Accounting Standards Board
Decision Summary
November 12, 2008

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 noted the following:

• The IASB has issued an Exposure Draft, “Improving Disclosures about Financial Instruments,” and a Discussion Paper, “Preliminary Views on Financial Statement Presentation.”
• The AcSB staff has submitted a comment letter to the IASB on its Exposure Draft, “Improvements to IFRSs,” supporting the proposed amendments.
• The FASB has issued proposed standards on going concern and subsequent events, designed to import accounting guidance from the US auditing literature. The AcSB had previously amended Section 1400, General Standards of Financial Statement Presentation, to include going concern guidance that is fully converged with IAS 1, Financial Statement Presentation. IAS 10, Events after the Balance Sheet Date, will be adopted by the AcSB upon the changeover to IFRSs.

Credit Environment — Accounting Implications

The AcSB considered recent developments relating to accounting standards in the current credit environment. AcSB members noted the following:

• A typescript of amendments to Sections 3855, Financial Instruments — Recognition and Measurement, 3861, Financial Instruments — Disclosure and Presentation, and 3862, Financial Instruments — Disclosures, to permit reclassification of financial assets in limited circumstances, was issued on October 24, 2008.
• An Exposure Draft proposing enhancements to disclosures about liquidity risk and fair value measurements was issued on November 12, 2008.
• AcSB staff commentaries on determining fair values in inactive markets and non-bank-sponsored asset-backed commercial paper are expected to be issued later in November.
• The AcSB continues to deliberate proposals dealing with consolidation accounting (see below) and accounting for removal of financial assets from the balance sheet, considering, in particular, a clear portrayal of exposures that might otherwise be “off-balance-sheet”.

The AcSB reviewed recent developments internationally, including activities at the IASB and the FASB and, in particular, the upcoming meeting of leaders of G20 countries in Washington, DC. The AcSB reconfirmed that none of the recent developments should cause it to change its strategy to adopt IFRSs for publicly accountable enterprises in 2011.

The AcSB Chair and staff will continue to liaise closely with international colleagues and domestic stakeholders to consider any possible future actions. The AcSB Chair will participate in a public roundtable to identify financial reporting issues highlighted by the global financial crisis in Norwalk, Connecticut on November 25, 2008.

Publicly Accountable Enterprises Strategy

Omnibus IFRS Exposure Draft
The AcSB completed its redeliberations of the proposals contained in its April 2008 Exposure Draft (omnibus ED), “Adopting IFRSs in Canada,” based on comments received from the public. The AcSB decided that no amendments to IFRS 1, First-time Adoption of International Financial Reporting Standards, are required to accommodate first-time adopters in Canada beyond those already recommended to the IASB and included in its September 2008 Exposure Draft, “Additional Exemptions for First-time Adopters (Proposed amendments to IFRS 1).”

The AcSB plans to issue a second omnibus ED shortly. In addition to exposing, in Canada, changes made to IFRSs since the 2007 Bound Volume, it will deal with carryforward items from the first omnibus ED, including the definition of a publicly accountable enterprise.

Pension Plans
The AcSB considered the application of Section 4100, Pension Plans, in light of its previous decision that, when IFRSs are adopted for publicly accountable enterprises, GAAP financial statements of pension plans should continue to be prepared in accordance with Section 4100 rather than IAS 26, Retirement Benefit Plans. The AcSB directed staff to consult with representatives from the pension plan sector and other individuals with expertise in this sector on the sources of GAAP currently applied when aspects of financial reporting are not addressed by Section 4100. No decisions were made.

Private Enterprises Strategy

The AcSB considered the recommendations of its Private Enterprises Advisory Committee in respect of technical issues and process matters. The following tentative decisions were made, subject to further deliberation and exposure for public comment.

Internally Generated Intangible Assets
The AcSB had previously decided to allow enterprises a choice to expense all development costs or follow the capitalization model set out in Section 3064, Goodwill and Intangible Assets. The Advisory Committee was asked to consider whether this choice should be applied consistently to all development costs or on a project-by-project basis.

The AcSB agreed with the recommendation of the Advisory Committee that an enterprise should apply its chosen accounting policy to all projects on a consistent basis.

Stock-Based Compensation
The AcSB had previously decided to retain the recognition and measurement aspects of Section 3870, Stock-based Compensation and Other Stock-based Payments. The AcSB had considered whether the minimum value method should be retained or whether guidance should be provided on how private enterprises might estimate volatility, and referred this issue back to its Advisory Committee.

The AcSB agreed with the recommendation of the Advisory Committee that the minimum value method should be discarded and that guidance should be included in the new standards for estimating the effect of volatility when measuring stock-based compensation expense.

Employee Future Benefits
The AcSB had previously decided to adopt a simplified approach for accounting for a defined benefit plan whose sole beneficiary is the controlling owner. Many, but not all, individual pension plans would qualify for this simplified approach. The proposed approach would use the actuarial valuation report prepared for funding purposes to measure the obligation and recognize all actuarial gains and losses and past service costs in the income statement when they occur.

As a result of feedback from a number of roundtable sessions, the Advisory Committee recommended, and the AcSB agreed, to expand the scope of this simplification to include defined benefit plans for the controlling owner, his or her spouse or common-law partner, or both.

AcG-11, Enterprises in the Development Stage
The AcSB agreed with the Advisory Committee recommendation that Accounting Guideline AcG-11 should not be included in the new set of standards for private enterprises, as it provides no necessary guidance beyond that in other standards.

Business Combinations
The AcSB decided that the initial GAAP for private enterprises should include the new business combinations standards (see below), with a delayed effective date.

Consolidation

The AcSB agreed to issue an exposure draft relating to the forthcoming IASB consolidation proposals. These proposals are intended to improve accounting by:

• using a single approach for assessing whether a reporting entity controls another entity, based on whether the reporting entity has power sufficient to direct the activities of an entity for its own benefit, and
• enhancing disclosures about consolidated and non-consolidated entities.

The IASB plans to issue a final standard in the second half of 2009.

The AcSB exposure draft will propose that the new standard be incorporated into Canadian GAAP as part of the IFRSs to be adopted by publicly accountable enterprises at the changeover date, in place of IAS 27, Consolidated and Separate Financial Statements, and SIC-12, Consolidation — Special Purpose Entities. (These two IFRSs were previously exposed in the AcSB’s April 2008 omnibus ED.) Early adoption of IFRSs, including the proposed new standard, will be permitted.

For private enterprises, the development of a separate set of Canadian GAAP standards is expected to be completed before a final standard resulting from these consolidation proposals is issued. For not-profit organizations (NFPOs), the AcSB will issue an Invitation to Comment on the future direction of accounting standards for the sector shortly. The AcSB concluded that it will consider separately whether to adopt the new consolidation standard for application to private enterprises and NFPOs, but will encourage all entities to evaluate the proposals and provide comments.

The AcSB also agreed on its plan for responding to the IASB on the forthcoming consolidation exposure draft, including consultation with persons familiar with complex reporting structures in Canada, and with some of its advisory committees.

Business Combinations, Non-controlling Interests and Discontinued Operations

The AcSB considered whether to proceed to finalize and issue new standards on business combinations and non-controlling interests, to achieve consistency with the standards recently issued on those topics by the IASB and the FASB. With the concurrence of AcSOC, the AcSB decided to issue new Sections 1582, Business Combinations, 1601, Consolidated Financial Statements, and 1602, Non-controlling Interests, with effect for acquisitions in fiscal years beginning on or after January 1, 2011 but with earlier adoption permitted.

The AcSB also considered proposed amendments to the standard on discontinued operations. The IASB issued an exposure draft in September 2008 proposing amendments to IFRS 5, Non-current Assets Held for Sale and Discontinued Operations. The AcSB decided that it will not propose corresponding amendments to Section 3475, Disposal of Long-lived Assets and Discontinued Operations, with the result that the changes proposed by the IASB would become effective in Canada only upon the adoption of IFRSs.