Accounting Standards Board
Decision Summary
October 4, 2006

International Activities
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). The AcSB noted that the IASB has added new projects to its agenda for leases, employee benefits and related party disclosures.  The AcSB noted that a staff response to the IASB’s Exposure Draft on Borrowing Costs had been submitted. A response has also been sent to the International Accounting Standards Committee Foundation regarding the draft IFRIC Due Process Handbook that was issued for comment.

The AcSB also received reports on meetings of accounting standard setters in London in September 2006.

Employee Future Benefits
The AcSB agreed to undertake a project to recognize the funded status (the difference between the plan assets and obligations) of an entity’s post-retirement defined benefit plan on the balance sheet, to measure plan assets and obligations at the balance sheet date, and to recognize changes in the funded status in comprehensive income in the year in which the changes occur. Current Canadian GAAP only requires disclosure of the funded status in the notes to the financial statements, and permits a measurement date up to three months prior to the balance sheet date.

The project maintains the AcSB’s substantial harmonization with US GAAP in accounting for employee future benefits since it will converge with FASB’s FAS 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, the FASB’s recently released standard to improve the transparency and usefulness of the information reported on these plans.

The project is consistent with the AcSB’s “Implementation Plan for Incorporating IFRSs into Canadian GAAP,” in that it converges with IFRSs in some important respects and does not create differences with IFRSs that would require significant systems or procedural changes on changeover to IFRSs. The change in the requirements for the measurement date will align with the requirements in IAS 19, Employee Benefits. Recognition of the funded status of the plan in the entity’s balance sheet will align with one of the accounting methods permitted in IAS 19. The AcSB directed staff to include in an exposure draft an analysis of the remaining areas of difference between Canadian GAAP and IFRSs that will take effect at changeover to IFRSs by Canadian public companies.

The AcSB expects to publish the exposure draft for public comment in the first quarter of 2007 with an expectation that the final standard will be effective for fiscal years ending on or after December 31, 2007. This timing would allow entities time to assess the effects on financial metrics referred to in contractual arrangements, including debt covenants.

Financial Instruments
Hedges — Transition
The AcSB agreed to clarify that the intent of the transitional provisions of Section 3865, Hedges, is that an entity should be in the same position after transition as it would have been had the standards always been in place. The AcSB recognizes that it is not possible to apply the requirements for immediate recognition of ineffectiveness in net income to the residual deferred hedging gains or losses remaining from hedging relationships discontinued prior to transition. Accordingly, any residual deferred gain or loss on a previously discontinued hedge will be treated as if the relationship contained no ineffectiveness, provided the relationship would have met the requirements of Section 3865 for the hedged item, the hedging item and the designated risk. However, for a continuing hedging relationship, ineffectiveness in past periods is calculated and included in retained earnings on transition.

Hedge accounting for any hedging relationship that does not meet all of the requirements of Section 3865 concerning the hedged item, the hedging item and the designated risk is discontinued immediately on transition. Any gain or loss related to such a non-qualifying relationship, including any non-qualifying relationship that was previously discontinued, is transferred to retained earnings on the transition date.

The AcSB agreed to issue a Board Notice to remove portions of the existing transition paragraph that have contributed to confusion about the intent of the provisions. Concurrently, it will issue an exposure draft, for a 30-day comment period, proposing a revised transition paragraph that will more clearly express the intent. The revised transitional provisions are expected to be issued in final form in mid-December.

Disclosures
The AcSB approved, subject to written ballot, new Sections 1535, Capital Disclosures, 3862, Financial Instruments — Disclosures, and 3863, Financial Instruments — Presentation. Section 3862 is based on IFRS 7, Financial Instruments: Disclosures, and Section 1535 is based on amendments made by the IASB to IAS 1, Financial Statement Presentation, at the same time that the IASB issued IFRS 7. Section 3863 carries forward unchanged the presentation requirements now contained in Section 3861, Financial Instruments — Disclosure and Presentation. The new Sections will apply to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007. Early adoption is permitted at the same time an entity adopts other standards relating to accounting for financial instruments.
The AcSB noted that it is continuing to consider the appropriate basis of financial reporting for non-publicly accountable enterprises. The AcSB will reconsider the effective date of the new Sections for such enterprises in light of its conclusions on that matter. The AcSB will also continue to seek advice from its Differential Reporting Advisory Committee regarding the possible need for differential reporting options.

The AcSB’s conclusions are the same as set out in its April 2006 Exposure Draft, “Financial Instrument Disclosures and Capital Disclosures,” except as follows:

• New Section 3862 need not be applied to insurance contracts. An entity not applying the new Sections to insurance contracts would continue to apply relevant existing standards, including Section 3861. Modifications will be made to Accounting Guideline AcG-8, Actuarial Liabilities of Life Insurance Enterprises — Disclosure to make clear that it applies both when an enterprise chooses to adopt new Section 3862 and when an enterprise chooses to continue to apply Section 3861.
• Modifications will be made to paragraph 3862.13 to clarify the interaction of the new requirements with derecognition requirements in Canadian GAAP.
• Modifications will be made to paragraphs 3862.29(b) and 3862.30 to more closely conform the explanation of the circumstances in which disclosures of fair value are not required with requirements in Section 3855, Financial Instruments — Recognition and Measurement, and to clarify what alternative disclosures are required in such circumstances.

The AcSB also requested that its Not-for-Profit Organizations Advisory Committee consider developing guidance to assist not-for-profit organizations in applying Section 1535.

The AcSB intends to publish the new Sections in December 2006.

Income Trusts
The AcSB discussed amending Cash Flow Statements, paragraph 1540.55, and agreed to consider further whether amendments are needed to the paragraph.