Emerging Issues Committee
Decision Summary
May 15, 2008

Abstracts Amended

Consequential Amendments

The Committee discussed and approved amendments to the following Abstracts as a consequence of the release of Section 3064, Goodwill and Intangible Assets.

• EIC-10, “Reverse Takeover Accounting”
• EIC-20, “Reacquisition of Troubled Franchises by the Franchisor” (A modification to the fifth issue of EIC-20 was also made so as to be consistent with Section 3475, Disposal of Long-Lived Assets and Discontinued Operations.)
• EIC-55, “Identifiable Assets Acquired in a Business Combination”
• EIC-114, “Liability Recognition for Costs Incurred on Purchase Business Combinations”
• EIC-129, “Identification of Reporting Units”
• EIC-133, “Unit of Accounting for Testing Impairment of Indefinite-Lived Intangible Assets”
• EIC-136, “Income Tax Considerations in Applying the Goodwill Impairment Test in CICA 3062”
• EIC-137, “Recognition of Customer Relationship Intangible Assets Acquired in a Business Combination”
• EIC-138, “Internalization of the Management Function in Royalty and Income Trusts”
• EIC-140, “Accounting For Operating Leases Acquired in Either an Asset Acquisition or a Business Combination”
• EIC-141, “Revenue Recognition” (The guidance on accounting for incremental direct contract acquisition and origination costs included in “Examples of Non-Refundable Fee Arrangements and Related Costs,” was replaced with the following sentence: “The Committee believes that the costs incurred related to the acquisition or origination of a customer contract should be assessed against the criteria in Section 3064 to determine whether they qualify for recognition as an intangible asset.”)
• EIC-152, “Mining Assets — Impairment and Business Combinations”
• EIC-154, “Accounting for Pre-Existing Relationships Between the Parties of a Business Combination”
• EIC-160, “Stripping Costs Incurred in the Production Phase of a Mining Operation”

With the exception of EIC-20 and EIC-141 (as discussed above), the amendments did not affect the consensuses in these Abstracts.

The Committee also decided that the following three Abstracts should not be applied by entities that have adopted Section 3064, which applies to annual and interim financial statements relating to fiscal years beginning on or after October 1, 2008. The Committee was concerned that these Abstracts may not be fully consistent with Section 3064 and decided that Section 3064 provides adequate guidance to address the issues in these Abstracts. The Abstracts will be withdrawn once Section 3064 has been adopted.

• EIC-33, “Distribution Costs of Mutual Funds Paid by Special Purpose Entities”
• EIC-86, “Accounting for the Costs of a Business Process Re-engineering Project”
• EIC-118, “Accounting for Costs Incurred to Develop a Web Site”
  

Potential Projects

Income Statement Presentation of a Tax Loss Carryforward Recognized Following an Unrealized Gain on an Available-for-sale Financial Asset

A company may have a tax loss carryforward for which it has established a valuation allowance because it is not more likely than not to be realized. The company may also have financial instruments classified as available for sale. If the company records an unrealized gain in other comprehensive income, there would be a taxable temporary difference that gives rise to a future income tax liability. The existence of the future income tax liability may allow for the reversal of some or all of the valuation allowance for the tax loss carryforwards.
The Committee discussed whether the reversal of the valuation allowance should be recorded in net income or in other comprehensive income and concluded that it should be included in net income. The Committee agreed to develop a Draft Abstract on this issue.

Future Income Tax Consequences of Exchangeable Interests in an Income Trust or Specified Investment Flow-Through

A common income trust structure has an income trust controlling a business conducted by a limited partnership. The partnership also has other partners who have the right to exchange their partnership interest for units of the income trust. EIC-151,”Exchangeable Securities Issued by Subsidiaries of Income Trusts,” provides guidance on accounting for exchangeable securities.

Draft Abstract D73, providing guidance on the future income tax consequences of exchangeable interests in an income trust or specified investment flow-through, was posted on the CICA website for public comment by January 11, 2008. As a result of concerns raised by constituents the Committee further discussed the issue and agreed that future income taxes associated with exchangeable interests presented either as a liability, as part of unitholders’ equity, or as a non-controlling interest and initially recorded at the exchange amount, should all be accounted for in the same manner. The Committee decided that future income taxes related to the assets and liabilities attributable to these exchangeable interests should not be recorded prior to the conversion of the exchangeable interest. The Committee decided that on conversion, future income taxes should be accounted for as a capital transaction.

For exchangeable interests presented as a non-controlling interest and initially recorded in a manner consistent with the carrying value in the subsidiaries financial statements, the additional future income taxes would be accounted for at the time of conversion as part of the cost of the step acquisition.

The Committee agreed to develop a revised Draft Abstract and to issue this for comment.

Issues Removed from Agenda

The Committee noted that the AcSB intends to minimize changes to Canadian GAAP between now and the adoption of IFRSs by publicly accountable enterprises in 2011 to permit companies to focus on the changeover. Only highly critical issues are expected to be approved by the AcSB for addition to the EIC’s agenda during this period. The Committee also noted the limited life of any Abstracts issued during this period.

In light of this, the Committee decided to remove from its agenda the development of guidance to replace former EIC-139, given the expected time to develop and issue a new Abstract and that such an Abstract would constitute implementation guidance rather than an interpretation.

The Committee also considered the responses to Draft Abstract D76, “Determination of “Substantively Enacted” for Changes to Income Tax Regulations.” These responses indicated that regulations might be issued in ways the Committee was not previously aware of and which would have to be considered in an Abstract. Developing a comprehensive Abstract that addresses when substantive enactment occurs in each of the ways that regulations can be issued would not be done in a timely manner. The Committee therefore decided to remove this issue from its agenda.

Interpretation of “expected” in Income Taxes, paragraph 3465.103

The Committee noted that the AcSB at its May 7, 2008 meeting did not approve the addition of this issue to the EIC agenda.