May 3, 2006

The AcSB received reports on recent meetings of the International Accounting Standards Board (IASB) and US Financial Accounting Standards Board (FASB) (see www.iasb.org.uk and www.fasb.org, respectively). In particular, the AcSB noted the expected commencement of work by the IASB and FASB to prepare a Discussion Paper on accounting for leases, including the establishment of a project Advisory Group, and the significant progress being made by the IASB toward expected publication of a Discussion Paper on insurance contracts by the end of 2006.

Strategic Planning

The AcSB finished discussing a draft implementation plan for converging International Financial Reporting Standards into Canadian GAAP. The AcSB expects to approve the plan following drafting changes, and publish it in late June.

Income Trusts

The AcSB discussed updated staff research on financial reporting issues in the income trust sector, views of interested parties, and current initiatives aimed at addressing certain financial reporting issues of the sector. The AcSB continues to believe that concerns about certain practices relating to the determination and reporting of distributable cash and the failure to distinguish adequately between return on capital and return of capital when reporting yields cannot be addressed by accounting standards.

The AcSB reaffirmed that net income and comprehensive income determined in accordance with GAAP are the appropriate measures of financial performance for all enterprises, including income trusts and similar structures. Other financial statement information is also important to a complete understanding of financial performance.

Distributable cash (sometimes known by other terms, such as distributable income) is a non-GAAP measure, reported by income trusts and other similar structures, of the amount that the trustees have concluded can be distributed to unitholders. The determination of distributable cash is a business decision based on judgment and contractual requirements, similar to a decision by the directors of a business corporation about the amount available for distribution as a dividend.

The AcSB does not provide standards for financial information, such as yields, provided outside of financial statements or for any of the numerous non-GAAP measures, such as distributable cash, found in published disclosures. Such disclosures are subject to securities regulation. However, the AcSB is concerned that the failure to distinguish clearly between returns on capital and returns of capital is inaccurate and potentially misleading, particularly when terms such as “yield” are used to describe the amount distributed. The AcSB will continue to monitor the initiatives and financial reporting issues of the income fund sector.

The AcSB was informed of concerns raised by certain life insurance enterprises about the effects on their financial reporting of the interaction of the requirements of Section 3855, Financial Instruments — Recognition and Measurement, with those of Section 4211, Life Insurance Enterprises — Specific Items. AcSB members noted that Section 3855 is substantially aligned with corresponding standards of the IASB and the FASB. After discussion, the AcSB concluded that the issues raised by the enterprises regarding the new financial reporting requirements had been carefully considered in the deliberation of Section 3855. The AcSB decided that changes to the standards or a deferral of the effective date for life insurance enterprises were not warranted.

Rate-Regulated Operations

The AcSB considered the effects on this project of its recently adopted Strategic Plan and decided that the project, as originally planned, should be discontinued. It further decided, subject to exposure of its proposals, that:

the temporary exemption in Section 1100, Generally Accepted Accounting Principles, providing relief to entities subject to rate regulation from the requirement to apply the Section to the recognition and measurement of assets and liabilities arising from rate regulation should be removed;

the explicit guidance for rate-regulated operations provided in Section 1600, Consolidated Financial Statements, Section 3061, Property, Plant and Equipment, Section 3465, Income Taxes, and Section 3475, Disposal of Long-Lived Assets and Discontinued Operations, should be removed; and

Accounting Guideline AcG-19, Disclosures by Entities Subject to Rate Regulation, should be retained as is.

The AcSB directed staff to prepare an exposure draft for public comment based on these preliminary decisions.

The AcSB also observed that relying on Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (FAS 71), as an other source of GAAP in the absence of Handbook guidance addressing the specific circumstances of entities subject to rate regulation is consistent with Section 1100, when the qualifying criteria of FAS 71 are met and it is applied as the FASB intended.

Non-Controlling Interests/Consolidations

The AcSB agreed to develop an exposure draft based on proposed amendments to IAS 27, Consolidated and Separate Financial Statements. This is consistent with the intent indicated in the AcSB’s Exposure Draft on Business Combinations issued last year.

Going Concern

To assist the Auditing and Assurance Standards Board (AASB) with its Going Concern Project, the AcSB agreed to issue an exposure draft proposing to adopt the going concern paragraphs from IAS 1, Presentation of Financial Statements, into Canadian GAAP. The exposure draft is expected to be issued in the third quarter of 2006, in conjunction with the related AASB exposure draft.