Accounting Standards Board
Decision Summary
March 25-26, 2009

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 and www.fasb.org, respectively).

The AcSB noted that:

• The AcSB has submitted a comment letter to the IASB on its Exposure Draft “Relationships with the State,” supporting the IASB’s proposals, except for noting a concern that “state” was not defined.
• The AcSB staff has submitted a comment letter to the IASB on its Exposure Draft “Post-implementation Revisions to IFRIC Interpretations.” The AcSB staff supported the proposed changes to IFRIC 9, “Reassessment of Embedded Derivatives,” and IFRIC 16, “Net Investment in a Foreign Operation.”
• The AcSB’s User Advisory Council has submitted a comment letter to the IASB on its Exposure Draft “Consolidated Financial Statements.”
• The IASB and FASB have released a joint Discussion Paper, “Preliminary Views: Leases.”

AcSB Planning and Strategy

The AcSB discussed a draft of its plan for the operating year ending March 31, 2010.

Business Combinations — Consequential Amendments

The AcSB approved, subject to written ballot, consequential amendments to Sections 1625, Comprehensive Revaluation of Assets and Liabilities, 3251, Equity, and 3840, Related Party Transactions, as a result of the issuance of Sections 1582, Business Combinations, 1601, Consolidated Financial Statements, and 1602, Non-controlling Interests.

Economic Environment

The AcSB discussed recent developments related to the financial reporting implications of the current economic environment. In particular, the AcSB considered recent FASB proposals to amend US GAAP on issues related to fair value measurement and financial asset impairment (Proposed FASB Staff Position No. FAS 157-e, “Determining Whether a Market Is Not Active and a Transaction Is Not Distressed,” and Proposed FASB Staff Position No. FAS 115-a, FAS 124-a, and EITF 99-20-b, “Recognition and Presentation of Other-Than-Temporary Impairments.” ) AcSB members also considered the IASB’s “Request for views” seeking input from its stakeholders on the FASB proposals.

The AcSB reaffirmed its previous decision to make changes to its existing standards only when the changes are consistent with its strategy of adopting International Financial Reporting Standards (IFRSs). The AcSB also reaffirmed that it would make changes to existing standards, in accordance with its normal due process, only when the benefits of doing so would outweigh the effects on stakeholders’ preparations for the 2011 changeover. Accordingly, the AcSB decided it should not undertake any steps to modify Canadian GAAP for consistency with the FASB proposals until it has reviewed the outcome of the FASB projects and the IASB’s consultation with its stakeholders. In the meantime, the AcSB will monitor developments closely.

AcSB members supported the IASB’s process for evaluating the FASB proposals and agreed to respond to the “Request for views.” Interested Canadians are encouraged to provide their own comments to the IASB, with a copy to the AcSB.

In discussing the FASB proposals, AcSB members noted that they introduced significant differences from existing IFRSs and Canadian GAAP requirements. Some members expressed strong concerns over the potential effects of the FASB proposals on Canadian accounting practices. Members encouraged the IASB and the FASB to focus their efforts on achieving globally consistent treatment for all reporting entities by developing high-quality standards on fair value measurement and financial asset impairment.

Financial Instruments

Embedded Prepayment Options and Effective Interest Rate Method
The AcSB reviewed the comments on its Exposure Drafts on the above topics and agreed to amend Section 3855, Financial Instruments — Recognition and Measurement, as follows:

• Guidance on determining when a prepayment option embedded in a debt host instrument is closely related to the host will be revised to reflect a comparable change to IFRSs recently announced by the IASB. This change will be effective on transition to IFRSs, with early adoption permitted.
• Guidance on the application of the effective interest method will be amended to clarify that, subsequent to the recognition of an impairment loss, the rate used to determine the impairment loss is used to calculate interest income on the impaired financial asset. This change will be effective on issuance.

Embedded Derivatives on Reclassification of a Financial Asset
The AcSB agreed to issue an exposure draft proposing to add to guidance in Section 3855, Financial Instruments — Recognition and Measurement, on reassessing embedded derivatives when a financial asset is reclassified in accordance with a recent amendment to the Section. The proposed guidance is consistent with corresponding changes recently made to IAS 39, Financial Instruments: Recognition and Measurement. Accordingly, a reclassification would trigger the application of the criteria for assessing whether an embedded derivative should be accounted for separately. An entity would make the assessment on the basis of the circumstances that existed on the later of the dates on which it first became a party to the contract and a change is made to the terms of the contract that significantly modifies the cash flows that otherwise would have been required. The guidance would be applicable to reclassifications made on or after July 1, 2009.

Improving Disclosures about Liquidity Risk and Fair Value Measurements
The AcSB reviewed the comments submitted to it in response to the IASB and AcSB’s Exposure Drafts, “Improving Disclosures about Financial Instruments.” The AcSB agreed to adopt the final version of the amendments to IFRS 7, Financial Instruments: Disclosures, issued in March 2009. The amendments will be made to Section 3862, Financial Instruments — Disclosures (and also the version of IFRS 7 to be incorporated into the Handbook later this year as part of the AcSB’s IFRS transition strategy).

The amendments are in response to the urgent need for enhanced disclosures about fair value measurements and the liquidity risk of financial instruments. The amendments will be applicable to publicly accountable enterprises and those private enterprises, co-operative business enterprises, rate-regulated enterprises and not-for-profit organizations that choose to apply Section 3862.

The amendments will be effective for annual financial statements for fiscal years ending after September 30, 2009. Earlier adoption will be permitted. To provide relief for preparers, and consistent with IFRSs, the AcSB decided that an entity need not provide comparative information for the disclosures required by the amendments in the first year of application.

Financial Statement Presentation

The AcSB discussed the joint IASB/FASB Discussion Paper, “Preliminary Views on Financial Statement Presentation,” including input from the AcSB’s advisory committees and from the February 19, 2009 roundtable discussions. The staff will develop a response to the Discussion Paper.

Income Tax

The AcSB considered possible approaches for developing a response to the IASB's expected exposure draft on income tax. Discussions will continue at a future date.

Pension Plans

The AcSB held a preliminary discussion on pension plan financial reporting following the 2011 changeover to IFRSs for publicly accountable enterprises.

The AcSB had previously decided that the primary standard applicable to pension plans should continue to be Section 4100, Pension Plans, rather than IAS 26, Accounting and Reporting by Retirement Benefit Plans. Therefore, the requirement for pension plans to measure their investments at fair value will continue. At this meeting, the AcSB tentatively decided that, to the extent that aspects of financial reporting are not addressed by Section 4100, pension plans should refer to IFRSs and the IASB’s “Framework for the Preparation and Presentation of Financial Statements” for guidance.

The AcSB plans to complete its discussions on pension plan financial reporting at its May 13-14, 2009 meeting and to issue an exposure draft of proposed amendments to Section 4100 subsequently.

Private Enterprises Strategy

The AcSB approved, subject to final drafting and written ballot, the exposure draft of the entire set of proposed standards for private enterprises, including new Section 3856, Financial Instruments.

Revenue Recognition

The AcSB considered possible approaches for developing a response to the joint IASB/FASB Discussion Paper, “Preliminary Views on Revenue Recognition in Contracts with Customers.” The AcSB agreed to discuss the model proposed in the Discussion Paper in greater detail at its May 13-14, 2009 meeting.