Accounting Standards Oversight Council
Report on Public Meeting
October 29-30, 2009

Accounting Standards Oversight Council receives input on the financial reporting strategy for not-for-profit organizations.

At its meeting in Toronto on October 29-30, 2009, the Accounting Standards Oversight Council (AcSOC) received presentations on, and discussed, the following:

Not-for-Profit Organizations Financial Reporting Strategy
Current Economic Environment
Other Recent Activities in Standard Setting

Not-for-Profit Organizations Financial Reporting Strategy

In December 2008, the Accounting Standards Board (AcSB) and the Public Sector Accounting Board (PSAB) jointly issued an Invitation to Comment to invite feedback on the future of financial reporting by not-for-profit organizations. Currently, the CICA Handbook – Accounting contains Sections (the 4400 series) that provide specific standards for not-for-profit organizations to supplement general Handbook standards. The CICA Public Sector Accounting Handbook (PSA Handbook) refers not-for-profit organizations in the public sector to the CICA Handbook – Accounting, so it applies to not-for-profit organizations in both the private and public sectors. The AcSB and the PSAB are working jointly to produce proposals for setting financial reporting standards for this sector.

At this meeting, AcSOC received presentations from several important stakeholders.

Private sector perspective
Paul Goodyear, Chair of the AcSB’s Not-for-Profit Organizations Advisory Committee, provided the private sector’s perspective on the process to date and the Committee’s tentative conclusions. He said that the AcSB and the Committee had monitored financial reporting developments for publicly accountable and private enterprises, and had undertaken an extensive consultation process with not-for-profit sector stakeholders. He stated that the AcSB had approved the development of an exposure draft on the future direction for setting standards for not-for-profit organizations that are not subject to public sector accounting standards. The AcSB has tentatively decided to propose a free choice of (a) the accounting standards for private enterprises plus the current 4400 series of Handbook Sections, appropriately modified to fit with those standards, (b) International Financial Reporting Standards (IFRSs) or (c) public sector accounting standards, modified to include the 4400 series.

Public sector perspective
Archie Johnston, Chair of the PSAB’s Government Not-for-Profit Organizations Task Force, detailed the views of public sector stakeholders on not-for-profit financial reporting issues in the sector. He said there is a high level of interest in the topic. Many public sector not-for-profit organizations are large and complex entities, and in many provinces these organizations disburse the majority of service dollars in government budgets. Consequently, there is a need to account adequately to the public. Mr. Johnston said that not-for-profit organizations that serve Canada’s higher education needs are positioned at the conjunction of the respective standard-setting Boards’ authorities and that the suggested financial reporting options for not-for-profit organizations will provide those in governance roles with the ability to align financial reporting with user needs. He indicated that many government organizations share similar characteristics with not-for-profit organizations. Examples include the following:

• Tangible assets are acquired and held for their service potential.
• Accountability extends beyond measures of surplus or deficit – stewardship issues are particularly important.
• Financial statements assist users in assessing the ability of organizations to meet their financial obligations.
• Reporting provides information about future revenue requirements.

Mr. Johnston said that the proposal to include the 4400 series of Handbook Sections, suitably modified, in the PSA Handbook has garnered significant support among public sector not-for-profit organizations and also has the support of the PSAB. The 4400 series would provide public sector not-for-profit organizations with a presentation approach and guidance on specialized accounting topics.

Ontario Colleges of Applied Arts and Technology
Brad Chapman, Co-Chair of the Colleges Ontario Administrative Services Coordinating Committee, Erin Braidford, Executive Member of Colleges Ontario Finance Officers, and Shannon Brooks, Executive Member of Colleges Ontario Finance Officers, provided the Ontario Colleges’ views on the future of financial reporting for not-for-profit organizations. They said that the primary users of their financial statements were financial institutions, donors and alumni associations, corporate and joint venture partners, international education partners, other college boards and prospective board members, all of whom are generally unfamiliar with public sector financial reporting and prefer private sector reporting. Accordingly, the presenters suggested that private sector standards, plus the 4400 series of Handbook Sections, should be mandated for colleges. They commented that comparability with the financial statements of universities and other post-secondary institutions is important, as the Ontario Colleges compete for funding with universities and privately funded post-secondary educational institutions. Also, Ontario Colleges are seeking growth through alternative revenue streams such as corporate partnerships, international education programs and donations. The presenters concluded by stating that Ontario Colleges believe that financial statements, and the accounting choices therein, have the ability to redefine an organization.

Financial reporting by government organizations
Bruce Bennett, Assistant Deputy Minister and Provincial Controller, Ontario Ministry of Finance, stated that a consistent set of public sector accounting standards is important for all organizations in the public sector to ensure transparency in public sector financial reporting and fiscal accountability for the use of public monies. He said that accounting standards play an important role in supporting the public policy objectives of ensuring transparency, fiscal accountability and stewardship of public resources. The public’s perception of government performance is driven by the “bottom line,” which results from the use of accounting standards. Mr. Bennett said that government organizations are a critical element in the delivery of public services in Ontario and that these organizations spend the majority of taxpayer dollars raised by the province. Government organizations do not compete with private sector organizations to sustain their operations. He stated that public sector accounting standards are designed to account for the delivery of public services, and that all government organizations delivering public services should use these standards.

Written presentations
In addition to the oral presentations, written submissions from the Comptroller General of the Province of British Columbia and the Provincial Comptroller of the Province of Manitoba had been circulated to AcSOC members and were discussed at the meeting. Both submissions echoed the sentiments expressed in Mr. Bennett’s presentation, and suggested that public sector accounting standards, supplemented by the 4400 series of Handbook Sections, are the most appropriate standards for all not-for-profit organizations, including those in the public sector.

Next steps
Staff advised that the AcSB and the PSAB would work jointly to develop an exposure draft on the proposed standards for not-for-profit organizations in both the private and public sectors, and to set the timing of the changeover from existing standards. The AcSB expects to reconsider the current requirements of the 4400 series of Handbook Sections, in collaboration with the PSAB, after the Boards have finalized the strategic direction for this sector.

The Chair indicated that AcSOC would like to discuss the proposed exposure draft prior to its publication. He closed the proceedings by thanking all the presenters and those who had made written submissions.

Current Economic Environment

Members were updated on the activities of various international bodies and the AcSB relative to the current economic environment.

The Group of Twenty (G-20) Heads of State and leaders of global financial organizations
Members noted that the G-20 had called on the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) to redouble their efforts to achieve a single set of high-quality, global accounting standards within the context of their independent standard-setting processes, and to complete their convergence projects by June 30, 2011. In particular, G-20 members agreed that the accounting standard setters should improve standards for the valuation of financial instruments based on their liquidity and investors’ holding horizons, while reaffirming the framework of fair value accounting.

The Financial Crisis Advisory Group (FCAG)
The FCAG was formed to advise the IASB and the FASB about the standard-setting implications of the financial crisis and potential changes in the global regulatory environment. FCAG consists of senior leaders with broad international experience in the financial markets. They are also joined by official observers representing key global banking, insurance and securities regulators.

Members noted the FCAG’s principles and recommendations, which are summarized as follows:

• When regulatory reporting requirements differ from accounting standards in ways that could have significant effects on financial reporting, the effects of those differences should be disclosed in a manner that does not compromise the transparency and integrity of financial reporting to financial markets.
• All financial statement users should recognize the limitations of financial reporting. It provides only a snapshot in time of economic performance, and cannot provide perfect insight into the effects of macro-economic developments.
• It is critically important to achieve a single set of high-quality, globally converged financial reporting standards that provide consistent, unbiased and transparent information, regardless of the geographical location of the reporting entity.
• Accounting standard setters must enjoy a high degree of independence from undue commercial and political pressures, but they must also have a high degree of accountability through appropriate due process, including wide engagement with stakeholders, and oversight conducted in the public interest.

IASB and FASB activities
Members noted that the IASB has continued to make progress with the parts of its work program focused on responding to the financial crisis and the various calls for it to act promptly.  Much of the recent activity has focused on the call for replacement of the IASB’s existing standard dealing with recognition and measurement of financial instruments (IAS 39).

In addition, the IASB is working on projects and other measures in response to the financial crisis as follows:

• Accounting for off-balance-sheet vehicles
  • Consolidated financial statements – to address the current non-consolidation of some controlled entities, especially special purpose entities in securitization arrangements.  
  • Derecognition – to address the current removal from some transferors’ balance sheets of assets that they still control.  
• Fair value measurement guidance – to address a need for improved guidance on how to measure fair value, which is currently dispersed across standards and, in some cases, inconsistent.

The IASB’s projects on financial instruments, consolidated financial statements, derecognition and fair value measurement guidance are all, to some degree, joint projects with the FASB. However, in each case, the timing of activities differs.

Members were apprised of the speed and burden on constituents of the work programs, as well as the lack of immediate convergence of both Boards’ projects.

AcSB’s activities
The AcSB’s response to the current financial crisis continues to be governed by its strategic decision to adopt IFRSs and its related policies of restricting change to current Canadian generally accepted accounting principles (GAAP) during the transition period, and limiting any necessary changes to steps towards IFRSs. The AcSB has paid close attention and commented on all IASB activities. It has also liaised with key individuals and organizations in Canada, including the Federal Department of Finance. In addition, it has issued “wrap-around” Exposure Drafts to accompany the IASB Exposure Drafts on consolidated financial statements, derecognition, fair value measurement and financial instruments: classification and measurement.

For a full exposition of the AcSB’s activities in response to the current financial crisis, please visit the AcSB’s website at www.acsbcanada.org.

Other Recent Activities in Standard Setting

PSAB activities
John Wiersema, Chair of the PSAB, and Tim Beauchamp, Director, Public Sector Accounting, provided an update on some of the more significant activities of the PSAB, the status of its technical agenda, as well as other matters of interest.

Mr. Beauchamp advised that he had sent a letter, dated August 11, 2009, to the co-Chairs of the Joint Working Group (JWG) to provide an update on the activities and projects of the PSAB in relation to proposals put forward by the subgroups of the JWG.  The JWG comprises selected PSAB members and Deputy Ministers of Finance from senior Canadian governments and was formed to accomplish two objectives: to improve the relationship and communications between the PSAB and this major stakeholder group, and to explore concerns of governments about the effect of the PSAB’s conceptual framework on how they report and explain their fiscal policy frameworks.  

The update consisted of three main topics: conceptual framework, PSAB governance and due process, and public finances. The letter stated the following:

• PSAB staff is reviewing the PSAB framework coincident with the development of a conceptual framework by the International Public Sector Accounting Standards Board, which the PSAB will be monitoring.
• The PSAB evaluated the JWG subgroups’ proposals and has made changes that will improve information about the PSAB and its operations.
• The subgroups’ recommendations related to a number of projects underway, as well as existing standards. As agreed, the PSAB will follow its normal due process in developing and reviewing standards. It is considering the views set out in the subgroups’ papers.

Mr. Beauchamp highlighted the preliminary decisions made by the PSAB to develop a new strategic plan for the period 2010-2013. He said that the PSAB has tentatively decided the following, subject to further review in its November 2009 meeting:

• to develop a comprehensive set of accounting and financial reporting standards for the public sector;
• to amend the Introduction to the PSA Standards to include school boards and First Nations;
• to monitor the development of other standard setters in the areas of pension accounting and pension plan financial statements;
• to actively influence the development of high-quality international public sector standards and guidance;  
• to continue to issue Statements of Recommended Practice that enhance public sector reports; and
• to develop a multi-faceted communication plan to address the different needs and technical background of stakeholders.  

International Public Sector Accounting Standards Board (IPSASB)
Ron Salole, an IPSASB member from Canada, updated members on the IPSASB’s processes, the status of its technical agenda, the development of a public sector conceptual framework and other matters of interest, including the following:

• The IPSASB is aiming for a single set of high-quality globally accepted public sector accounting standards that would converge with IFRSs.
• A large number of countries and world organizations (such as the OECD, NATO and INTERPOL) have adopted, or will be adopting, International Public Sector Accounting Standards.
• Looking ahead, the IPSASB intends to complete its existing IFRS convergence initiative and public sector conceptual framework, and increase its focus on public sector specific topics.
• In conjunction with the International Monetary Fund, the IPSASB is undertaking a government reporting initiative that will cover how governments account for and report assets, obligations, and commitments acquired as a result of their interventions; review how existing accounting standards report the variety of government actions; and reconcile the reporting and valuation approaches.

AcSB activities
Tricia O’Malley, AcSB Chair, and Peter Martin, Director, Accounting Standards, updated members on matters of interest, including the following:

• The transition to IFRSs by publicly accountable enterprises is proceeding much as expected. Progress varies by industry and entity size, with smaller enterprises being less advanced than larger ones. There continues to be a need to encourage businesses to move ahead with the transition process.
• The AcSB is comfortable with the state of the infrastructure in Canada to assist the IFRS transition process.
• IFRSs continue to gain acceptance around the world and the IASB appears to be soundly based, although there are still issues to be resolved regarding its funding.
• As the AcSB expected, very few significant enterprises (and perhaps some smaller enterprises in the resource sector) that are US Securities and Exchange Commission (SEC) registrants have now opted to use US GAAP rather than adopting IFRSs.
• There is considerable discussion and activity in US business, professional and academic circles on whether the US should adopt IFRSs. The adoption of IFRSs by the US is not, and never was, a determinant of the AcSB’s strategy to adopt IFRSs for Canadian publicly accountable enterprises.
• The AcSB has approved the issuance of a new set of standards for private enterprise financial reporting. The new standards are expected to be published in December 2009 for early adoption in the 2009 fiscal year.
• Financial reporting for not-for-profit organizations is discussed elsewhere in this report.

IASB activities
Tricia O’Malley provided an update on IASB-related activities that will affect the activities of the AcSB, including details of the currently lengthy IASB technical agenda. Members were advised that in an effort to assist the FASB in converging its standards with those of the IASB, and to assist stakeholders to cope with “standards overload,” the IASB has been extending the effective dates of new standards. This will assist first-time adopters of IFRSs in Canada as they transition to IFRSs.

International Accounting Standards Committee Foundation (IASC Foundation)
Ian Hague, a Principal with the AcSB, advised that on September 9, 2009, the IASC Foundation Trustees issued a Discussion Document, “Part 2 of the Constitution Review, Proposals for Enhanced Public Accountability.”

Members agreed with many of the proposals in the Discussion Document, but disagreed strongly with the proposal to establish an accelerated due process in exceptional circumstances. Members agreed that a comment period shorter than the current minimum would be inconsistent with due process and of limited practical value. They also disagree with the following proposals:

• changing the name of the IASB to the IFRS Board;
• emphasizing that governance of the IASC Foundation rests “primarily” with the Trustees; and
• reducing the length of a possible second term of IASB members.

Members agreed to submit a response to the IASC Foundation jointly with the AcSB.

US progress on international accounting standards convergence
Paul Cherry, Chair of the Standards Advisory Council, which is a forum for the IASB to consult with a wide range of representatives of key stakeholder groups, provided an overview of proceedings at a major IFRS conference in New York on October 29-30, 2009. The conference was co-sponsored by the American Institute of Certified Public Accountants and the IASC Foundation. It was very well attended, and included many financial statement preparers. The overall mood was very positive. Paul Volcker, the keynote speaker and the Chair of President Obama’s Economic Recovery Advisory Board, said that a single set of global accounting standards is a necessity, and that the SEC should heed the G-20’s recommendation in this regard. Mr. Volcker stressed the importance of having an independent standard setter, but cautioned against the risk that that standard setter might become “arrogant” and technically arcane.

Jim Kroeker, SEC Chief Accountant, said that the SEC was committed to follow up by the end of this year on its proposed roadmap for US public companies to transition to IFRSs. He said that the current financial crisis has not slowed the momentum for a single set of global accounting standards. Mr. Kroeker emphasized that the objective of the exercise was to produce standards for general purpose financial reporting to service investors, and not to promote stability in the financial system or to serve other interests. Another speaker expressed the view that the US would need five years to transition to IFRSs.

The Chairs of the IASB and the FASB confirmed that henceforth their Boards would meet jointly on a monthly basis. Also, the IASB will delay briefly publishing proposed conclusions on several projects to allow the FASB to catch up with the IASB. The objective is to ensure that the June 30, 2011 deadline of achieving greater convergence between IRFSs and US standards is met. The Boards are striving to ensure that there are single, global standards on major projects, such as financial instruments, fair value measurement and consolidation by the end of 2010.

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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.