Report on Public Meeting
February 25-26, 2010

Accounting Standards Oversight Council discusses current operating year activities of the AcSB and PSAB and their future plans.

At its meeting in Toronto on February 25-26, 2010, the Accounting Standards Oversight Council (AcSOC) received presentations on, and discussed, the following:

AcSOC Membership
Update on the Accounting Standards Board’s Activities and Planning
Update on the Public Sector Accounting Board’s Activities and Planning
Financial Reporting Strategies for Not-for-Profit Organizations
Update on PSAB’s Function and Processes
Accounting Education in Canada
Canada’s Adoption of New International Standards on Auditing
Other Recent Activities in Standard Setting

AcSOC Membership

Doug Hyndman advised the meeting that, owing to work pressures, he would be stepping down as Chair of the Accounting Standards Oversight Council (AcSOC) on March 31, 2010 after an eventful 10-year period. Mr. Hyndman was a founding member of AcSOC, and has served as Chair since April 1, 2005. AcSOC members expressed their appreciation and thanked Mr. Hyndman for his inspiring leadership. Mr Hyndman welcomed and congratulated the incoming Chair, Denis Desautels, and the new Vice-Chair, Kevin Nye. He also recognized and thanked Gilles Bedard, Jim Peters, Kim Shannon and Pat Walters whose terms of membership all end on March 31, 2010. To view a listing of new members appointed to AcSOC and its Boards, effective April 1, 2010, click here.

Update on the Accounting Standards Board’s Activities and Planning

Accounting Standards Board’s performance
Tricia O’Malley, Accounting Standards Board (AcSB) Chair, and Peter Martin, Director, Accounting Standards, updated members on the AcSB’s performance since AcSOC’s last meeting in October 2009. The AcSB’s long-term strategies are finally coming to fruition:

• International Financial Reporting Standards (IFRSs) have been adopted and incorporated into the CICA Handbook – Accounting (Handbook).
• Accounting standards for private enterprises have been issued as part of the Handbook.
• Accounting standards for pension and other benefit plans have been approved and will be issued as part of the Handbook on April 1, 2010.
• The AcSB’s proposed strategy for not-for-profit organizations is ready to be exposed for public comment.

To accommodate the AcSB’s strategies, the Handbook has been restructured and now comprises five Parts. Part I applies to publicly accountable enterprises (except pension plans) and others permitted to apply IFRSs, Part II to private enterprises, Part III to not-for-profit organizations, and Part IV to pension plans. Part V is temporary, and contains the standards included in the Handbook prior to its restructuring. Entities are permitted to use the standards in Part V until they adopt one of the other Parts.

Some AcSOC members expressed unease concerning the lack of readiness of some entities affected by the transition to IFRSs. Ms. O’Malley commented that, even though the AcSB has made concerted efforts to alert those affected by the transition, some entities still have a considerable amount of work to complete. Nevertheless, the AcSB believes that, generally, those affected by the transition are on track for the January 1, 2011 changeover.

Members concurred with the AcSB’s proposal that it was timely to wind up the AcSB’s Emerging Issues Committee on March 31, 2010, with thanks to the past and present members for their contributions. This follows from the AcSB’s earlier firm conclusion that it will adopt IFRSs “as is” without any modifications.

Denis Desautels, Chair of AcSOC’s Performance Review Committee, stated that the Committee met in January 2010 to discuss the AcSB’s draft performance report for the year ended March 31, 2010. The draft reflected the AcSB’s performance to date and a final report will be prepared for the Committee’s review in May 2010. The Performance Review Committee’s preliminary conclusion was that the AcSB had performed well.

Recent developments
Gord Fowler, AcSB Vice-Chair, and Peter Martin updated members on matters of interest.

The AcSB is monitoring all the International Accounting Standards Board’s (IASB) major projects on which exposure drafts are expected to be issued soon. It has submitted comments on IASB proposals on rate-regulated activities and is developing exposure draft responses on:

• the measurement of provisions and liabilities not covered by other standards (IAS 37 revisions); and
• measuring financial assets on the amortized cost basis, including impairment, using an expected loss approach.

The IASB’s project on rate-regulated activities is of particular interest to Canada, as are projects on the consolidation of controlled entities by investment companies, and insurance contracts.

Members were advised the AcSB concluded that the IASB’s standard for retirement benefit plans was inadequate. Given the AcSB’s policy of not modifying IFRSs, the AcSB has developed a new set of standards for these plans. The AcSB is still considering whether to expand the scope of these standards so that certain entities, whose sole purpose is to hold and invest pension plan assets, would fall within the scope of the new standards.

Stakeholders appear to be very satisfied with the new private enterprise standards, and a number of enterprises are adopting the standards early, for years ending December 31, 2009. AcSB staff is providing implementation guidance support via a webinar and a set of FAQs. The AcSB is also developing the structure and processes to maintain these standards.

On February 24, 2010, the US Securities and Exchange Commission (SEC) voted to issue a statement that lays out its position regarding global accounting standards. It makes clear that the SEC continues to believe that a single set of high-quality globally accepted accounting standards would benefit US investors. The SEC staff will prepare a work plan towards making a decision in 2011 regarding the adoption of IFRSs for US issuers.

Developing a new AcSB strategic plan
Ms. O’Malley stated that the AcSB’s current strategic plan covers the five years to March 31, 2011, at which stage the AcSB expects to have completed the strategies identified in that plan.

AcSOC concurred with the AcSB’s intention to begin developing a new strategic plan with the objective of having it discussed and agreed to by AcSOC early in 2011. One of the AcSB’s objectives in outreach activities will be to provide comfort to its stakeholders that it has no intention of departing from the strategic directions implemented over the past few years. The AcSB’s preliminary thinking is that the new plan should focus on strategies to “bed down” the new directions, and that three years will provide a reasonable time for such activities and for assessing how the new strategic directions are working in practice. The AcSB will solicit public comment, possibly including roundtables, once the draft plan is discussed with AcSOC in June, completed and published.

Update on the Public Sector Accounting Board’s Activities and Planning

Public Sector Accounting Board’s performance
John Wiersema, Public Sector Accounting Board (PSAB) Chair, and Tim Beauchamp, Director, Public Sector Accounting, provided an overview of PSAB’s performance to date during the year ended March 31, 2010.

Generally, PSAB is satisfied with the results of its progress in meeting its overall objectives for the year. PSAB finalized amendments to its Introduction to the CICA Public Sector Accounting (PSA) Handbook requiring all government business enterprises to adopt International Financial Reporting Standards (IFRSs), and has initiated a strategy to bring all not-for-profit organizations controlled by a government into the PSA Handbook. PSAB faced considerable concerns over its proposals for government transfers and is expecting similar responses to its financial instruments and foreign currency proposals. New Handbook Sections for the forgoing could not be released as planned. Internationally, PSAB’s strategy is to actively influence the International Public Sector Accounting Standards Board’s (IPSASB) standards, and PSAB made a substantial contribution by responding to exposure drafts, attending various meetings, developing material for various projects, and providing briefing notes to members.

Denis Desautels indicated that the Performance Review Committee’s preliminary conclusion was that PSAB had performed satisfactorily in the face of heavy current and ongoing challenges.

Recent developments
Mr. Wiersema commented on a letter from the Minister of Finance and Deputy Premier of the Province of British Columbia expressing disappointment “that the most important government concern regarding the public sector conceptual framework has been delayed and is not seen by PSAB as an immediate priority.” The letter also raised concerns with the application of IFRSs to government business enterprises, including rate-regulated activities, and the use of fair values in measuring certain financial instruments. The letter calls for continuing dialogue to resolve these issues.

Mr. Wiersema said that PSAB is sympathetic to governments’ concerns and will pursue a broadening of the channels of communication with senior governments to try and arrive at mutually acceptable solutions.

PSAB’s 2010-2011 Work Plan
Mr. Beauchamp presented an overview of PSAB’s plan for the upcoming operating year. He said that the major challenges facing PSAB are:

• approving new PSA Handbook Sections on Government Transfers and Financial Instruments;
• including not-for-profit organizations in the PSA Handbook;
• critically evaluating developments in the IPSASB projects and developing a conceptual framework with a view towards determining its adoption by PSAB upon its completion, expected in early 2013;
• implementing PSAB’s communications strategy; and
• meeting ongoing operational objectives and plans.

PSAB’s Draft 2010-2013 Strategic Plan
Mr. Beauchamp summarized PSAB’s proposed strategies, some of the most significant of which are to:

• broaden the scope of application of the PSA Handbook to include government not-for-profit organizations, school boards and First Nations;
• assess the conceptual framework in conjunction with the efforts of IPSASB, taking into consideration the Joint Working Group reports;
• establish PSAB as the primary source for information and guidance about financial and non-financial reporting in the public sector;
• actively influence the development of a single set of high-quality, internationally accepted public sector accounting standards; and
• increase communications with and seek to increase the involvement of the fiscal policy community in the work of PSAB.

Members suggested a number of amendments for PSAB’s consideration. A final draft of the strategic plan will be exposed for public comment prior to its implementation.

Financial Reporting Strategies for Not-for-Profit Organizations (NFPOs)

Messrs. Martin and Beauchamp said that the AcSB and PSAB have each been developing new strategies for setting standards in the not-for-profit sector.  The new strategies result from the AcSB’s Strategic Plan for 2006-2011, in particular the decision to import IFRSs, which effectively removes the foundation on which the current standards for NFPOs rest. The AcSB’s strategic review caused PSAB to reconsider its current approach of directing NFPOs in the public sector to apply the AcSB’s NFPO standards.  

AcSB
The AcSB has exposed for comment the creation of a new Part III of the CICA Handbook – Accounting (Handbook) that will essentially maintain the status quo in practice.

The Preface to the Handbook already provides NFPOs with the option of adopting IFRSs.

PSAB
Unlike the AcSB, PSAB is not proposing to introduce a new part of the Public Sector Accounting Handbook (PSA Handbook). Rather, PSAB is of the view that it should migrate those government organizations that now use the AcSB’s NFPO standards into the PSA Handbook. As a transitional measure, PSAB decided that the best approach is to bring the “4400 series” as it stands today into the PSA Handbook first, thus easing the transitional issues.  This represents the first phase of the initiative.  To that end, PSAB has exposed for comment:

• the adoption of the existing “4400 series” of Handbook Sections on NFPO issues into the PSA Handbook; and
• amendments to the existing “4400 series” Introduction to require those government organizations using it to apply the public sector standards instead of the corresponding private sector standards.

Update on PSAB’s Function and Processes

Mr. Beauchamp presented members with a refresher on PSAB’s function and processes and the need for public sector accounting standards. He commented, inter alia, as follows:

• Governments are different with sovereign powers and rights.
• Governments have large and diversified operations.
• Acceptance of PSAB’s standards has progressed in leaps and bounds since PSAB’s inception in 1982.
• PSAB has addressed important issues such as the conceptual framework, accrual accounting, consolidation and presentation.
• PSAB has built consensus, considering that no laws require senior governments to comply with GAAP.
• PSAB has developed Statements of Recommended Practice, which are similar to Management’s Discussion & Analysis.

Accounting Education in Canada

Irene M. Wiecek, a Senior Lecturer in Accounting at the University of Toronto and textbook author, provided members with information on the current state of accounting education in Canada. Ms. Wiecek commented on a number of issues in education, including the following:

• Canada’s transition to IFRSs, which is the prime education issue in Canada;
• issues around the multiplicity of GAAPs;
• complexity, including information overload — the need to focus on underlying business education and ancillary topics such as finance, economics and law, and who teaches what;
• the need for more emphasis on the conceptual framework underlying accounting standards;
• critical thinking — the need to teach higher-order skills, while keeping a balance between theory and practice or application; and
• cultural — the need for a broader international focus.

Ms.Wiecek said that opportunities were emerging on the education front, including the following:

• The US is producing good material on IFRS education and Canadian academics should work more closely with their counterparts in that country.
• Emerging technology is assisting the education process.
• Joint work by the IASB and the US Financial Accounting Standards Board (FASB) is contributing to a more robust and consistent body of knowledge.
• The new body of accounting standards for private enterprises presents an opportunity to restructure the body of knowledge to facilitate the ease of use and application of accounting standards.

Ms. Wiecek is in favour of a significant expansion of the current conceptual framework so that the CICA Handbook – Accounting would not have separate sections for individual classes of assets and liabilities. She would design a chart to identify accounting policy choices that would be accompanied by a glossary of terms. This would facilitate future changes to standards and the teaching of accounting at the university level, emphasize critical thinking, enhance consistency, allow for broader thinking and make it easier for practicing accountants to keep up to date.

Members discussed Ms. Wiecek’s presentation and posed a number of questions. The Chair thanked Ms. Wiecek for an interesting and refreshing presentation.

Canada’s Adoption of New International Standards on Auditing

AcSOC member Bob Muter, an Audit and Assurance Group partner and the national leader of the Professional, Technical, Risk and Quality department of PricewaterhouseCoopers LLP, informed members about Canada’s adoption of International Standards on Auditing (ISA), which will be known as Canadian Auditing Standards (CAS), and are effective for audits of financial statements for periods ending on or after December 14, 2010.

Mr. Muter said that ISAs will provide a basis on which auditors worldwide will be able to conduct high-quality, consistent and comparable audits. ISAs have been developed in response to changes in the global business and reporting environment. These standards place more emphasis on risk assessment procedures, the audit responses thereto, and appropriate and timely communications with management and board of director members.

Inter alia, the new audit report expands on managements’ and auditors’ responsibilities, comments on the sufficiency of audit evidence obtained, and makes provision for “emphasis of matter” or “other matters” paragraphs, where appropriate. An “emphasis of matter” paragraph covers items such as going concern uncertainty, the early application of an accounting standard that has a pervasive effect on the financial statements, and the restatement of financial statements.  An “other matters” paragraph deals with issues such as the restriction on the distribution or use of an audit report, the reissuance of financial statements, and prior period financial statements audited by a predecessor auditor or not audited at all.

These new standards have been adopted for audits only. Canadian auditing standards related to areas such as interim reviews, review engagements and prospectuses remain unchanged. The Canadian Institute of Chartered Accountants has developed a comprehensive “Guide to New CASs in Canada”.

Members discussed and commented on Mr. Muter’s presentation. The Chair thanked Mr. Muter for his presentation.

Other Recent Activities in Standard Setting

International Public Sector Accounting Standards Board (IPSASB)
Tim Beauchamp updated members on some of the significant activities of the IPSASB, the status of its technical agenda and other matters of interest. He said that the key strategic themes that will guide IPSASB’s 2010-2012 operational plan are:

• the public sector conceptual framework;
• public sector critical projects, including IFRS-converged and public sector-specific projects;
• communications; and
• promoting adoption and implementation of standards.

In particular he drew members’ attention to the four phases of the IPSASB’s public sector conceptual framework project as follows:

• Phase 1 – the objectives of financial reporting, the scope of financial reporting, the qualitative characteristics of information included in general purpose financial reports, and the reporting entity;
• Phase 2 – the definition and recognition of the “elements” that are reported in financial statements;
• Phase 3 – the measurement basis (or bases) that may validly be adopted for the elements that are recognized in the financial statements;
• Phase 4 – concepts that may underpin the cash basis of financial reporting.
      

Current expectations are that IPSASB will issue a conceptual framework exposure draft in 2011.

IASB activities
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 update on IASB-related activities that will affect the activities of the AcSB, including details of the lengthy IASB technical agenda. The target date for the completion of major projects being developed jointly with the FASB remains June 30, 2011. The International Accounting Standards Committee (IASC) Foundation is searching for a successor to Sir David Tweedie as the Chair of the IASB. Mr. Cherry expects the IASB to decide on the next generation of major IASB projects shortly after the new Chair’s appointment.

He also said that the Trustees of the IASC Foundation have completed part two of the 2008 – 2010 Constitution Review. Some of the more noteworthy changes, which took effect on March 1, 2010, include:

• Renaming the IASC Foundation to the IFRS Foundation;
• renaming the Standards Advisory Council as the IFRS Advisory Council;
• renaming the International Financial Reporting Interpretations Committee as the IFRS Interpretations Committee;
• reducing the length of a possible second term of IASB members from five to three years;
• introducing  a three-yearly public consultation process on the IASB’s agenda;
• the identification of investors as a target audience for financial information in the new Constitution; and
• making provision for an accelerated due process only in the most exceptional circumstances and after approval of 75% of the Trustees.

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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.