Accounting Standards Board
Decision Summary
September 5-6, 2007

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 was informed that a staff response was sent to the IASB regarding proposals to enlarge the International Financial Reporting Interpretations Committee (IFRIC) from 12 to 14 members. The response agreed with the proposals but questioned the basis for determining a quorum for the enlarged committee.

The AcSB also noted the imminent issue by the IASB of an exposure draft proposing amendments to IAS 39, Financial Instruments: Recognition and Measurement, to clarify what can be designated as a hedging item in a hedge accounting relationship. The Exposure Draft was issued on September 6, 2007. Comments are due by January 11, 2008.

Publicly Accountable Enterprises Strategy

IFRSs to be Brought into Canadian GAAP before Changeover
The AcSB reviewed proposed major new and amended International Financial Reporting Standards (IFRSs) it might expect to bring into Canadian GAAP before the anticipated changeover to IFRSs for publicly accountable enterprises. The changeover is expected to be for years beginning on or after January 1, 2011. The AcSB confirmed that it expects to incorporate the following IFRSs into Canadian GAAP, with the same mandatory effective dates as the corresponding IFRSs:

• the forthcoming new IFRS on Business Combinations (including non-controlling interests), following Canadian exposure; and
• amendments to Section 3500, Earnings per Share, to conform with amendments to IAS 33, Earnings per Share, following IASB and Canadian exposure.

In each case, these standards will also maintain conformity with US GAAP.

The AcSB also confirmed that it expects to issue exposure drafts corresponding to the forthcoming IASB proposals to amend IAS 12, Income Taxes and IAS 31, Joint Ventures. The exposure draft on Joint Ventures will propose that enterprises be allowed to adopt the amended IAS 31 prior to the full adoption of IFRSs into Canadian GAAP. No decision was made on early adoption of amended IAS 12. Enterprises would not be required to adopt these standards until the changeover.

As noted in the August 22, 2007 Decision Summary, the AcSB is proceeding with amendments to Canadian GAAP regarding Rate-regulated Operations. It also expects to complete its project on Intangible Assets, on which an Exposure Draft is presently outstanding for comment.

The AcSB might issue proposals for other, less comprehensive, amendments to Canadian GAAP that would have mandatory effect before the changeover date (for example, aspects of the forthcoming IASB exposure draft on Annual Improvements that are particularly pertinent to Canadian GAAP). However, it does not expect to require any other, more comprehensive, proposals to have mandatory effect before the changeover to IFRSs.

Exposing IFRSs
The AcSB agreed that it would issue an “Omnibus Exposure Draft” (OED) containing the IFRSs in the 2007 IFRS bound volume as soon as possible (probably in the first quarter of 2008). This would provide a benchmark version of IFRSs for constituents to refer to following Canadian exposure.

The OED will request constituents to comment on a limited series of questions focusing on evaluating whether there are reasons why any IFRSs developed for use worldwide will not apply to specific Canadian circumstances. As well, the OED will ask whether there is a need for any additional application guidance or transitional provisions to address specific Canadian circumstances. As subsequent changes are proposed and made to IFRSs, the AcSB will issue corresponding exposure drafts to incorporate the changes into Canadian GAAP. Constituents are encouraged to review exposure drafts of future IFRSs and participate in the IASB comment process, as the standards resulting from those proposals will become Canadian GAAP for publicly accountable enterprises.

Progress Review
The AcSB received an update on discussions held, publications reviewed and other activities undertaken to date, to evaluate the readiness of Canadian publicly accountable enterprises to adopt IFRSs beginning on January 1, 2011, as outlined in the “Progress Review — Steps to IFRS Incorporation into Canadian GAAP (PDF)”. Based on work undertaken to date, no significant impediments to adopting IFRSs on the proposed changeover date have been identified. Further work will be undertaken over the next few months, including consultation with the Accounting Standards Oversight Council in October 2007. The AcSB expects to be in a position to confirm by March 31, 2008 whether the effective date for adopting IFRSs will be January 1, 2011.

Potential Additions to IFRS Disclosures
The AcSB confirmed that it will add to, or otherwise modify, IFRSs, including disclosure requirements, only if there are compelling arguments that particular Canadian circumstances require such modifications. Any modifications are expected to be rare. However, additional disclosures might be contemplated when there are compelling arguments that Canadian circumstances differ from those of the rest of the world.

Planning/Overall Strategy

The AcSB began discussing possible changes to the structure of the Canadian standard-setting function to reflect changes in its role as a result of the implementation of the AcSB’s Strategic Plan. The AcSB reviewed all elements of the current structure and began to formulate views on which elements may need to change and which appeared to remain appropriate. The discussion focused primarily on the structures needed to support the implementation of the strategy to adopt IFRSs for publicly accountable enterprises. No decisions were made concerning the need for structural changes required in the longer term.

The AcSB’s discussion of its current structure also focused on possible changes in the short term. As a result of this discussion and other decisions regarding the adoption of IFRSs, the AcSB decided to begin a process for an orderly winding up of its Emerging Issues Committee (EIC).

The AcSB acknowledged the EIC’s contributions to Canadian GAAP over the past 19 years through its development of interpretations. However, the AcSB noted that circumstances have changed since the EIC was established, including the AcSB’s introduction of a GAAP hierarchy and its strategic decision to converge with IFRSs for publicly accountable enterprises, rather than harmonization with US GAAP. This has led the AcSB to conclude tentatively that it should assume direct responsibility for providing any interpretations that might be required to be issued in Canada in the future. The AcSB will consult with AcSOC and other interested parties before finalizing and carrying out plans for winding up the EIC.

Following the adoption of IFRSs, the AcSB intends to interpret them only to address significant issues associated with unique Canadian circumstances or matters of purely domestic concern, and only after consultation with the IASB and other national standard setters.

Financial Instruments — Recognition and Measurement

The AcSB approved a change to the definition of a derivative in Financial Instruments — Recognition and Measurement, paragraph 3855.19(e), to remove the reference to contracts based on a “non-financial variable … not specific to a party to the contract.” This phrase, which qualifies the first component of the definition in paragraph 3855.19(e)(i), was intended to reinforce other scope provisions in the standard rather than override them. However, the AcSB was informed that there is some confusion in practice as to the intended result. The AcSB plans to issue a Board Notice that will be effective retrospectively.

Financial Instruments — Issues Raised by the Differential Reporting Advisory Committee

The AcSB discussed issues raised by the Differential Reporting Advisory Committee in respect of Section 1535, Capital Disclosures, Section 3855, Financial Instruments — Recognition and Measurement, and Section 3862, Financial Instruments — Disclosure.

The AcSB decided to develop an exposure draft proposing scope exemptions for non-publicly accountable enterprises from:

• all of the requirements in Section 1535, except that a private enterprise with externally imposed capital requirements would be required to provide the disclosures required by paragraphs 1535.03(a)(ii), (d) and (e);
• the requirements in paragraphs 3862.40-.42 to disclose sensitivity analysis about exposures to market risk; and
• the requirement in paragraph 3862.34(a) to disclose summary quantitative data about the entity’s exposure to risks arising from financial instruments, as provided to key management personnel, in addition to those disclosures required by paragraph 3862.36-.39.

The AcSB decided also to propose amending the transitional provisions for embedded derivatives in paragraph 3855.88(e), such that a non-publicly accountable enterprise might select the beginning of a fiscal year ending no later than December 31, 2008 as its transition date for identifying embedded derivatives. That is, it would recognize as separate assets and liabilities only those derivatives embedded in hybrid instruments issued, acquired or substantively modified on or after the selected transition date.

The AcSB agreed to consider developing differential options to simplify the requirements to account separately for:

• embedded prepayment options; and
• foreign currency derivatives embedded in non-financial contracts.

Private Enterprises Strategy

The AcSB received a report on an initiative by the CICA to develop financial reporting guidance for owner-manager businesses with no significant external users. The AcSB noted that the proposed guidance is expected to be released for consultation by the end of this year and agreed it will do what it can to assist the process. The objective of the proposals will be to establish a comprehensive basis of reporting relevant to transactions and events commonly encountered by owner-managed enterprises with no significant external users. The proposals are intended to be readily understood and implemented by someone familiar with current Canadian GAAP.

The AcSB believes that this initiative is consistent with its Invitation to Comment (PDF) and Discussion Paper (PDF) on Financial Reporting by Private Enterprises.

Investment Companies

The AcSB decided not to amend AcG-18, Investment Companies, to conform with Statement of Position (SOP) 07-1, “Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies,” recently issued by the American Institute of Certified Public Accountants (AICPA).

The AcSB noted that AcG-18 and the AICPA SOP are broadly comparable and should lead to similar accounting. The AcSB does not envisage further changes to AcG-18 before the proposed changeover to IFRSs. Investment companies should focus on the implications of adopting IFRSs.

Insurance Contracts

The AcSB discussed key issues in the IASB’s Discussion Paper, “Preliminary Views on Insurance Contracts.” No decisions were made.