Emerging Issues Committee
Decision Summary
June 17, 2008

Abstract Amended

Amendments to EIC-123

The AcSB Exposure Draft “Not-for-Profit Organizations” includes a proposed change to Section 4400, Financial Statement Presentation by Not-for-Profit Organizations, to clarify that revenues and expenses must be recognized on a gross basis when a not-for-profit organization is acting as a principal in the subject transactions and on a net basis when the organization is not acting as a principal. EIC-123, Reporting Revenue Gross as a Principal Versus Net as an Agent,” currently addresses this issue in the context of profit-oriented enterprises.

D71, (a proposal to amend EIC-123 to expand the scope to include not-for-profit organizations) was posted on the AcSB website for public comment by November 15, 2007. The Committee considered comments received and gave final approval to the amendments to EIC-123.

Draft Abstracts Approved

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 limited 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. The Committee agreed that future income taxes related to the temporary differences associated with the assets and liabilities attributable to the exchangeable interests should not be recorded prior to the conversion of the exchangeable interest.

When the exchangeable interest is presented either as a liability, as part of unitholders’ equity, or as a non-controlling interest and initially recorded at the exchange amount, the future income taxes should be accounted for as a capital transaction at the time of conversion.

For exchangeable interests presented as a non-controlling interest and initially recorded in a manner consistent with the carrying value in the subsidiary’s 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 approved a revised Draft Abstract for re-exposure. It is expected that DR73 will be posted on the CICA website for public comment in early July 2008.

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 not recognized a future tax asset 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 recognition of a future tax asset for some or all of for the tax loss carryforwards.

The Committee discussed whether the recognition of a future tax asset should be recorded in net income or in other comprehensive income, and concluded that it should be included in net income.

The Committee approved a Draft Abstract. It is expected that D77 will be posted on the CICA website for public comment in early July 2008.