Accounting Standards Board
Decision Summary
January 6, 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.uk and www.fasb.org, respectively).

The AcSB noted that:

• AcSB staff has submitted a comment letter to the IASB on its Exposure Draft, “Improving Disclosures about Financial Instruments,” supporting the proposed amendments, which relate to determination of fair values and to liquidity risks;
• the IASB has approved a project to consider the appropriate accounting for rate-regulated activities;
• the IASB has released two Exposure Drafts, “Consolidated Financial Statements” and “Relationships with the State”;
• the IASB and FASB have released a joint Discussion Paper, “Preliminary Views on Revenue Recognition in Contracts with Customers”; and
• the US Securities and Exchange Commission has issued a report to Congress on mark-to-market accounting, available at www.sec.gov/news/press/2008/2008-307.htm. While the report does not recommend suspending existing fair value measurement standards, it makes several recommendations to improve their application.

Publicly Accountable Enterprises Strategy

The AcSB commenced consideration of a draft Preface for the Handbook that will address the application of Canadian GAAP by various categories of entities, following implementation of the AcSB’s Strategic Plan. The AcSB expects to issue the draft Preface for comment in the first half of 2009.

The AcSB tentatively decided that the Preface should explain that the Handbook sets out what constitutes Canadian GAAP. It should explain that IFRSs are available for use by all entities and must be used by publicly accountable enterprises. An entity using IFRSs is required by IAS 1, Presentation of Financial Statements, to state compliance with IFRSs and would also be able to state compliance with Canadian GAAP. The Preface should also explain that Canadian GAAP includes alternatives available only to private enterprises and not-for-profit organizations. The AcSB has tentatively decided that an entity using these alternatives should describe the basis of application of Canadian GAAP in a way that clearly differentiates the various sets of standards. The AcSB will discuss application to pension plans and terminology in a future meeting.

Private Enterprises Strategy

The AcSB continued its discussions of the proposed GAAP standards for private enterprises, including several recognition and measurement issues. The AcSB also reviewed disclosure requirements for the proposed standards. The AcSB expects to issue its exposure draft of the entire set of proposed standards for private enterprises by the end of March.

The AcSB plans to make the new standards available by late 2009 for early application to fiscal years ending December 31, 2009, subject to the outcome of the exposure process. The AcSB tentatively decided that existing accounting standards for the private enterprise sector will be superseded by 2011.

Credit Environment

The AcSB considered what action, if any, it should take regarding two recent Exposure Drafts issued by the IASB following the IASB/FASB roundtables that considered possible standard-setting actions necessary as a result of the global financial crisis.

Assessment and Separation of Embedded Derivatives on Reclassification of a Financial Asset
The IASB proposes to make clear that reclassifications of financial assets trigger the application of the criteria in IAS 39, Financial Instruments: Recognition and Measurement, for assessing whether embedded derivatives should be accounted for separately. Furthermore, the IASB proposes to require that the assessment be based on the circumstances that existed at the inception of the financial instrument. The entire contract would be accounted for at fair value through profit or loss if a separable embedded derivative cannot be fair valued reliably.

The AcSB agreed that a reclassification in accordance with Section 3855, Financial Instruments — Recognition and Measurement, triggers an assessment of embedded derivatives. The AcSB expects to issue an exposure draft dealing with how the assessment should be made after the IASB has concluded its deliberations.

Differentiation between Credit-related Impairment Losses and Other Fair Value Changes of Available-for-Sale Debt Instruments
The IASB proposes to require enhanced disclosures about impairment of debt securities classified as available for sale, debt securities classified as held to maturity, and loans and long-term receivables. The proposals would require disclosure of pre-tax profit or loss amounts as though the instruments had been:

• classified as at fair value through profit or loss; and
• accounted for at amortized cost.

The IASB would also require tabular disclosure of amounts in a way that permits comparison of:

• the carrying amount in the statement of financial position;
• fair value; and
• amortized cost.

The AcSB decided that it would consider adopting the essence of those disclosures at a future date, after having gathered more information. The AcSB expects that any new requirement would apply prospectively.

EIC Agenda Issues

The AcSB was informed that questions have arisen in practice about whether “own credit risk” and “counterparty credit risk” are taken into account when determining the fair value of derivative assets and liabilities. The AcSB noted that Section 3855 states that fair value takes into account the credit quality of a financial instrument. The AcSB observed that this would include own credit risk and counterparty credit risk. The AcSB approved the addition of an issue to the EIC Agenda to address this issue.

Many mining exploration companies capitalize exploration costs. Falling commodity prices and the current economic climate have raised issues about the application of impairment requirements to the carrying amounts of exploration properties. The AcSB approved the addition to the EIC agenda of a project to address those issues.

The EIC is expected to address both these issues on an expedited basis.

International Accounting Standards Committee Foundation’s (IASCF) Constitution Review

The AcSB deferred to a future meeting consideration of a response to the IASCF Trustees’ Invitation to Comment on the ongoing review of its Constitution.