Canada: Technical Bulletin: January 2016 Part 1

Accounting

International Financial Reporting Standards (IFRS)

Pronouncements effective for annual periods beginning on or after January 1, 2016

IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities and IAS 28 Investments in Associates and Joint Ventures

These standards were amended to clarify the application of the requirement for investment entities to measure subsidiaries at fair value instead of consolidating them.

IFRS 11 Joint Arrangements

Amendments add new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business.

IFRS 14 Regulatory Deferral Accounts

This interim standard permits first-time adopters to continue to recognize amounts related to rate regulation in accordance with previous GAAP requirements when they adopt IFRS. However, to enhance comparability with entities that already apply IFRS and do not recognize such amounts, the standard requires that the effect of rate regulation must be presented separately from other items. An entity that already presents IFRS financial statements is not eligible to apply the Standard. Earlier application is permitted.

IAS 1 Presentation of Financial Statements

Amendments are designed to further encourage companies to apply professional judgement in determining what information to disclose in their financial statements. For example, the amendments make clear that materiality applies to the whole of financial statements and that the inclusion of immaterial information can inhibit the usefulness of financial disclosures. Furthermore, the amendments clarify that companies should use professional judgement in determining where and in what order information is presented in the financial disclosures.

IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets

Amendments clarify that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of anasset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The IASB also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption, however, can be rebutted in certain limited circumstances.

IAS 16 Property, Plant and Equipment and IAS 41 Agriculture

These standards were amended to require bearer plants to be accounted for in the same way as property, plant andequipment in IAS 16 because their operation is similar to that of manufacturing. Bearer plants are used solely to grow produce over several periods. At the end of their productive lives they are usually scrapped. Once a bearer plant is mature, apart from bearing produce, its biological transformation is no longer significant in generating future economic benefits. The only significant future economic benefits it generates come from the agricultural produce that it creates. The amendments include bearer plants within the scope of IAS 16 instead of IAS 41. The produce growing on bearer plants will remain within the scope of IAS 41.

IAS 27 Separate Financial Statements

The standard was amended to allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements.

Annual Improvements 2012-2014 Cycle

• IFRS 5 Non-current Assets Held for Sale and Discontinued Operations – amendment stating that the same classification, presentation and measurement requirements continue to apply if there is a reclassification from being held for distribution to being held for sale or vice versa.
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• IFRS 7 Financial Instruments: Disclosures – clarification regarding servicing contracts and assessment of 'continuing involvement'.  Clarification on applicability of disclosure requirements in amendments to IFRS7 regarding Offsetting Financial Assets.
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• IAS 19 Employee Benefits – clarification regarding the currency of bonds used in the estimate of the discount rate for post-employment benefit obligations.
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• IAS 34 Interim Financial Reporting – additional requirement to cross-reference the information disclosed 'elsewhere in the interim financial report'.

Pronouncements effective for annual periods beginning on or after  January 1, 2018

IFRS 15 Revenue from Contracts with Customers

The core principle of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard contains enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improves guidance for multiple-element arrangements. IFRS 15 supersedes the following standards: IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers, and SIC-31 Revenue – Barter Transactions Involving Advertising Services.

IFRS 9 Financial Instruments

This new standard replaces the requirements in IAS 39 Financial Instruments: Recognition and Measurement for classification and measurement of financial assets. IFRS 9 is built on a logical, single classification and measurement approach for financial assets that reflects the business model in which they are managed and their cash flow characteristics. IFRS 9 also incorporates requirements for financial liabilities, most of which were carried forward unchanged from IAS 39. Certain changes were made to the fair value option for financial liabilities to address the issue of own credit risk. IFRS 9 removes the volatility in profit or loss that was caused by changes in the credit risk of liabilities elected to be measured at fair value. Requirements related to hedge accounting, representing a new hedge accounting model, have been added to IFRS 9. The new model represents a substantial overhaul of hedge accounting which will allow entities to better reflect their risk management activities in the financial statements. The most significant improvements apply to those that hedge non-financial risk, and so these improvements are expected to be of particular interest to non-financial institutions. In addition, a single, forward-looking expected loss impairment model is introduced, which will require more timely recognition of expected credit losses.

Pronouncement with effective date to be determined

IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures

These standards were amended to eliminate an inconsistency between IFRS 10 and IAS 28 in dealing with the sale or contribution of assets between an investor and its associate or joint venture. Subsequent to the amendments, a full gain or loss is recognized when a transaction involves a business (whether it is housed in a subsidiary or not), and a partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary.

These amendments are available for application; however, the previous mandatory effective date of January 1, 2016 has been removed. The reason for postponing the effective date is that the IASB is planning a broader review that may result in the simplification of accounting for such transactions and of other aspects of accounting for associates and joint ventures.

Recently issued documents for comment

Uncertainty over Income Tax Treatments

Draft IFRIC Interpretation, published by the IASB in October 2015 and by the AcSB in November 2015, gives guidance on how uncertainty over income tax treatments should affect the accounting for income taxes. This draft Interpretation addresses:

• whether an entity should consider uncertain tax treatments collectively;
• the assumptions an entity should make about the examination of tax treatments by taxation authorities;
• how an entity should determine taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; and
• how an entity should consider changes in facts and circumstances.

Comment period ends on January 19, 2016.

Foreign Currency Transactions and Advance Consideration 

IAS 21 sets out requirements about which exchange rate to use when recording a foreign currency transaction on initial recognition in an entity's functional currency. However, the Interpretations Committee observed some diversity in practice in circumstances in which consideration was received or paid in advance of the recognition of the related asset, expense or income.

This draft IFRIC Interpretation, published by the IASB in October 2015 and by the AcSB in November 2015, addresses which exchange rate should be used to report foreign currency transactions when payment is made or received in advance. 

Comment period ends on January 19, 2016.

Application of Materiality to Financial Statements - Draft IFRS Practice Statement

This draft guidance has been developed in response to concerns that management is often uncertain about how to apply the concept of materiality and therefore uses the disclosure requirements in the Standards as a checklist. This can result in excessive disclosure of immaterial information that can obscure useful information and also make financial statements cluttered and less understandable. It can also lead to useful information being left out.

Whether information is material or not depends on a range of factors and entity-specific circumstances, and is a matter of judgement. Determining what information is material also requires an understanding of the users of the financial statements and the decisions that they make based on those financial statements.

The objective of this publication is to assist management in applying the concept of materiality to general purpose financial statements prepared in accordance with IFRS.

Comment period ends on February 26, 2016.

Annual Improvements 2014-2016 Cycle

ED issued by the IASB in November 2015, proposes the following amendments:

• IFRS 1 First-time Adoption of International Financial Reporting Standards – deletion of short-term exemptions for first-time adopters, as they have now served their intended purpose.
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• IFRS 12 Disclosure of Interests in Other Entities – clarification of the scope of the disclosure requirements.
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• IAS 28 Investments in Associates and Joint Ventures – measuring investees at fair value through profit or loss on an investment-by-investment basis. When an investment in an associate or a joint venture is held by an entity that is a venture capital organization, or other qualifying entity, it may elect to measure that investment at fair value through profit or loss. The proposed amendment will clarify that the election is available for each investment in an associate or joint venture on an investment-by-investment basis, upon initial recognition.

Comment period ends on February 17, 2016.

Transfers of Investment Property (Proposed amendment to IAS 40)

Proposed amendment to IAS 40 Investment Property, issued by the IASB in November 2015 and by the AcSB in December 2015, clarifies the guidance on transfers to, or from, investment properties. Proposed amendment states that a transfer of property to, or from, investment property can only be done where there is a change in use supported by evidence. In addition, the list of examples of evidence that a change in use has occurred is recharacterized as non-exhaustive.

Comment period ends on March 18, 2016.

Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (Proposed amendments to IFRS 4)

This ED, issued by the IASB in December 2015, proposes amendments designed to address the concerns of some interested parties about the different effective dates of IFRS 9 and the forthcoming new Insurance Contracts standard. In order to balance meeting the needs of those stakeholders with the needs of users of financial statements, the IASB has proposed the following amendments to IFRS 4. These proposals supplement existing options within IFRS 4 that could be used to address any accounting volatility that may arise:

• The overlay approach: an option for a company that issues insurance contracts to remove from profit or loss the incremental volatility in profit or loss caused by changes in the measurement of financial assets upon application of IFRS 9. This approach would be in place until the new Insurance Contracts Standard comes into force; and
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• The deferral approach: an optional temporary exemption from applying IFRS 9 that would be available to companies whose predominant activity is to issue insurance contracts. Such a deferral would be available until the new Insurance Contracts Standard comes into effect.

Comment period ends on February 8, 2016.

Current status of documents previously issued for comment

Questions?

Here are some resources that will assist in the application of the standards.

Viewpoints

This series discusses views of the Oil and Gas Task Force and the Mining Task Force on IFRS application issues relevant to junior oil and gas companies and junior mining companies, respectively.

CPA Canada Reporting Alerts for IFRS

CPA Canada issues Reporting Alerts aimed at assisting companies in determining the impact of new and revised standards on their business. Reporting Alerts provide a summary of the standard, highlight significant items, summarize key changes and address common questions. The following alert has recently been issued: IFRS Year-End Round-Up – 2015

IFRS Discussion Group Meeting Topics

Established by the AcSB, the IFRS Discussion Group implements and maintains a regular public forum to discuss issues that arise in Canada when applying IFRS.  The Financial Reporting & Assurance Standards Canada website allows for topics and issues discussed by the IFRS Discussion Group to be searched and sorted. Find out whether the Group has discussed an issue that you face in applying IFRSs and get the  meeting report extract and audio webcast for each issue you find. 

Accounting Standards for Private Enterprises (ASPE)

Pronouncements effective for annual periods beginning on or after January 1, 2016

Subsidiaries, Section 1591

This new section, which replaces Section 1590, Subsidiaries and AcG-15, Consolidation of Variable Interest Entities, requires the use of judgment to determine when control is obtained through means other than equity interests. The guidance on accounting for subsidiaries controlled through equity interests has been brought forward from the previous standard unchanged.

Investments, Section 3051

This section has been amended to clarify that investments subject to significant influence and certain other non-financial instrument investments are included in the scope of the standard, whereas other investments (such as subsidiaries and interests in joint arrangements) are excluded.

Interests in Joint Arrangements, Section 3056

This new standard, which replaces Section 3055,
Interest in Joint Ventures, specifies the accounting by an investor for an interest in a joint arrangement according to whether it is an interest in jointly controlled operations or jointly controlled assets, or a jointly controlled enterprise. The option to account for all types of joint arrangements using the proportionate consolidation method, cost method or equity method is eliminated.

2015 Annual Improvements

Several standards have been amended as follows:

• Amendment to Section 1582 – clarification that disclosure of the amounts recognized as of the acquisition date for each major class of assets acquired and liabilities assumed, which is required when the subsidiary is consolidated, should also be required when a business combination is achieved through the acquisition of an asset or group of assets.
• Amendments to Sections 3051 and 3065 – clarification that disclosure of the amount of any impairment loss or reversal of a previously recognized impairment loss is required.
• Amendment to Section 3061 – wording modification to align the text with how the requirements are being applied in practice.
• Amendment to Section 3462 – the amendments clarify when an enterprise can use a funding valuation and add a decision tree for determining eligibility for using that funding valuation.

Recent publication

Agriculture

This Discussion Paper was published by the AcSB in December 2015. As a result of a lack of specific authoritative guidance, there is diversity in accounting by private enterprises for biological assets (i.e., living animals or plants) and agricultural produce (i.e., the harvested product of the enterprise's biological assets). This Discussion Paper aims to obtain broad input from stakeholders, in particular, those involved in the agricultural sector. This input will assist the AcSB in deciding whether to develop authoritative guidance, either by developing a new standard or amending existing standards, on accounting for biological assets and agricultural produce by private enterprises and, if so, the issues to be addressed and how they could be addressed.

Comment period ends on May 19, 2016.

Current status of documents previously issued for comment

Questions?

Here are some resources that will assist in the application of the standards.

CPA Canada Reporting Alerts for ASPE

CPA Canada issues Reporting Alerts aimed at assisting companies in determining the impact of new and revised standards on their business. Reporting Alerts provide a summary of the standard, highlight significant items, summarize key changes and address common questions.

Private Enterprise Advisory Committee

Established by the AcSB in 2010, the Committee assists the AcSB in maintaining and improving accounting standards for private enterprises and advises on the need for non-authoritative guidance about the standards. At the request of the AcSB, the Committee may also undertake research into the financial reporting needs of private enterprises.

Click  here to access recent meeting notes.

Accounting Standards for Not-for-Profit Organizations (ASNPO)

In the works...

What's next for accounting standards for private sector not-for-profit organizations?

"Improvements to Not-for-Profit Standards" Statement of Principles was issued by the AcSB and PSAB in April 2013, presenting key principles that each Board expects to include in future exposure drafts, aimed at revising ASNPO and the PSA Handbook in order to improve the existing standards for financial reporting by not-for-profit organizations (NFPOs). Since then, the AcSB has considered the feedback and reaffirmed its commitment to continue:

• to maintain a separate set of standards for private sector not-for-profit organizations that addresses transactions and circumstances unique to such organizations;
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• with the improvements process to review the standards in Part III of the Handbook and update the standards as necessary; and
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• to work with PSAB, with the objective of achieving consistency between private and public sector standards for not-for-profit organizations when appropriate.

In May 2015, the AcSB approved the creation of a standing not-for-profit advisory committee to assist the AcSB with its standards improvements initiatives, as well as provide input on other standard-setting matters of interest to private sector not-for-profit organizations.

The AcSB also approved the several projects to address all of the principles relating to private sector standards that were proposed in the Statement of Principles, with the first ED expected to be issued in 2016.

Public Sector Accounting (PSA)

Pronouncements effective for fiscal years beginning on or after April 1, 2016 (except for government organizations that applied CICA Handbook – Accounting prior to adoption of the CICA Public Sector Accounting Handbook, for which these pronouncements apply to fiscal years beginning on or after April 1, 2012)

Financial Statement Presentation, Section PS 1201

This section revises and replaces Financial Statement Presentation, Section PS 1200. The new standard introduces a new statement for reporting of remeasurement gains and losses.

Foreign Currency Translation, Section PS 2601

This section revises and replaces Foreign Currency Translations, Section PS 2600. Definition of currency risk is aligned with the new Financial Instruments Section, PS 3450. The new standard also removes certain previously available exceptions to measurement of items on initial recognition. The deferral and amortization of foreign exchange gains and losses relating to long-term foreign currency denominated monetary items, hedge accounting and presentation of items as synthetic instruments are removed. In addition, the new statement of remeasurement gains and losses introduced in Section PS 1201 is used to reflect exchange gains and losses until the period of settlement, rather than reflecting them in the statement of operations.

Portfolio Investments, Section PS 3041

This section replaces Section PS 3040, Portfolio Investments. In addition, Section PS 3030 is withdrawn as the distinction between temporary and portfolio investments is removed with the issue of Section PS 3041. The scope in the new standard is expanded to include interests in pooled investment funds, while requirement for application of cost method is removed. The new standard is also aligned with the new Financial Instrument Section, PS 3450.

Financial Instruments, Section PS 3450

This new section establishes standards for recognizing and measuring financial assets, financial liabilities and non-financial derivatives. The standard introduces two measurement categories: fair value and cost or amortized cost. The statement of remeasurement gains and losses will reflect gains and losses arising on fair value remeasurement until an item is derecognized. The standard also introduces new disclosure requirements of items reported and the nature and extent of risks arising from financial instruments.

Pronouncements effective for fiscal years beginning on or after April 1, 2017

Related Party Disclosures, Section PS 2200

This new section defines a related party and establishes disclosures required for related party transactions. Disclosure of information about related party transactions and the relationship underlying them is required when they have occurred at a value different from that which would have been arrived at if the parties were unrelated, and they have, or could have, a material financial effect on the financial statements.

Inter-entity Transactions, Section PS 3420

This new section establishes standards on how to account for and report transactions between public sector entities that comprise a government's reporting entity from both a provider and recipient perspective.

Assets, Section PS 3210

This new section provides guidance for applying the definition of assets set out in Section PS 1000, and establishes general disclosure standards for assets. Disclosure of information about the major categories of assets that are not recognized is required. When an asset is not recognized because a reasonable estimate of the amount involved cannot be made, the reason(s) for this should be disclosed.

Contingent assets, Section PS 3320

This new Section defines and establishes disclosure standards on contingent assets. Disclosure of information about contingent assets is required when the occurrence of the confirming future event is likely.

Contractual rights, Section PS 3380

This new section defines and establishes disclosure standards on contractual rights. Disclosure of information about contractual rights is required, including description of their nature and extent and the timing.

Pronouncement effective for fiscal years beginning on or after April 1, 2018

Restructuring Transactions, Section PS 3430

This new section defines a restructuring transaction and establishes standards for recognizing and measuring assets and liabilities transferred in a restructuring transaction. The main features of the new section are:

• A restructuring transaction is a transfer of an integrated set of assets and/or liabilities, together with related program or operating responsibilities without consideration based primarily on the fair value of the individual assets and individual liabilities transferred.
• The net effect of a restructuring transaction should be recognized as revenue or as an expense by entities involved.
• A recipient should recognize individual assets and liabilities received in a restructuring transaction at their carrying amount with applicable adjustments at the restructuring date.
• A transferor and a recipient should not restate their financial position or results of operations.
• A transferor and a recipient should disclose sufficient information to enable users to assess the nature and financial effects of a restructuring transaction on their financial position and operations.

Current status of documents previously issued for comment

PSA Discussion Group Meeting Topics

Established by the PSAB, the PSA Discussion Group provides a public forum for discussion of issues arising on the application of the PSA Handbook. Summaries of topics and discussions from past meetings are available on the Financial Reporting & Assurance Standards Canada website.

Click here for Part 2  of this Technical Bulletin. 

Information is current to January 22, 2016. The information contained in this release is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.

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.