| This summary of Accounting Standards Board (AcSB) projects has been prepared for
information purposes only. Decisions reported are tentative and reflect only the current status of
discussions on this project, which may change after further deliberations by the AcSB. Decisions to publish
Handbook material are final only after a formal ballot process. |
Status: Amendments to Sections 1535, 3855 and 3862 issued.
Background and Activities to Date
Next Steps
Related Information
Contact Information
Background and Activities to Date
The AcSB considered requests from the Differential Reporting Advisory Committee for a number of amendments
to Section 1535, Capital Disclosures, Section 3855, Financial Instruments — Recognition and Measurement, and Section 3862, Financial Instruments — Disclosures. The following two Exposure Drafts were issued as a
result.
Financial Instruments — Embedded Prepayment Options (PDF)
proposed an amendment to the criteria in Section 3855 with regard to determining whether such an option is
closely related to its host. This amendment would be applied by all entities. An option that compensates the
lender for lost interest on reinvestment will be considered closely related to a debt host instrument. The
proposed change would be applicable in fiscal years beginning on or after October 1, 2008 with early adoption
permitted.
Financial Instruments — Non-publicly Accountable
Enterprises (PDF) (NPAEs) proposed changes to Sections 1535, 3855 and 3862 applicable by NPAEs. A Background Information and Basis for Conclusions (PDF) document accompanied
this Exposure Draft.
- Capital Disclosures
Most NPAEs do not have complex capital structures requiring active management. The AcSB concluded that the
value of the information required by Section 1535 to the users of NPAEs’ financial statements is not
justified by the costs of preparing it. However, an NPAE with externally imposed capital requirements will be
required to disclose:
-
- the nature of the requirements and how the entity manages its capital to meet them;
- whether it has complied with the requirements during the period; and
- if it hasn’t complied, the consequences of such non-compliance.
Financial Instruments — Recognition and Measurement
Many common contracts contain features that would be separately measured at fair value. The AcSB decided that
there would be little or no benefit to the users of NPAEs’ financial statements in complying with these
requirements. The proposed change relieves NPAEs from the requirement to consider whether non-financial
contracts are or contain embedded derivatives provided the risks they contain are limited to a change in the
price of the underlying item, a change in an exchange rate and the possibility of a counterparty default.
The AcSB also decided that the cost of reviewing pre-existing contracts for the presence of embedded
derivatives would be excessive relative to any benefit to financial statement users. NPAEs will not be
required to review contracts negotiated prior to the first day of the fiscal year in which it implements the
Financial Instruments standards.
Financial Instruments — Disclosures
NPAEs will not be required to prepare and disclose an analysis of the sensitivity to each type of market
risk. The AcSB decided to provide the relief to all NPAEs on the basis that the disclosures are not helpful
to the users of NPAEs’ financial statements.
After considering comments received, the AcSB decided to amend Section 3855 such that NPAEs and
not-for-profit organizations (NPOs) would make an accounting policy choice whether to apply the provisions of
the standard to non-financial contracts or to derivatives embedded in non-financial contracts, leases and
insurance contracts. Contracts excluded from Section 3855 through exercise of the accounting policy choice
would also be excluded from the disclosures in Section 3862.
The AcSB decided to proceed with amending Section 1535 as exposed. An NPAE with externally imposed capital
requirements will be required to provide information about those requirements while an NPAE without such
requirements will be exempt from the standard.
The AcSB also agreed to proceed with amending Section 3862 such that an NPAE would not be required to
provide certain quantitative market risk disclosures.
Next Steps
The AcSB will review comments received on the Embedded Prepayment Option Exposure Draft after the IASB
redeliberates a similar change that it proposed making to its corresponding standard, Financial Instruments: Recognition and Measurement, IAS 39. In the interim,
non-authoritative guidance will be made available.
- Related Information
-
- Responses to the Financial Instruments — Embedded Prepayment Options
Exposure Draft are available here (PDF)
- Responses to the Financial Instruments — Non-publicly Accountable
Enterprises Exposure Draft are available here (PDF)
Contact Information
Questions or comments on this project should be directed to:
Kate Ward, CA
Principal, Accounting Standards
Telephone: +1 (416) 204-3437
Fax: +1 (416) 204-3412
|
