This technical bulletin covers the various developments from October to December 2014. 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

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.

To discuss implementation or interpretation issues with respect to these or any other accounting or assurance matters, please contact your local Collins Barrow service provider.

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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, 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 2011-2013 Cycle

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 Effective for Annual Periods Beginning on or After January 1, 2016

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.

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. 

These amendments have not yet been issued by the AcSB in Part I of the Handbook, which is expected for Q1 of 2015.

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.

These amendments have not yet been issued by the AcSB in Part I of the Handbook, expected for Q1 of 2015. 

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 an asset 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 and equipment 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

The final amendments have not yet been issued by the AcSB in Part I of the Handbook, expected for Q1 of 2015.

Pronouncement Effective for Annual Periods Beginning on or After January 1, 2017

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.

This standard has not yet been issued by the AcSB in Part I of the Handbook, which is expected for Q1 of 2015.

Pronouncement Effective for Annual Periods Beginning on or After January 1, 2018

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. 

The final standard has not yet been issued by the AcSB in Part I of the Handbook, which is expected for Q1 of 2015.

Draft Advisory by the Office of the Superintendent of Financial Institution Canada (OSFI)

The OSFI has issued a Draft Advisory, requiring all Federally Regulated Entities (FREs), such as banks, cooperative credit associations, life insurance companies, with October 31 year ends, to early adopt IFRS 9 for their annual period beginning on November 1, 2017.

Recently Issued Documents for Comment

Disclosure Initiative (Proposed amendments to IAS 7)

The proposed amendments, issued by the IASB in December 2014, will require companies to provide a reconciliation between the opening and closing balances of liabilities and assets related to their financing activities, which will allow investors to clearly see movements in a reporting period that result from:

• cash flows from financing activities;
• the effects of mergers and acquisitions (eg. obtaining or losing control of subsidiaries or other businesses); and
• other non-cash changes (such as the effects of foreign exchange and changes in fair values).

The IASB believes that the proposed changes will also enable investors to better understand a company's financial position and liquidity. To improve transparency around a company's ability to use cash and cash equivalents, the IASB will also propose that a company disclose restrictions that affect management's decisions on how to use cash and cash equivalent balances.

Comment period ends on April 17, 2015.

The Disclosure Initiative is a portfolio of projects that are being undertaken with the aim of improving the effectiveness of disclosures in financial statements.  The portfolio of projects includes both implementation and research projects together with ongoing activities that explore how presentation and disclosure principles and requirements in existing standards can be improved.

Classification and Measurement of Share-based Payment Transactions (Proposed amendments to IFRS 2)

The proposed amendments, issued by the IASB in November 2014, address the following:

Effects of vesting conditions on the measurement of a cash-settled share-based payment

• IFRS 2 does not specifically address the impact of vesting and non-vesting conditions on the measurement of the fair value of the liability incurred in a cash-settled share-based payment transaction. The IASB proposes to clarify that accounting for the effects of vesting and non-vesting conditions on the measurement of a cash-settled share-based payment should follow the approach used for measuring equity-settled share-based payments.

Classification of share-based payment transactions with net settlement features

• The IASB proposes an exception that would specify that if the entity settles the share-based payment arrangement net by withholding a specified portion of the equity instruments to meet the statutory tax withholding obligation, then the transaction should be classified as equity-settled in its entirety, if the entire share-based payment would otherwise be classified as equity-settled if it had not included the net settlement feature.

Accounting for a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled

• Currently, IFRS 2 does not specifically address situations where a cash-settled share-based payment changes to an equity-settled share-based payment because of modifications to the terms and conditions of the arrangement or where cash-settled share-based payment is settled and replaced by a new equity-settled share-based payment.  The IASB proposes to amend IFRS 2 so that:

a)     the share-based payment transaction is measured by reference to the modification-date fair value of the equity instruments granted as a result of the modification;

b)     the liability recognized in respect of the original cash-settled share-based payment is derecognised upon the modification, and the equity-settled share-based payment is recognised to the extent that the services have been rendered up to the modification date; and

c)     the difference between the carrying amount of the liability as at the modification date and the amount recognised in equity at the same date is recorded in profit or loss immediately.

Comment period ends on March 25, 2015.

Current Status of Documents Previously Issued for Comment

Major Projects – Exposure Drafts

Other Documents and Exposure Drafts

Recent IASB and Interpretations Committee Discussions

Is a telecommunications tower a building?

Should IAS 40 Investment Property apply to a structure that lacks the physical characteristics of a building, such as a telecommunications tower, if space in the tower is rented out?  This question was raised at a recent IASB meeting to consider whether the scope of IAS 40 should be broadened.  And what about other structures, such as gas storage tanks and advertising billboards?

In our October 2014 issue of the Technical Bulletin, we reported that the IASB staff would be undertaking a research project on this issue.  Based on the outreach and analysis performed, the IASB decided not to pursue this issue further at the current time because there appeared to be limited demand for fair value accounting for these types of structures, and limited diversity in practice.

Questions?

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

CPA Reporting Alerts

CPA Canada issues Reporting Alerts 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. 

The latest Reporting Alerts:

• IFRS 15 Revenue from Contracts with Customers – click here to access.
• IFRS Round Up 2014 - click here to access.

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. 

The Guide to International Financial Reporting Standards in Canada

This guide, published 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

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, 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

Pronouncements Effective for Annual Periods Beginning on or After January 1, 2015

2014 Annual Improvements

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.

Recently Issued Documents for Comment

Redeemable Preferred Shares Issued in a Tax Planning Arrangement

This ED, issued by the AcSB in October 2014, proposes to amend Section 3856 Financial Instruments to require redeemable preferred shares issued in a tax planning arrangement to be presented as liabilities and, therefore, be accounted for consistently with other financial liabilities.  The effect of recognizing the liability would be presented as a separate component of equity, and there would be additional disclosure on this separate component of equity. The proposed effective date of the amendments would be for fiscal years beginning on or after January 1, 2016, provided no significant changes are required to the proposal after comments received are deliberated.

Comment period ends on January 15, 2015.

Post-Implementation Review: Section 3856 Financial Instruments

This Request for Information has been issued by AcSB in October 2014.  The post-implementation review of Section 3856 is a comprehensive review and is the first post-implementation review undertaken by the AcSB. The AcSB intends to assess the following, with respect to Section 3856:

• whether it provides financial statement information that is useful to users of financial statement and how the usefulness of this information could be improved;
• whether there are unexpected costs or challenges in applying the requirements of the standard; and
• whether there are areas of the standard that represent interpretation challenges and as a result, impair the consistent application of the standard.

Comment period ends on February 9, 2015. 

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)

Pronouncements 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 differ 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)

Introduction to Public Sector Accounting Standards

In December 2014, Introduction to Public Sector Accounting Standards was amended to:

• introduce the term public sector entity;
• define a government component;
• amend the definition of a government organization;
• include specific definitions of all types of government organizations and partnerships; and
• provide guidance as to the basis of accounting to be used by government components, organizations and partnerships, where the partnerships have two or more public sector entity partners.

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, 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 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.

Recently Issued Documents for Comment

Post-Implementation Review: Section PS 3410, Government Transfers

This Request for Information was issued by PSAB in November 2014.  Now that stakeholders have had an opportunity to work through the issues related to Section PS 3410, PSAB is looking for comments on how those issues were dealt. Undertaking this post-implementation review will help PSAB assess any implementation challenges encountered by stakeholders, and the nature, extent and cause of any ongoing issues.

Comment period ends on May 15, 2015.

Financial Instruments: Transition

This ED, issued by the PSAB in October 2014, proposes to clarify aspects of the Section’s scope of application, specifically, the receivables and payables that the Section does not apply to, and add transitional provisions and new guidance relating to certain specialized forms of agreements.

Comment period ends on January 15, 2015.

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 by clicking here.

CONTINUE TO PART TWO >