This technical bulletin covers the various developments from October to December 2013.

Acknowledgement: The content of the Technical Bulletin has been summarized or reproduced from the CPA Canada, CICA, IASB, IAASB, IFRIC, AcSB, PSAB, AASB press releases, updates, publications, meeting summaries and other publications referenced within the bulletin.

Summary of acronyms used in this bulletin is included at the end.

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Collins Barrow regularly publishes Technical Bulletin for the general interest of its clients and friends to highlight the continually changing accounting and assurance standards, and the interpretations thereof, in Canada. Since this is not intended to be a complete reproduction or summarization of the standard or document reviewed, we recommend that you refer to the original document(s) discussed in this Bulletin and/or discuss the matter with your professional advisor before acting upon any of the matters discussed herein.

1. ACCOUNTING

International Financial Reporting Standards (IFRS)

Pronouncements Effective for Annual Periods Beginning on or After January 1, 2013

IFRS 1 First-time Adoption of International Financial Reporting Standards
Amendment provides relief for first-time adopters from the retrospective application of IFRSs when accounting for loans received from governments at a below-market rate of interest.

IFRS 7 Financial Instruments: Disclosures
Amendment provides additional information about offsetting of financial assets and financial liabilities.

IFRS 10 - Consolidated Financial Statements
This new standard establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. A new definition of ‘control’ has been established. IFRS 10 replaces the consolidation requirements in SIC-12 Consolidation—Special Purpose Entities and IAS 27 Consolidated and Separate Financial Statements.

IFRS 11 - Joint Arrangements
This new standard establishes the principles for joint arrangements by focusing on the rights and obligations of the arrangement, rather than its legal form. IFRS 11 requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method whereas for a joint operation the venture will be accounted for using the proportionate consolidation method.   IFRS 11 replaces IAS 31 Interest in Joint Ventures and SIC-13 Jointly Controlled Entities – Non-Monetary Contributions by Venturers.

IFRS 12 - Disclosure of Interests in Other Entities
This new standard lists the disclosure requirements for all forms of interests in other entities, including subsidiaries, joint arrangements, associates and unconsolidated structured entities.   

Transition Guidance - Amendments to IFRS 10, IFRS 11 and IFRS 12
Amendments clarify the transition guidance in IFRS 10 Consolidated Financial Statements and also provide additional transition relief in IFRS 10, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities, limiting the requirement to provide adjusted comparative information to only the preceding comparative period. Furthermore, for disclosures related to unconsolidated structured entities, the amendments will remove the requirement to present comparative information for periods before IFRS 12 is first applied.

IFRS 13 Fair Value Measurement
This new standard defines fair value, sets out in a single standard a framework for measuring fair value and requires disclosures about fair value measurements. IFRS 13 applies when other IFRSs require or permit fair value measurements.

IAS 19 Employee Benefits
Amended standard eliminates options to defer the recognition of gains and losses in defined benefit plans, requires remeasurement of a defined benefit plan’s assets and liabilities to be presented in other comprehensive income and increases the disclosure.

IAS 27 Separate Financial Statements
Amended standard incorporates requirements regarding separate financial statements, previously in IAS 28 Investments in Associates and IAS 31 Interests in Joint Ventures.  In addition, requirements relating to consolidated financial statements have been removed and included in the new standard IFRS 10 Consolidated Financial Statements.

IAS 28 Investments in Associates and Joint Ventures
Amended standard incorporates accounting for joint ventures, as the equity method is now applicable to both joint ventures and associates.

Annual Improvements 2009-2011 Cycle
Annual improvements process is comprised of minor revisions, clarifications or corrections to the standards, by compiling amendments to a number of standards into one exposure draft (ED) rather than issuing a separate ED for each issue. Issuance of new standards is not included in the annual improvement process.

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine
This new interpretation applies to all types of natural resources that are extracted using the surface mining activity process. IFRIC 20 permits capitalization of stripping costs if all of the three criteria are met: probability of economic benefit, identifiability of ore body and measurability of stripping costs. IFRIC 20 provides a more detailed cost allocation guidance based on a relevant production measure that allows allocation between inventory produced and the stripping activity asset. IFRIC 20 may represent a change in accounting practice for some Canadian mining entities.

Pronouncements Effective for Annual Periods Beginning on or After January 1, 2014

Investment Companies and Segregated Accounts of Life Insurance Enterprises
Mandatory date for first-time adoption of IFRS by investment companies and segregated accounts of life insurance enterprises - fiscal years beginning on or after January 1, 2014.

Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)
Amendment to IFRS 10 introduces an exception for investment entities to the principle that all subsidiaries are consolidated.  Amendments define investment entities and require them to measure subsidiaries at fair value through profit or loss.  In addition, IFRS 12 has been amended to include disclosure requirements for investment entities.  IAS 27 has been amended to require investment entities to measure investments in subsidiaries at fair value through profit or loss when separate financial statements are presented. 

IAS 32 Financial Instruments: Presentation
Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32): amendment addresses inconsistencies identified in applying some of the offsetting criteria.

IAS 36 Impairment of Assets
The standard was amended to modify certain disclosure requirements about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal.

IAS 39 Financial Instruments
The standard was amended to allow hedge accounting to continue in a situation where a derivative, which has been designated as a hedging instrument, is novated to effect clearing with a central counterparty as a result of laws or regulation, if specific conditions are met (in this context, a novation indicates that parties to a contract agree to replace their original counterparty with a new one). Similar relief will be included in IFRS 9 Financial Instruments.

IFRIC 21 Levies
This new interpretation provides guidance on the accounting for levies imposed by governments.  The Interpretation clarifies the obligating event that gives rise to a liability to pay a levy.

Pronouncements Effective for Annual Periods Beginning on or After July 1, 2014

IAS 19 Employee Benefits
Amendment to IAS 19 simplifies the accounting for contributions to defined benefit plans that are independent of the number of years of employee service.
 
Annual Improvements 2010-2012 Cycle
Annual improvements process is comprised of minor revisions, clarifications or corrections to the standards, by compiling amendments to a number of standards into one exposure draft (ED) rather than issuing a separate ED for each issue. Issuance of new standards is not included in the annual improvement process.

Annual Improvements 2011-2013 Cycle
Annual improvements process is comprised of minor revisions, clarifications or corrections to the standards, by compiling amendments to a number of standards into one exposure draft (ED) rather than issuing a separate ED for each issue. Issuance of new standards is not included in the annual improvement process.

Pronouncement Effective for Annual Periods Beginning on or After January 1, 2015
Entities with rate-regulated activities
Mandatory date for first-time adoption of IFRS by entities with rate-regulated activities - fiscal years beginning on or after January 1, 2015.

Pronouncement with Effective Date to Be Determined
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 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. 

As well, 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.

As a result of these changes, users of the financial statements will be provided with better information about risk management and about the effect of hedge accounting on the financial statements.

IFRS 9 is available for application, however, previous mandatory effective date of January 1, 2015 has been removed as the IASB decided that this date would not allow sufficient time for entities to apply the new standard because the impairment phase of the IFRS 9 has not yet been completed.  The IASB will decide upon a new date when the entire IFRS 9 project is closer to completion. 

Recently Issued Documents for Comment
Annual Improvements 2012-2014 Cycle
Annual improvements process is comprised of minor revisions, clarifications or corrections to the standards, by compiling amendments to a number of standards into one exposure draft (ED) rather than issuing a separate ED for each issue. Issuance of new standards is not included in the annual improvement process.
This ED was issued by the IASB in December 2013 and includes the following amendments:

Comment period ends on March 13, 2014.  The amendments are expected to be effective for annual periods on or after January 1, 2016.

Equity Method in Separate Financial Statements (Proposed amendments to IAS 27 Separate Financial Statements)
This ED was issued by the IASB in December 2013.  Currently, IAS 27 allows the entity to account for investments in subsidiaries, joint ventures and associates either at cost or in accordance with IFRS 9 in the entity’s separate financial statements.  The proposed amendments to IAS 27 would allow entities to use the equity method to account for these investments in their separate (parent only) financial statements.  Comment period ends on February 3, 2014.

Current Status of Documents Previously Issued for Comment
Major Projects – Exposure Drafts

Other Exposure Drafts

Other Documents

Change in Policy or Change in Estimate? 
The IFRS Interpretations Committee received a request to clarify the distinction between a change in an accounting policy and a change in an accounting estimate.

The Interpretations Committee noted that the principal guidance on distinguishing a change in accounting policy from a change in accounting estimate is set out in IAS 8.  Other IFRSs provide additional guidance that can be helpful in making the distinction.

The Interpretations Committee acknowledged that distinguishing between a change in accounting policy and a change in accounting estimate can require judgement and may be challenging. However, it observed that IAS 8 states that when it is difficult to distinguish a change in an accounting policy from a change in an accounting estimate, the change is treated as a change in an accounting estimate.
The Interpretations Committee noted that a change in accounting estimate may encompass a change in method used to develop an estimate, as well as a change in inputs to the method, both of which result in a change in the amount of the estimate. Regardless of the type of change, the Interpretations Committee thinks that a change in a method of estimation should only be made if that change produces reliable and more relevant information.

The Interpretations Committee observed that it would be helpful if more clarity were given to help entities make the distinction between a change in accounting policy and a change in accounting estimate, including clarity on how to deal with changes in the method of estimation. However, it considered that any amendment to the Standards would be too broad for it to address within the confines of existing IFRSs. Instead, the Interpretations Committee considered that it should bring the issue to the IASB’s attention for future consideration in the Disclosure project and/or the Conceptual Framework project.

Investment Entities: accounting for a subsidiary that is both and investment entity and provides investment related services
The Investment Entity amendments introduced an exception to the consolidation requirement that an investment entity shall measure its investments in subsidiaries at fair value. There is an exception to the exception: if a subsidiary provides investment-related services, the investment entity shall not measure this subsidiary at fair value and the investment entity shall consolidate the subsidiary instead.

IFRS Interpretations Committee received a request to clarify the accounting in cases where an investment entity subsidiary meets the definition of an investment entity (which has investees measured at fair value) and, additionally, provides investment-related services.  In such cases it is unclear whether the investment entity parent should measure that subsidiary at fair value or consolidate it.

The Interpretations Committee noted that an investment entity could provide investment-related services through various structures. The Interpretations Committee was concerned that the accounting for investment-related services should reflect the substance of the arrangements and should not be unduly affected by the structure of the group. The Interpretations Committee observed that IFRS 10 was clear that:

• an investment entity parent should account for a subsidiary that is also an investment entity at fair value if that subsidiary does not provide investment-related services; and
• an investment entity parent should consolidate on a line-by-line basis a subsidiary that is not an investment entity, but that provides investment-related services, because such services are an extension of the operations of the investment entity parent.

However, the Interpretations Committee noted that it is not clear how to account for a subsidiary that is both an investment entity subsidiary and provides investment-related services. Accordingly, the Interpretations Committee decided to add this issue to its agenda with a view of proposing an amendment.

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

CICA Reporting Alerts
CICA issues Reporting Alerts which are aimed at assisting smaller public 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. 
Click here to access the Alerts.

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. 
Click to access the mining alerts and oil and gas alerts.

The Guide to International Financial Reporting Standards in Canada
This guide, issued by CPA Canada, examines and explains the application of IFRSs from a Canadian perspective.
Each publication includes an overview of key requirements and a detailed analysis of relevant issues, including practical application insights, as well as a discussion of accounting policy choices, significant judgments and estimates.
Additional application insights include:

• extracts from financial statements of Canadian entities;
• analysis of IFRS Discussion Group reports;
• items discussed but never incorporated into the IASB agenda;
• industry application viewpoints via the Viewpoint Series;
• illustrative examples; and
• statistics on particular IFRS application

The following publications have been made available: IAS 36 Impairment of Assets and IAS 16 Property, Plant and Equipment. Click here to access the publications.

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. Click here to access the database.

Accounting Standards for Private Enterprises (ASPE)

Pronouncements effective for annual periods beginning on or after January 1, 2013
2012 Annual Improvements
Annual improvements process is comprised of minor revisions, clarifications or corrections to the standards, by compiling amendments to a number of standards into one exposure draft (ED) rather than issuing a separate ED for each issue. Issuance of new standards is not included in the annual improvement process.

Pronouncements effective for annual periods beginning on or after January 1, 2014
Employee Future Benefits, Section 3462
The new standard replaces Section 3461 Employee Future Benefits.  The new standard requires immediate recognition of all gains and losses arising from defined benefit plans as they are incurred, thus eliminating the deferral and amortization accounting.  The new standard also requires for the plan obligations and plan assets to be measured at the balance sheet date.  In addition, past service costs are now recognized in the current period for defined contribution plans.     

Disposal of Long-lived Assets and Discontinued Operations, Section 3475
This standard was amended to modify the definition of a discontinued operation by creating a higher threshold for a disposal to be classified as a discontinued operation, thus resulting in fewer disposals qualifying as discontinued operations in practice.

2013 Annual Improvements
Annual improvements process is comprised of minor revisions, clarifications or corrections to the standards, by compiling amendments to a number of standards into one exposure draft (ED) rather than issuing a separate ED for each issue. Issuance of new standards is not included in the annual improvement process.

Current Status of Documents Previously Issued for Comment

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

CPA Canada Reporting Alerts for ASPE
CPA Canada issues Reporting Alerts which are 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. 
Recently published Alerts:

Alerts are accessible by clicking here.

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)

Pronouncement effective for annual periods beginning on or after January 1, 2014
Reporting Employee Future Benefits by Not-for-Profit Organizations, Section 3463
This new Section provides guidance for defined benefit plans on the recognition and presentation of remeasurements and other items that differs from the guidance in Employee Future Benefits, Section 3462 in Part II of the Handbook. The requirements in Section 3462 apply in all other respects. 
The main features of Section 3463 are as follows:

• Remeasurements and other items are: recognized directly in net assets in the statement of financial position rather than in the statement of operations, and presented as a separately identified line item in the statement of changes in net assets.
• Remeasurements and other items are not reclassified to the state­ment of operations in a subsequent period.

Current Status of Document Previously Issued for Comment

Public Sector Accounting (PSA)

Pronouncement effective for fiscal years beginning on or after March 1, 2013
PS 3450 Financial Instruments
Amendment to the standard clarifies requirements relating to externally restricted assets that are financial instruments. 

Pronouncement effective for fiscal years beginning on or after April 1, 2014
PS 3260 Liability for Contaminated Sites
The new standard establishes recognition, measurement and disclosure standards for liabilities relating to contaminated sites. 

Pronouncements effective for fiscal years beginning on or after April 1, 2015
(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 and 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.

Current Status of Documents Previously Issued for Comment

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