Emerging Issues Committee
Decision Summary
August 12, 2008

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 RD73 was issued for public comment by August 1, 2008. The Draft Abstract proposed 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 agreed to issue a final Abstract consistent with RD73. The basis of application reads as follows:

“The Committee reached a consensus that the accounting in this Abstract should be applied to interim and annual financial statements issued after the date of this Abstract. Application should be retrospective with restatement of prior periods commencing with the period that includes the date of substantive enactment of the changes to the Income Tax Act.”

It is expected that EIC-171 will be posted on the AcSB website in late August 2008. RD73 will remain on the website until EIC-171 is posted.

Income Statement Presentation of a Tax Loss Carryforward Recognized Following an Unrealized Gain Recorded in Other Comprehensive Income

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.” If the company records an unrealized gain in other comprehensive income, such as an unrealized gain on available-for-sale financial assets, 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.

Draft Abstract D77 was exposed on the AcSB website for public comment by August 1, 2008. D77 proposed that, in the circumstances described above, the recognition of a future tax asset should be recorded in net income. The Committee agreed to issue a final Abstract consistent with D77, but to clarify that the Abstract should apply when any unrealized gain is recognized in other comprehensive income and not only when the gain is related to an available-for-sale financial asset. The basis of application reads as follows:

“The Committee reached a consensus that the accounting treatment in this Abstract should be applied retrospectively, with restatement of prior periods from the date of adoption of Section 3855, for all interim and annual reporting periods ending on or after September 30, 2008. Earlier adoption is encouraged.”

It is expected that EIC-172 will be posted on the AcSB website in late August 2008. D77 will remain on the website until EIC-172 is posted.