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"I'm going to live through this even if it kills
me."– Klinger, M*A*S*H
One of the downsides for Canadian companies that moved to IFRS
in 2011 is that it came in the middle of the IASB's and
FASB's joint program to improve and converge IFRS and US GAAP.
The consequence is that they'll be forced to change the IFRS
they just adopted to give effect to any GAAP changes arising from
the program that weren't already in place at transition. The
old double switcheroo! Ain't life grand.
Here are the main changes, all effective for 2013:
Consolidation – redefines when one entity controls
another and so must take up the controlled entity's assets,
liabilities, revenues and expenses into its financial statements.
This one affects not only special purpose entities
("SPEs") and other structured arrangements, but operating
companies too. A key feature of the new requirements is the concept
of "de facto" control, under which holding of a large
block of voting shares might be sufficient to trigger consolidation
even if you don't have a majority of the votes. Everything
depends on how widely dispersed the other votes are.
Joint arrangements – eliminates proportionate
consolidation for "joint ventures" but permits it for
"joint operations". Which is which? Aye, there's the
rub.
Disclosures of interests in other entities – requires
more discussion of nature and risks. Please.
Employer accounting for defined benefit pension and other
employee plans – mandates immediate recognition of
changes in the value of plan assets and liabilities in other
comprehensive income, limits the rate of return on plan assets used
in calculating pension expense to a high quality bond rate, even if
the company expects to (and actually does) earn a higher one. Oh,
there's more disclosure too.
Fair value measurement – reconciles diverse and
sometimes conflicting guidance previously in IFRS about what fair
value is and how to measure it. Some measurements may change as a
consequence; e.g. some derivatives, liabilities, etc. Did we
mention that there are more disclosures?
Mining stripping costs – introduces rules for
accounting for overburden by mining companies. These may not be a
big issue given previous practice in Canada, but you never know
till you look, do you? Dig deep.
Other 2013 changes include presentation of OCI, disclosures
about offsetting assets and liabilities, a few amendments to IFRS
transition rules (relax, they apply only to new transitions), and
some modifications to existing standards.
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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