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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 June 12-13, 2008, the Accounting Standards Oversight Council (AcSOC) received presentations on, and discussed, the following: AcSB’s Strategy for Private Enterprises
Asset-backed Commercial Paper
Update on PSAB/Deputy Ministers Joint Working Group (JWG)
Canadian Council of Legislative Auditors (CCOLA)
Recent Activities in Standard Setting
AcSB’s and PSAB’s Performance
Canadian Public Accountability Board (CPAB) 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 February 2008. He said that the AcSB is developing a “made in Canada” financial reporting system for private enterprises and, possibly, not-for-profit organizations as well. The standards being developed would produce general purpose financial statements on which assurance could be provided. The proposed standards would be:
- available for use by all private enterprises;
- developed using the same conceptual framework as standards for public enterprises;
- based on the existing CICA Handbook – Accounting; and
- linked to standards for public enterprises.
- He indicated:
- There are a limited number of areas in the existing Handbook that are problematic for private enterprises. These areas will be redeliberated, primarily based on cost/benefit considerations.
- A complete reconsideration will be given to the existing disclosure requirements.
- Sections, Guidelines and Abstracts that are relevant only to publicly accountable enterprises would be excluded.
Mr. Edwards stated that working drafts of individual standards will be posted to the AcSB website, for general information and comment, on an ongoing basis. This project is of top priority to the AcSB, which has arranged additional meeting time and allocated additional staff resources to the project to ensure that it proceeds in a timely fashion. Members were advised that presentations and roundtables would be held across Canada during the summer and fall to receive input from stakeholders. Members stressed the importance of broad-based consultation with stakeholders, and urged the AcSB and its staff to provide ample opportunities for stakeholders to express their views. AcSB staff will report back to the Council at its next meeting in October 2008 as to whether the AcSB intends to confirm or modify its approach and/or proposed financial reporting model. If the approach and model are confirmed, the AcSB hopes to produce an exposure draft of the proposed Handbook for private enterprises before March 31, 2009. Asset-backed Commercial Paper - Paul Cherry, Chair of the AcSB, updated members on:
- the non-bank-sponsored asset-backed commercial paper (ABCP) situation from a financial reporting perspective; and
- the lessons learned from the credit crisis.
He said that the AcSB staff had issued three financial reporting commentaries addressing the implications for holders of ABCP. The AcSB believes the commentaries have been well received and reasonably effective, although financial statement disclosure practices could be improved. Additional guidance may be required when it is known with certainty whether the proposed restructuring of ABCP will proceed. - Mr. Cherry stated that several issues have emerged in Canada, and elsewhere, in light of the global credit crisis:
- Some commentators have suggested that fair value accounting for financial instruments exacerbated the credit crisis by causing write-downs and further selling when markets became illiquid. The AcSB continues to believe that fair value is the most appropriate measurement basis for financial instruments and does not see standard setters retreating from this position. However, more guidance on how to measure fair value is needed, particularly when there is no deep and liquid market.
- The current variable interest entity (VIE) rules in the US and Canada were adopted as a result of the Enron debacle. These rules brought significant amounts of assets and debt onto the balance sheets of sponsoring entities, but there is a concern that too much still remains “off balance sheet”. As a result, the US Financial Accounting Standards Board (FASB) intends to eliminate from its standards the bright line tests for a qualifying special purpose entity (QSPE), which need not be consolidated by the sponsor. This could result in many QSPEs having to be consolidated. The International Accounting Standards Board (IASB) has a quite different standard, and it is not yet known if the changes being contemplated by FASB would converge with International Financial Reporting Standards (IFRSs), which are also under reconsideration. The AcSB faces a difficult decision whether to maintain the harmonization of VIE rules with those in US GAAP, by adopting the changes proposed by FASB, when it is not clear whether this change would be consistent with the fundamental strategy to adopt or amend standards only if the changes converge with IFRSs.
- There seems to be general support for enhanced disclosures of all off-balance sheet arrangements.
Members cautioned the AcSB to consider carefully whether it should follow the FASB’s lead to eliminate the notion of a QSPE, particularly as this could result in more than one change to relevant guidance prior to the changeover to IFRSs in 2011. In general, members were of the view that the AcSB should focus on IFRSs rather than US GAAP, and that if any changes were made to Canadian guidance before 2011, such changes should converge Canadian GAAP with IFRSs. Some members expressed the view that enhanced disclosure might be an improvement in the short term as long as it is consistent with the likely resolution of the recognition and presentation issues. Update on PSAB/Deputy Ministers Joint Working Group (JWG) Tim Beauchamp, Director, Public Sector Accounting, updated members on the activities of the JWG, which comprises selected PSAB members and Deputy Ministers of Finance across Canada. The JWG was formed to accomplish two objectives: to improve the relationship and communications with this major stakeholder of PSAB, and to explore issues-related differences that exist between the fiscal policy frameworks and PSAB’s conceptual framework. - Mr. Beauchamp provided an overview of draft papers that are in various stages of development. The following topics are being considered:
- conceptual framework;
- PSAB governance and due process; and
- accounting standards and volatility
Once these papers have been finalized, they will be presented to AcSOC and PSAB. Members agreed that the formation of the JWG had opened up an excellent line of communication between PSAB and senior government officials, but stressed that PSAB should ensure that this process does not overshadow communication with other stakeholders or compromise the independence of standard setting. Canadian Council of Legislative Auditors (CCOLA) Sheila Fraser, Auditor General of Canada, and Jim McCarter, Auditor General of Ontario, delivered a presentation on behalf of the CCOLA. They conveyed the CCOLA’s full support for PSAB as an independent standard setter for financial accounting and reporting in the public sector. Ms. Fraser commented that the JWG had been established to improve communications between senior governments and PSAB, and articulate governments’ concerns. She said it was crucial for the JWG to respect PSAB’s independence and to perform its work in a fashion consistent with PSAB’s well-established system of due process for promulgating its standards. Mr. McCarter described a challenge faced by legislative auditors when governments adopt legislation that prescribes an accounting treatment for a particular type of transaction. He said that if the treatment is not in accordance with GAAP, the legislative auditor should express a reservation in the audit opinion. The Chair commented that AcSOC should be vigilant in protecting PSAB’s independence, and thanked Ms. Fraser and Mr. McCarter for expressing the CCOLA’s support for PSAB and its work. Recent Activities in Standard Setting PSAB activities
Nola Buhr, Chair of PSAB, provided an update on PSAB’s recent activities and agenda items. She stated that PSAB was gratified that it appeared that local governments in New Brunswick would be adopting the PSA Handbook. With Newfoundland moving in a similar direction, that would complete the process of adopting the PSA Handbook for local governments in Canada in all provinces. - AcSB activities
Paul Cherry and Peter Martin, Director, Accounting Standards, updated members on matters of interest to the AcSB, including the following: - The two new members recently appointed to the AcSB by AcSOC were actively engaged in AcSB matters. Effective May 1, 2008, Peter Roberts had resigned from the AcSB owing to the time demands of his daily vocation, leaving a vacancy to be filled.
- Acting with the advice and support of AcSOC, the AcSB announced in mid-February 2008 that the changeover to IFRSs for publicly accountable profit-oriented enterprises in Canada would be mandatory for fiscal years beginning on or after January 1, 2011. In early April 2008, the AcSB issued its “omnibus” Exposure Draft proposing to adopt the standards in the IASB’s 2007 bound volume into Canadian GAAP. The AcSB will issue a follow-up “mini omnibus” Exposure Draft (likely later in 2008) to reflect the changes to IFRSs since the standards in the 2007 bound volume were finalized.
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 stated that at its June meeting the IASB will consider modifications to its technical agenda to update its work program for convergence of IFRSs and US GAAP (in accordance with the Memorandum of Understanding between the IASB and FASB), with a view to facilitating the possible adoption of IFRSs by US domestic companies. - Ms. O’Malley also apprised members of International Accounting Standards Committee Foundation (IASCF) Constitution Review roundtables that will be held by the IASCF later in June to discuss initial proposals by the IASCF Trustees to:
- create a link between the Trustees and a proposed new “Monitoring Group;” and
- expand the IASB and provide for guaranteed minimum representation for specified geographic regions.
The Monitoring Group would have a monitoring and review function to ensure that the Trustees are fulfilling their constitutional obligations, and that the selection of Trustees is conducted in an appropriate and transparent manner. With a growing number of countries adopting IFRSs, the Trustees have tentatively concluded that there are reasons to expand the IASB to 16, from 14, members. AcSB’s and PSAB’s Performance AcSOC’s responsibilities include evaluating the performance of the Boards that it oversees. AcSOC’s Performance Review Committee reported on the results of its extensive review of performance reports from the AcSB and PSAB for the year ended March 31, 2008. In particular, the Committee commended the AcSB for the thorough manner in which it had handled the work involved in migrating to IFRSs for Canadian publicly accountable enterprises, and PSAB for its judicious handling of senior governments’ concerns. On the basis of the Boards’ reports and the Performance Review Committee’s review, AcSOC concluded that both Boards had adequately discharged their responsibilities to the public in an independent, professional and transparent manner. AcSOC’s review of the work plans developed by the Boards for the year ending March 31, 2009 indicated that these plans were consistent with the Boards’ strategies and would provide the Performance Review Committee with a suitable base to review the performance of both Boards for that period. - Canadian Public Accountability Board (CPAB)
Keith Boocock, Chief Executive Officer, CPAB, commented on CPAB’s fifth public report on its inspections of public accounting firms performing audits on the financial statements of reporting issuers in Canada. He noted that CPAB conducts inspections on a risk basis and that its reports focus on exceptions to required standards. He identified the following as CPAB’s concerns: - Audit quality in several areas that CPAB previously identified as deficient had not improved as much as CPAB had expected.
- Some firms were not giving appropriate attention to engagement quality control reviews in which a partner, other than the partner responsible for the engagement, performs a review of key areas in the file.
- The monitoring of work quality reviews in some firms was weak. This refers to monitoring in which partners, independent of the engagement, conduct a post- issuance review of engagement files to ascertain compliance with professional and firm standards.
- There seemed to be an increase in the number of GAAP deficiencies in the financial statements of reporting issuers, compared with previous reports.
- He also detailed some of the issues that CPAB was currently addressing, including:
- CPAB’s role in training and educating auditors;
- the use of professional judgment when preparing financial statements;
- the extent of CPAB’s public reporting on auditors’ work; and
- the scope of CPAB’s work.
The Chair thanked Mr. Boocock for an informative presentation. Members were saddened to hear of Mr. Boocock’s sudden passing shortly after this meeting. We extend our deepest sympathies to his family and colleagues. * * * * * 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. |
