcSB, AcSB staff and IASB staff. Canadian Performance Reporting Board (CPRB) – EBITDA and Free Cash Flow Peter Chant, Chair of the CPRB, accompanied by Chris Hicks, CPRB staff support, made a presentation on the CPRB’s recently published draft guidance on two non-GAAP measures: earnings before interest, taxes, depreciation and amortization (commonly known as EBITDA) and free cash flow. He said that interviews with analysts had confirmed the need for guidance to standardize and improve disclosures about EBITDA and free cash flow. Such guidance has become increasingly important in an environment where analysts’ reports are expected very soon after management’s publication of results. Mr. Chant stated that one of the objectives of the proposed guidance is for entities to achieve comparability with other entities without sacrificing the provision of pertinent information. The draft guidance will be available for comment until April 30, 2008, and the CPRB expects to finalize its guidance in the early fall of 2008. The Chair thanked Messrs. Chant and Hicks for an informative presentation. Appreciation to Retiring Members The Chair closed the meeting by expressing his, and the AcSOC’s, thanks for the sterling contribution to AcSOC’s activities of those members whose terms were due to end at March 31, 2008. * * * * * The AcSB and the PSAB are each accountable to AcSOC, an independent body established in September 2000 by the Canadian Institute of Chartered Accountants to oversee their activities. Reporting to the public and consisting of up to 25 prominent business and government leaders, AcSOC brings a broad perspective to complex issues facing standard setters in both the private and public sectors. AcSOC supports the AcSB and the PSAB in setting accounting standards in Canada and in contributing to the development of internationally accepted accounting standards. AcSOC's responsibilities include appointing AcSB and PSAB members, providing input on strategic priorities, and evaluating the boards’ performance. AcSOC members, many of whom represent particular constituencies, include regulators, investors and other users, preparers and auditors of financial reports. |
