Emerging Issues Committee
Decision Summary
May 15, 2007

Abstract Approved

Accounting Policy Choice for Transaction Costs

Draft Abstract D64 provides guidance on whether an entity must make one accounting policy choice that applies to transaction costs for all financial assets and financial liabilities classified other than as held for trading. Alternatively, can transaction costs be recognized in net income for certain of these financial assets and liabilities and added to the carrying amount for other financial assets and liabilities? Draft Abstract D64 was posted on the CICA website for public comment on March 15, 2007 with a comment period ending on April 16, 2007.

The Committee reviewed the comments received and agreed to add the following paragraph at the end of the EIC discussion.

“The Committee further noted that transaction costs should be presented in the cash flow statement on a basis consistent with the accounting policy choice made. If the transaction costs are expensed, then they should be included in cash flow from operating activities. However, if the transaction costs are added to the carrying amount of the financial instrument, then they should be included in cash flow from investing activities or cash flow from financing activities, as appropriate.”

The Basis of Application reads as follows:

“The Committee reached a consensus that the accounting treatment in this Abstract should be applied retrospectively to transaction costs accounted for in accordance with Section 3855 in financial statements issued for interim and annual periods ending after September 30, 2007. Earlier adoption is encouraged.”

The Committee approved D64 as a final Abstract. It is expected that EIC-166 will be posted on the CICA website in early June 2007. D64 will remain on the website until EIC-166 is posted.

Potential Abstracts

Applicability of Section 3855 for a Pension Plan Governed by Section 4100

Pension plans are required by Section 4100, Pension Plans, to measure their investments at fair value, but Section 4100 does not specifically discuss whether transaction costs might form part of fair value. Pension plans are scoped out of Section 3855, Financial Instruments — Recognition and Measurement, which excludes transaction costs from fair value. The definitions of fair value as per Sections 3855 and 4100 are identical.

The Committee approved a proposed Draft Abstract, subject to final wording, that clarifies that transaction costs for the acquisition of investments by pension plans are not a component of fair value and do not represent a separate asset that should be recognized in the balance sheet.

Embedded Foreign Currency Derivatives

Financial Instruments — Recognition and Measurement, paragraph 3855.A34(d)(ii), states that an embedded derivative is not accounted for separately from the host contract if “the currency in which the price of the related good or service that is acquired or delivered is routinely denominated in commercial transactions around the world.” The Committee discussed how to determine when this criterion is met and decided to develop a Draft Abstract for consideration at its next meeting.

Potential Amendment to Abstracts

EIC-47, Interest Discount or Premium in the Statement of Changes in Financial Position

EIC-47 was issued prior to the release of Section 3855, Financial Instruments — Recognition and Measurement, in 2006. While the consensuses in EIC-47 are consistent with Section 3855, the language of the EIC-47 is not aligned with the Section and thus might be confusing. The Committee decided to revise EIC-47 to align its wording with Section 3855.

EIC-119, The Date of Acquisition in a Business Combination

EIC-119 was issued prior to Accounting Guideline AcG-15, Consolidation of Variable Interest Entities. The third issue of EIC-119 concerns the situation when an acquirer has paid for the shares of the acquiree but is prevented from exercising control over some or all of the acquired business pending regulatory approval.

The Committee discussed whether, during the period before regulatory approval is received, the acquiree may be a variable interest entity that the acquirer should consolidate as the primary beneficiary because of the inability of the acquirer to exercise control prior to receipt of regulatory approval. The Committee concluded that during this intervening period, the restrictions with respect to the acquiree do not meet the “by design” criteria in AcG-15.7. Consequently the acquiree is not a variable interest entity during this intervening period and should not be consolidated by the acquirer. The Committee decided to revise the third issue of EIC-119 to address this issue.

Issue Removed from the EIC Agenda

Income Taxes Arising from Partnership Income

Revised Draft Abstract RD59 discussed how entities that consolidate partnership interests that have a different year end than the entity should account for income taxes related to those partnership interests. The revised Draft Abstract was posted on the CICA website for public comment on March 15, 2007 with a comment period ending on April 16, 2007.

The Committee considered the comments received and decided to remove this issue from its agenda.