Accounting Standards Board
Decision Summaries

November 30, 2006 Meeting

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 the IASB has issued IFRS 8, Operating Segments, largely converging with Handbook Section 1701, Segment Disclosures, as well as a Discussion Paper on fair value measurement. The AcSB also noted that a staff response had been submitted to the IASB’s Discussion Paper, “Preliminary Views on an improved Conceptual Framework for Financial Reporting: The Objective of Financial Reporting and Qualitative Characteristics of Decision-useful Financial Reporting Information.”

Public Company Strategy

Publicly Accountable Enterprises
The AcSB agreed to develop a definition of “publicly accountable enterprise,” for the purposes of the IFRS Implementation Plan, from the IASB’s proposed definition in its forthcoming Exposure Draft on Small and Medium-sized Entities (SMEs). That definition states:

A “publicly accountable enterprise” is an entity that:

• files, or is in the process of filing, its financial statements with a securities commission or other regulatory organization for the purpose of issuing any class of instruments in a public market; or
• holds assets in a fiduciary capacity for a broad group of outsiders, such as a bank, insurance entity, securities broker/dealer, pension fund, mutual fund or investment banking entity.

The AcSB will consider in a future meeting how this definition would apply to certain types of reporting entities, such as co-operative organizations and pension plans.

All enterprises that do not fall within the definition would not be publicly accountable enterprises and, accordingly, would not be subject to the IFRS convergence strategy. Such enterprises will, nevertheless, be entitled to elect to apply the same standards as publicly accountable enterprises.

Constituents are encouraged to communicate any concerns relating to the IASB’s proposed definition to the AcSB and, in the context of the IASB’s SME project, to the IASB.

Modifications to IFRSs
The AcSB continued to discuss IFRSs when adopting them into Canadian GAAP, including considering comments and suggestions received from its IFRS Advisory Committee. While the AcSB retains the power to modify or add to the requirements of IFRSs, as it deems necessary, it intends to avoid changing IFRSs when adopting them as Canadian GAAP. Accordingly, the AcSB does not expect to eliminate any options within existing IFRSs. In the two IFRSs currently identified as directing preparers to follow their national GAAP, IFRS 4, Insurance Contracts, and IFRS 6, Exploration for and Evaluation of Mineral Resources, the AcSB intends to maintain Canadian guidance dealing with those matters, to the extent that it does not conflict with IFRSs. The AcSB also intends to assess and monitor the application of accounting standards in Canada. The AcSB will work to resolve issues through the IASB’s interpretive body, the International Financial Reporting Interpretations Committee. However, in the event this is not possible, the AcSB will stand ready to develop additional temporary guidance. No sector-specific guidance, other than that required for unique circumstances of not-for-profit organizations, is expected to be added to IFRSs for Canadian GAAP purposes.

Changeover Date
The AcSB noted that many constituents are keen to know the definitive changeover date to IFRSs, so that they can start planning. In accordance with the AcSB’s IFRS Implementation Plan, this date will be set after a progress review intended to consider, among other things, Canada’s readiness to adopt IFRSs. The AcSB expects to be in a position to make an announcement regarding the changeover date by March 31, 2008.

The AcSB continues to believe that a smooth conversion of Canadian GAAP to IFRSs requires the approximately five-year transition period provided for in the IFRS Implementation Plan.

Upon changeover, the financial statements of publicly accountable Canadian enterprises will likely continue to refer to Canadian GAAP for some time. The AcSB observed that, in the event that the SEC were to withdraw its requirement for reconciling financial information to US GAAP for enterprises reporting in accordance with IFRSs, Canadian SEC registrants wishing to take advantage of the relief would report in accordance with IFRSs, if entitled to do so, rather than Canadian GAAP.

Reproduction of IFRS Guidance in Canadian GAAP
The AcSB considered whether, when issuing new Canadian standards to converge with an existing IFRS during the transitional period, it should also issue any non-authoritative implementation guidance developed by the IASB in connection with that IFRS. The AcSB decided that such implementation guidance:

• should be issued in Canada and included in the Handbook;
• should be clearly marked as not a part of the corresponding Section, so that Handbook users understand its non-authoritative status (the same as its status relative to IFRSs) and that it represents “a source other than a primary source of GAAP” under Section 1100, Generally Accepted Accounting Principles; and
• need not be exposed for public comment prior to its issuance.

Private Company Strategy

The AcSB considered possible courses of action in light of staff research findings regarding user needs. The AcSB made no decisions and will continue to discuss this topic at future meetings. The AcSB also discussed an outline of an Invitation to Comment (ITC) on private company reporting that will set out staff research findings regarding user needs, and ask for input regarding several possible approaches the AcSB could pursue regarding accounting standards for non-publicly accountable enterprises. Staff expects the ITC to be published in the first quarter of 2007.

The AcSB encourages Canadian users, preparers and auditors of private company financial statements to review and comment to the IASB on its Exposure Draft on reporting by SMEs, expected to be issued in the first quarter of 2007.

Financial Instruments

Hedges — Transition
The AcSB approved, subject to written ballot, amendments to the transitional provisions of Section 3865, Hedges. The amendments clarify that the intent of the transitional provisions is that an entity should be in the same position after transition as it would have been had the standards always been in place. The AcSB recognizes that it is not possible to apply the requirements for immediate recognition of ineffectiveness in net income to the residual deferred hedging gains or losses remaining from hedging relationships discontinued prior to transition. Accordingly, any residual deferred gain or loss on a previously discontinued hedge will be treated as if the relationship contained no ineffectiveness, provided the relationship would have met the requirements of Section 3865 for the hedged item, the hedging item and the designated risk. However, for a continuing hedging relationship, ineffectiveness in past periods is calculated and included in retained earnings on transition.

Hedge accounting for any hedging relationship that does not meet all of the requirements of Section 3865 concerning the hedged item, the hedging item and the designated risk is discontinued immediately on transition. Any gain or loss related to such a non-qualifying relationship, including any non-qualifying relationship that was previously discontinued, is transferred to retained earnings on the transition date.

The AcSB agreed to issue the revised transitional provisions by way of a Board Notice by mid-December. The provisions will apply to enterprises adopting Section 3865 for fiscal years beginning on or after January 1, 2007, with early adoption encouraged.

Accounting Policy Choice for Transaction Costs

The AcSB considered certain issues referred to it by the Emerging Issues Committee on accounting for transaction costs for financial instruments. The AcSB confirmed that the accounting policy choice for these costs provided by Section 3855, Financial Instruments — Recognition and Measurement, does not affect the requirement in Accounting Guideline AcG-4, Fees and Costs Associated with Lending Activities, to capitalize fees and costs associated with lending activities. An entity that capitalizes fees and costs in accordance with AcG-4 applies the accounting policy choice in Section 3855 to other categories of financial instruments.

AcSB Objectives and Work Plan – 2007-2008 Operating Year

The AcSB discussed a first draft of its 2007-2008 objectives and work plan for carrying out its Strategic Plan. The discussions will continue in the January 4, 2007 meeting. A final draft will be submitted to the Accounting Standards Oversight Council (AcSOC) for review in AcSOC's February 1-2, 2007 meeting.

AcSB’s Role, Processes, Structure and Resources

The AcSB began discussions of these issues relative to its current terms of reference. The discussions will continue in future meetings, with a view to finalizing recommendations to AcSOC for amending the current terms of reference.

December 4, 2006 Meeting

Internally Developed Intangible Assets

The AcSB decided to maintain the original scope of the project but wants to achieve closer convergence with International Financial Reporting Standard IAS 38, Intangible Assets. The AcSB intends to propose amendments to Section 1000, Financial Statement Concepts, and Section 3062, Goodwill and Other Intangible Assets, for re-exposure in the first quarter of 2007.