With the transition to Accounting Standards for Private
Enterprises (ASPE) and International Financial Reporting Standards
(IFRS) now underway, for private and public entities, we are
noticing common areas of concern. To better prepare your financial
statements, we will address some of these recurring issues and
attempt to answer your questions in this article. This discussion
is general in nature, and the list is not exhaustive; therefore,
please consult your Soberman advisor should you require further
1. Under ASPE, do I have to disclose management compensation
and liabilities for government remittances?
Management compensation is NOT a required disclosure under ASPE,
but must be disclosed under IFRS. Liabilities for government
remittances (other than income taxes) include, for example, federal
and provincial sales taxes, payroll taxes, health taxes, and
workers' safety insurance premiums and must be disclosed in
your financial statements. The reason is that users noted that some
of these liabilities receive super-priority status over other
creditors and, accordingly, the users are interested in such
amounts. This disclosure may be made on the face of the balance
sheet or in a note to the financial statements.
2. How should fees and transaction costs incurred in
connection with debt financing arrangements be accounted
Under both ASPE and IFRS, financing fees and transaction costs
that are directly attributable to a loan or other debt financing
arrangement that will be measured at amortized cost are deducted,
in determining the initial measurement of the liability. On the
balance sheet, this is shown as a single amount. The debt is
not shown gross, and the fees and costs are not shown
as a separate asset.
Fees and transaction costs associated with a line of credit or a
revolving loan are recognized as prepaid interest and amortized
over the term of the arrangement. This treatment is required
because the fee represents the cost of having the ability to draw
and repay the loan throughout its term; it is similar in nature to
an insurance premium. Note that financing fees and transaction
costs related to any financial liability that will be subsequently
measured at fair value are expensed as incurred.
Under ASPE, financing fees and transaction costs may be
amortized on any rational basis over the term of the arrangement,
including the effective interest method, or straight-line. Under
IFRS, only the effective interest method is available. The
amortization period is often determined by the nature of the fee.
For example, a fee that is charged annually will be amortized over
one year, and a fee charged at inception for a term loan will be
amortized over its stated term. A lender's right to demand
payment does not affect the amortization of fees and costs. The
amortization period is always based on the expected life of the
3. When can a financial asset or liability bedesignatedat fair value, and is disclosure of
the fact required?
Under IFRS, an entity may designate a financial asset or
liability at fair value if certain criteria are met. Generally,
it's allowed if doing so will result in information that is
more relevant because it eliminates measurement or recognition
inconsistency, or a group of financial assets, liabilities or both
are managed and evaluated on a fair value basis. For example, if an
investment property is measured at fair value then you can elect to
measure the corresponding mortgage payable at fair value so that
both the asset and liability are measured on the same basis.
Changes in fair value are reflected in the income statement, and
additional disclosures of the designated asset/liability are
required. Keep in mind that there are costs associated with
determining the fair value of these financial instruments.
Under ASPE, an entity may elect to measure any financial asset
or liability at fair value upon initial recognition without any
preconditions. The designation is irrevocable until disposed or
With the transition to ASPE and IFRS underway, not-for-profit
organizations are also gearing up for their transition to NPO
standards, which are effective for fiscal periods beginning on or
after Jan. 1, 2012. Should you require any assistance, please
contact your Soberman advisor
Soo-Ling is a senior manager with the firm's Professional
Practice Group and assists in the monitoring of accounting and
assurance standards, as well as standards regarding professional
conduct and quality control.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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