Financial Instruments

Status: Sections issued.

On April 1, 2005, the AcSB issued the following new Handbook Sections:

The AcSB also issued significant additional Handbook amendments consequential to the issue of these new Sections. Typescript copies of the new Handbook material were previously issued on January 27, 2005.

Web-based presentations for Sections 1530 and 3855, and a brochure (PDF)  to assist in implementing the Financial Instruments standards, are now available.

Even though the new standards are lengthy, their impact will be modest for many entities. However, in some cases, the new standards will require an entity to make significant accounting changes. Entities are encouraged to assess promptly the extent to which these standards will affect them.

Background
Activities to Date
Next Steps
Related Information
Contact Information

Background

In January 2002, the AcSB approved a project proposal to develop standards for recognition and measurement of financial instruments to be harmonized with standards issued by the US Financial Accounting Standards Board (FASB), including the major requirements of FASB Statements of Financial Accounting Standards Nos. 115, Accounting for Certain Investments in Debt and Equity Securities (FAS 115), and 133, Accounting for Derivative Instruments and Hedging Activities (FAS 133).

The AcSB's intent was to develop Canadian standards that, while not going into the same degree of detail as the extensive body of literature in the US, would allow enterprises that report in accordance with US GAAP to comply also with Canadian GAAP. The AcSB used the improved version of International Accounting Standard 39, Financial Instruments: Recognition and Measurement (IAS 39), which itself was developed from FAS 115 and FAS 133, to facilitate the development of the Canadian standards. Information about ongoing IASB improvements to IAS 39 is available here.

The project did not reconsider the accounting for transfers of receivables, which is presently addressed in Accounting Guideline AcG-12, Transfers of Receivables. It also did not immediately readdress the requirements of Section 3860, Financial Instruments — Disclosure and Presentation. However, the presentation requirements are being considered as part of a separate project on liabilities and equity.  The AcSB will also reconsider the disclosure requirements in a separate project on financial instruments disclosures and capital disclosures.

Activities to Date

Board discussions on the recognition and measurement aspects of this project are now complete.

Sections 3855 and 3865 apply to all entities, including not-for-profit organizations. They apply to financial instruments such as accounts receivable, accounts payable and debt, as well as to investments and derivatives. The new Sections do not apply to insurance contracts issued by insurance enterprises. However, they do apply to financial assets and freestanding derivative instruments of such enterprises, and also to financial reinsurance.

The mandatory effective date for the new Sections is for interim and annual financial statements relating to fiscal years beginning on or after October 1, 2006. In February 2006, the AcSB approved a one-year deferral for non-publicly accountable enterprises — i.e., to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007. Earlier adoption is permitted only as of the beginning of a fiscal year ending on or after December 31, 2004.

Next Steps

The AcSB has established a Financial Instruments Working Group (FIWG), charged with the development of materials to assist entities in understanding the new standards and dealing with issues that may arise on their implementation. The FIWG expects to issue various materials in 2006.

For several years, the AcSB worked with other national standard setters and the International Accounting Standards Committee to develop a comprehensive fair value accounting model for financial instruments. However, having analyzed the comments on the December 2000 Financial Instruments Joint Working Group proposals, it became apparent that significant further work is needed to develop this model further and test it rigorously. The IASB and FASB staff are now researching possible future steps.

The AcSB will continue to participate in any international efforts to develop and test a full fair value accounting model for financial instruments. Ultimately, the AcSB supports a single, globally harmonized standard for recognition and measurement of financial instruments.

Related Information

The following additional material is available:
General

Re-exposure Drafts
The new Sections are based on redeliberations of Re-exposure Drafts “Financial Instruments — Recognition and Measurement,” issued in July 2004, and “Hedges,” issued in June 2004.

The AcSB confirmed that no fundamental changes were necessary to the Re-exposure Draft proposals. However, certain clarifications and improvements were made to the documents. A summary of changes to the Re-exposure Drafts is included in the attached document (updated December 2, 2004).

Exposure Drafts
The Re-exposure Drafts were based on redeliberations of three Exposure Drafts issued in March 2003:

Questions or comments on this project should be directed to:
Ian Hague, CA
Principal, Accounting Standards
Telephone: +1 (416) 204-3270
Fax: +1 (416) 204-3412

or

Kate Ward, CA
Principal, Accounting Standards
Telephone: +1 (416) 204-3437
Fax: +1 (416) 204-3412

Canadian Accounting Standards Board
277 Wellington Street West
Toronto ON M5V 3H2 Canada