Technical Bulletin - October 2013

This technical bulletin covers the various developments from July to September 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.

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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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.

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.  

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.  

Pronouncements 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. 

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 Financial Instruments and IFRS 7 Financial Instruments: Disclosures
Mandatory Effective Date and Transition Disclosures (Amendments to IFRS 9 and IFRS 7): amendment defers the effective date of IFRS 9 and provides additional disclosures about its initial adoption.

Recently Issued Documents for Comment

Conceptual Framework
This Discussion Paper was published by the IASB in July 2013, as a first step towards issuing a revised Conceptual Framework.

The Conceptual Framework sets out the concepts that underlie the preparation and presentation of financial statements.  It identifies principles for the IASB to use when it develops and revises its IFRS.  The Framework can also be consulted by the preparers when deciding on how to account for transactions that are not covered by IFRS, although this is a fairly rare occurrence.

Comment period ends on January 14, 2014.  Subsequently, an Exposure Draft will be developed by the IASB for a revised Conceptual Framework, expected to be published in 2014. 

The IASB wants to improve the Conceptual Framework because:

• some important areas are not covered. For example, it provides very little guidance on measurement, presentation and disclosure.
• some parts are out of date and fail to reflect the current thinking of the IASB. Some other parts are unclear and less helpful than they could be.

The IASB is focusing on those areas that have caused problems in practice or that needed updating to reflect concepts developed by the IASB in other projects. These include:

• definitions of assets and liabilities;
• recognition and derecognition of assets and liabilities;
• measurement;
• equity;
• profit or loss and other comprehensive income (OCI); and
• presentation and disclosure.

For a snapshot summary and complete text of the Discussion Paper, refer to:

http://www.ifrs.org/Alerts/ProjectUpdate/Pages/IASB-publishes-a-Discussion-Paper-on-the-Conceptual-Framework.aspx

Current Status of Documents Previously Issued for Comment

Major Projects – Exposure Drafts

Other Exposure Drafts

Other Documents

Post-implementation Review

Post-implementation Reviews are conducted by the IASB normally two years after the global application of a new Standard or a significant amendment to an existing Standard. The purpose of the review is to consider whether the new Standard is functioning as anticipated, has achieved its objectives and improved financial reporting.

IFRS 8
Report and Feedback Statement on Post-implementation Review of IFRS 8 Operating Segments was published by the IASB in July 2013. 

Findings highlights:

The IASB concluded that the benefits of applying IFRS 8 were largely as expected and that overall the standard achieved its objectives and has improved financial reporting.

The use of the management perspective did make communication by management with investors easier and the incremental costs of the implementation of IFRS 8 were low.  Preparers generally think that the standard works well. Auditors, accounting firms, standard setters and regulators generally support the standard, but have made some suggestions to improve its application. Views on IFRS 8 received from investors were mixed.  Some investors have concerns about the information provided when segment information is disclosed in accordance with IFRS 8.

The IASB determined that no revision to the principles on which the standard is based is required, because the evidence provided does not suggest that there are any significant failings in the standard.  However, there are some issues that could be considered for improvement by the IASB. These were identified as implementation guidance and improved disclosures.  These issues will be researched and considered at future IASB meetings.

The full text of the Report and Feedback Statement is available on:

http://www.ifrs.org/Current-Projects/IASB-Projects/PIR/IFRS-8/Documents/PIR-IFRS-8-Operatihg-Segments-July-2013.pdf

IFRS 3
The IASB initiated the post-implementation review of IFRS 3 in July 2013.  The review is aimed at:

• identifying areas in which implementation problems or unexpected costs were encountered,
• reviewing academic and other studies about the application of the standard, and
• analyzing public comments about experience in applying the standard and the experience of investors and others in using the results it produces.

Offering Documents and Dual Dating

The IFRS Interpretation Committee was asked to clarify whether IAS 10 Events after the Reporting Period permits only one date of authorisation for issue when a set of financial statements is reissued in connection with an offering document.

The Interpretations Committee noted that IAS 10 does not address the presentation of re-issued financial statements in an offering document when the originally issued financial statements have not been withdrawn, but the re-issued financial statements are provided either as supplementary information or a re-presentation of the original financial statements in an offering document in accordance with regulatory requirements.

The IFRS Discussion Group (established by the AcSB) noted that these comments are helpful because they provide clarity in that IAS 10 is not applicable and that dual dating is not precluded.  Group members observed that the final agenda decision by the Interpretations Committee not to add the issue to its agenda represented a change in direction from the previously held global view that dual dating was not permitted under IFRSs.

The Interpretation Committee’s agenda decision can be accessed through:

http://www.ifrs.org/Current-Projects/IASB-Projects/IAS-10/Pages/IAS-10.aspx

The IFRS Discussion Group’s discussion can be accessed through:

http://www.frascanada.ca/international-financial-reporting-standards/ifrs-discussion-group/item75366.pdf

Disclosure Initiative

The IASB published a Feedback Statement summarizing the discussion at the Disclosure Forum it hosted in January 2013. 

The public forum was intended to foster dialogue between preparers, auditors, regulators, users of financial statements and the IASB on how to improve the usefulness and clarity of financial disclosures.

Based on the discussions and recommendations made at the forum, the IASB intends to undertake the following projects:

• Short-term projects:
  • Amendments to IAS 1: The IASB will make narrow scope amendments to IAS 1 Presentation of Financial Statements to address perceived impediments to preparers exercising their judgement in presenting their financial reports.
  • Materiality: The IASB will seek to develop educational material on materiality with input from an advisory group.
  • Medium-term projects:
    • Research project on presentation and disclosure in IFRS: The IASB will explore whether IAS 1, IAS 7 Statement of Cash Flows and IAS 8 Accounting Policies, Changes in Estimates and Errors should be replaced with a single Standard on presentation and disclosure, in effect creating a disclosure framework for IFRS. This research project will incorporate a review of the work previously done on the Financial Statement Presentation (FSP) project.
    • Standards-level review of disclosure: The IASB will begin a research project to review disclosure in existing Standards to identify and assess conflicts, duplication and overlaps.

For more information, refer to:

http://www.ifrs.org/Current-Projects/IASB-Projects/Disclosure-Initiative/Pages/Disclosure-Initiative.aspx

Current or Non-Current?

The IASB, at its last meeting in September 2013, discussed the issue referred to the Interpretation Committee with respect to classification of liabilities as current or non-current in accordance with IAS 1. 

IAS 1 requires that liabilities are classified as current when, among other criteria, the entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. Elsewhere, the standard requires that an entity classifies a liability as non-current if it expects, and has the discretion, to refinance or roll over an obligation for at least twelve months after the reporting period. Guidance was requested on how these two separate criteria — not having an unconditional right and having the expectation and discretion — relate to each other.

Additional guidance was proposed in 2010-2012 cycle of annual improvements, however, after considering comments received, IASB removed this item from the annual improvements and decided to reconsider the issue.  At the September 2013 meeting, IASB decided that in order to clarify the standard, a more general approach should be developed, based on an assessment of the arrangement(s) in existence at the reporting date.  This clarification would be introduced through a narrow-focus amendment to IAS1. 

Stay tuned…

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. 

Recently published Alerts:

Alerts are accessible on:

http://www.cica.ca/focus-on-practice-areas/reporting-and-capital-markets/ifrs-reporting-alerts-and-resources/index.aspx

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 Oil and Gas Task Force was created by The Canadian Association of Petroleum Producers (CAPP), the Explorers and Producers Association of Canada (EPAC) and the CPA Canada.

The Mining Task Force was created by the Prospectors and Developers Association of Canada (PDAC) and the CPA Canada.

Some of the recent issues being addressed in these publications include:

• Recognition of corporate social responsibility provisions under IAS 37 (Mining)
• Business combinations: acquisition of control without a majority of the voting rights (Oil and Gas)
• IAS 36 Impairment of Assets – fair value disclosures (Oil and Gas)

For further publications, refer to:

http://www.cica.ca/applying-the-standards/financial-reporting/international-financial-reporting-standards/item71142.aspx (Mining), and

http://www.cica.ca/applying-the-standards/financial-reporting/international-financial-reporting-standards/item71144.aspx (Oil and Gas)

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. 

Recently Issued Documents for Comment

Consolidations
This ED was issued by the AcSB in August 2013.  The AcSB proposes to replace the existing Section 1590 in Part II of the Handbook with a new Section 1591.  The new standard would include guidance requiring the use of judgement in determining when control is obtained through means other than equity interest.  AcG-15, Consolidation of Variable Interest Entities, will be withdrawn.  The proposals are based on the concepts in IFRS 10 Consolidated Financial Statements.  The guidance in Section 1590 on accounting for subsidiaries controlled through equity interests is being retained. Proposed revisions to the guidance on equity interests are limited, to minimize the extent of change private enterprises need to consider.

Comment period ends on November 11, 2013.  The AcSB plans to issue the final standard in the second half of 2014, with the effective date of no earlier than fiscal years beginning on January 1, 2016. 

Joint Arrangements and Investments
This ED was issued by the AcSB in August 2013.  The AcSB proposes to replace existing Section 3055, Interests in Joint Ventures, in Part II of the Handbook with Section 3056, Interest in Joint Arrangements, as well as to amend Section 3051, Investments.  The proposals reduce the accounting policy options for joint arrangements so that the accounting more faithfully represents the nature of the investment. The proposals are consistent with the key concepts in IFRS 11 Joint Arrangements.  The proposed amendments to Section 3051 would apply to all investments accounted for using the equity method, including an interest in the net assets of a jointly controlled enterprise.  A not-for-profit organization would apply amended Section 3051 when it has significant influence over a profit-oriented enterprise. Section 3056 would not apply to not-for-profit organizations.

Comment period ends on November 11, 2013.  The AcSB plans to issue the final standard in the second half of 2014, with the effective date of no earlier than fiscal years beginning on January 1, 2016. 

Current Status of Document Previously Issued for Comment

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

Current Status of Documents Previously Issued for Comment

Public sector Accounting (PSA)

PS 2125 First-time Adoption by Government Organizations
This standard was amended in May 2013 to clarify transitional requirements when government organizations adopt new standards in the same period they transition to public sector accounting standards. 

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. 

Pronouncement 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. 

Recently Issued Documents for Comment

Revenue
This Statement of Principles was issued by the PSAB in August 2013. 

Subject to comments received, the PSAB plans to expose a new section on revenue.  Main features of the Statement of Principles are:

• The focus is on two main areas of revenue: exchange transactions and unilateral (non-exchange) transactions.
• The presence of performance obligations for the public sector entity receiving the revenue is the distinguishing feature of an exchange transaction.
• Performance obligations are enforceable promises to provide goods or services.
• An exchange transaction is evaluated to identify which goods or services are distinct and accounted for as a separate performance obligation.
• Revenue from an exchange transaction is recognized as the public sector entity satisfies a performance obligation.
• Unilateral revenues are recognized when there is the authority and a past event that gives rise to a claim of economic resources.
• When applying PSAB’s general recognition criteria, revenue is not reduced when collectability (associated with credit risk) is uncertain.

Comment period ends on February 3, 2014.

Complete text of the Statement of Principles is available on:

http://www.frascanada.ca/standards-for-public-sector-entities/documents-for-comment/item75759.pdf

Assets, Contingent Assets and Contractual Rights

This Statement of Principles was issued by the PSAB in August 2013. 

Subject to comments received, the PSAB plans to expose three proposed new Sections on assets, contingent assets and contractual rights.  Main features of the Statement of Principles are:

• Additional guidance on the definition of assets is provided.
• Disclosure of assets that are not recognized is required.  
• Contingent assets are defined.
• Disclosure of contingent assets is required when the occurrence of the confirming future event is likely.
• Contractual rights are defined.
• Disclosure of contractual rights is required.

Comment period ends on November 29, 2013.

Complete text of the Statement of Principles is available on:

http://www.frascanada.ca/standards-for-public-sector-entities/documents-for-comment/item75732.pdf

Current Status of Documents Previously Issued for Comment

Continued in Part 2 »