|
Accounting Standards Oversight Council considers the AcSB’s response to the credit environment At its meeting in Montréal on October 30-31, 2008, the Accounting Standards Oversight Council (AcSOC) received presentations on, and discussed, the following: Credit Environment
Future Infrastructure of AcSOC and the Boards that It Oversees
Update on PSAB/Deputy Ministers Joint Working Group (JWG)
Recent Activities in Standard Setting Credit Environment Paul Cherry, Chair of the AcSB, updated members on the activities of the Accounting Standards Board (AcSB) and others regarding the current credit environment. He said that he, the AcSB and AcSB staff have been closely monitoring developments in Canada and internationally, and that the AcSB had carefully balanced the needs for immediate action with longer-term considerations. - He stated that the AcSB and other major standard setters are, to a large extent, acting in concert to strive to achieve a level playing field, and cited the following major issues and concerns, and standard setters’ responses:
- Determining fair value — There have been increasing requests for additional guidance on determining fair values in inactive markets. The US Securities and Exchange Commission, US Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) have issued guidance and AcSB staff is considering issuing a financial reporting commentary on fair value in inactive markets. Both AcSB and IASB staff have stated that the FASB’s guidance is equally appropriate under Canadian GAAP and IFRSs, respectively. Over the past year, AcSB staff has issued three commentaries on fair value for Canadian non-bank-sponsored asset-backed commercial paper (ABCP). They are now completing a fourth commentary on this subject, which will address the accounting for the new longer term notes that will replace the original ABCP under the court-approved restructuring proposal.
- Reclassification of financial assets — In response to the ability for US GAAP reporters to reclassify particular financial assets in rare circumstances, and the possible threat of European Union action to legislate an override to International Financial Reporting Standards (IFRSs), the IASB made changes to IFRSs to permit reclassifications in limited cases, having waived its usual process of issuing the proposals for comment. The AcSB has made corresponding amendments to maintain international consistency. The AcSB decided to waive issuing an exposure draft, having obtained the concurrence of the Chair and Vice-Chair of AcSOC that this was appropriate in the circumstances.
- Enhanced disclosures about fair value measurement and liquidity risks — The IASB has issued an Exposure Draft proposing to enhance disclosures in this area. The AcSB expects to issue a corresponding exposure draft.
- Consolidation — The IASB is developing an exposure draft on consolidation, to strengthen requirements for consolidating related entities and disclosing risks from off-balance sheet assets and liabilities. AcSB staff expects to recommend that the AcSB consider issuing similar proposals in Canada.
- Derecognition — The IASB is developing new proposals dealing with derecognition of financial instruments. AcSB staff is closely monitoring those developments.
- In addition to these activities, the AcSB Chair and staff have been active in managing media relations:
- On October 2, 2008, in response to several media enquiries, and bearing in mind the need for effective communication, the AcSB Chair issued a statement on fair value accounting. Subsequently, Paul Cherry and staff conducted several media interviews, resulting in coverage in several outlets.
- On October 17, 2008, the AcSB issued a media release announcing its proposal to follow the IASB in amending requirements for reclassification of financial assets. That media release included reference to other activities that the AcSB is undertaking.
Members were of the view that the existence of a single set of high-quality, global financial standards is still the best way to achieve a level playing field internationally and that major jurisdictions should continue their efforts to achieve this ultimate goal. Members agreed to issue an appropriate media release as soon as possible. Future Infrastructure of AcSOC and the Boards that It Oversees Members commenced a preliminary discussion on the standard-setting model in Canada to consider how the structures and operations could be further improved so that they continue to be relevant in the future. Discussions were centred on a re-examination of the guiding principles established by the CICA’s Task Force on Standard Setting in a report issued in 1998. Matters discussed included the independence and future funding of the standard-setting function in Canada, the need to maintain a standard-setting capability in Canada, and the need to ensure that standards are set in the public interest. Members agreed that this topic should be fully covered at AcSOC’s next meeting in February 2009. 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 from across Canada. The JWG was formed to accomplish two objectives: to improve the relationship and communications with this major stakeholder group, and to explore concerns of governments about the effect of PSAB’s conceptual framework on how they report and explain their fiscal policy frameworks. - Mr. Beauchamp commented that draft papers had been developed on:
- conceptual framework;
- PSAB governance and due process; and
- accounting standards and the management of public finances.
The third item relates to two current PSAB projects (on government transfers and financial instruments), existing CICA Public Sector Accounting Handbook standards regarding the method of accounting for certain organizations within the consolidated reporting entity, and the application of IFRSs to commercial government organizations. PSAB advised that it would consider these papers at its next meeting and advise AcSOC of the outcome and next steps. Recent Activities in Standard Setting PSAB activities
Nola Buhr, Chair of PSAB, provided an update on PSAB’s recent activities and technical agenda items. She reiterated that Statements of Recommended Practice were not mandatory. She also stated that PSAB has been asked to reconsider the requirement that, for the purposes of their own financial reporting, government business enterprises and government business-type organizations are deemed to be publicly accountable enterprises and should follow the standards applicable to publicly accountable enterprises in the CICA Handbook – Accounting. She also elaborated on the joint Invitation to Comment being prepared by PSAB and the AcSB on not-for-profit organizations in the public sector (see below). - AcSB activities
Paul Cherry and Peter Martin, Director, Accounting Standards, updated members on matters of interest, including the following: - The AcSB continues to implement its strategy for adopting IFRSs for Canadian publicly accountable enterprises. Affected enterprises, regulators, academics, professional organizations and others have also undertaken a considerable amount of work in recent months to be ready on time.
The AcSB has continued to monitor closely the increasing level of interest in IFRSs in the United States. In August, the US Securities and Exchange Commission announced that it will issue, for public comment, a roadmap for how the US may adopt IFRSs for its public companies. A transition to the required use of those standards would likely not be decided until 2011, would commence in 2014, and continue on to 2016, as various categories of enterprises will make the transition in stages. Recent modifications to the IASB’s work plan have been made with an eye to facilitating a US transition. The AcSB has been watching these developments carefully, and has concluded that there is no reason to reconsider the timing or basis of the AcSB’s decision to transition to IFRSs for Canadian publicly accountable enterprises for fiscal years beginning on or after Jnauary 1, 2011.
Members supported the AcSB’s plan to incorporate the new and amended standards on business combinations and non-controlling interests into Canadian GAAP prior to the adoption of IFRSs in Canada. Adoption of the new and amended standards will be permitted, but not required, prior to fiscal years beginning on or after January 1, 2011. Members also agreed with the AcSB’s plan to propose modifications to the definition of a discontinued operation to converge with a proposed change by the IASB and the FASB. - The AcSB continues to implement its strategy to develop a separate set of GAAP standards for private enterprises to meet the different financial reporting needs of that sector. This strategy has had a favourable response from constituents. The AcSB expects to issue an exposure draft in the first quarter of 2009.
- The AcSB has agreed on the content of an Invitation to Comment seeking stakeholder input on possible future directions in setting standards for not-for-profit organizations. The AcSB and PSAB have agreed to publish a single document covering overlapping issues of concern to both Boards. The joint Invitation to Comment is expected to be issued by the end of November 2008.
- 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 the following: - The IASB has published non-mandatory educational guidance on the application of fair value measurement when markets become inactive. This guidance takes the form of a summary document prepared by IASB staff, and the final report of its Expert Advisory Panel established to consider the issue.
- The International Accounting Standards Committee (IASC) Foundation held four roundtable discussions in June 2008 to discuss proposed changes to the Foundation’s constitution. Participants discussed the establishment of a body comprised mainly of market regulators to monitor the activities of the IASC Foundation and the IASB. All participants supported the idea, but expressed some concerns on specific aspects of the proposal. Participants also discussed the proposed expansion of the IASB from 14 members to 16 members and a requirement for explicit geographical distribution amongst those 16 appointees. There was concern that the increased size would decrease efficiency of the IASB. However, the greater concern expressed, by almost all participants, was the requirement for geographic representation on the IASB and the effect that could have on ensuring the appropriate technical competence of all members.
- Jean Paré, a former member of the AcSB, had been appointed to the IASB’s International Financial Reporting Interpretations Committee in July 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. |
