AcSB

Private Enterprise Advisory Committee Notes – May 9, 2024

The Private Enterprise Advisory Committee assists the Accounting Standards Board (AcSB) with maintaining and improving accounting standards for private enterprises (ASPE) in Part II of the CPA Canada Handbook – Accounting and with identifying the need for non-authoritative guidance about the standards. The Committee makes recommendations to the AcSB but is not authorized to interpret or provide authoritative guidance on ASPE.

The AcSB staff has prepared this document based on discussions held during the Committee’s meeting. The meeting notes do not necessarily represent the AcSB’s views, and nothing in them constitutes authoritative guidance on acceptable or unacceptable application of ASPE. Only the AcSB can make such a determination.

Relief from Recognition of Intangible Assets and Amortization of Goodwill

The Private Enterprise Advisory Committee discussed potential proposals to include in a future exposure draft. These proposals will provide relief to private entities and as relevant not-for-profit organizations, from the recognition of intangible assets acquired in combinations and allow them to amortize goodwill.

Goodwill amortization

Most Committee members supported reintroducing goodwill amortization as an accounting policy choice. Committee members noted that this approach allows an entity to choose an accounting policy that meets its needs and its users’ needs. One Committee member noted that the impairment charge may be useful information for users and moving away from the might remove that useful piece of information.

Committee members expressed mixed views on a default 10-year amortization period for goodwill. Most Committee members welcomed this practical solution, citing the difficulty in determining the useful life of goodwill. A few Committee members expressed concerns that the 10-year period, while aligned with other jurisdictions, lacks conceptual merits. Most Committee members indicated that, even if a default amortization period is provided, the entity should have the possibility to amortize goodwill over useful life if the entity determines that the latter is more appropriate.

Relief from recognizing intangible assets acquired in a business combination

Committee members agreed that any relief to recognize intangible assets acquired in a business combination should be provided as accounting policy choice, and that this policy choice should be contingent on the entity amortizing its goodwill. Committee members also agreed that this accounting policy choice should be applicable to all in-scope transactions entered into and not on a transaction-by-transaction basis.

Committee members expressed mixed views on the scope of the relief. Some Committee members expressed concerns with not recognizing certain intangible assets that generate income or that could be subsequently sold. Others preferred relief applied to all intangible assets, These Committee members stressed the importance of weighing costs against benefits when providing this information.

Committee members agreed that, if relief is elected, the entity should provide qualitative disclosures about the separately identifiable intangibles that were acquired in the business combination and subsumed into goodwill.

The AcSB will consider input from the Committee and from other outreach activities at its meeting on July 17, 2024.

Insurance Contracts with Cash Surrender Value

The Private Enterprise Advisory Committee discussed feedback on the AcSB’s Exposure Draft, “Accounting for Life Insurance Contracts with Cash Surrender Value,” and the Board’s tentative decisions to address key issues raised.

The Committee supported the AcSB’s tentative decision to not provide a fair value measurement option for cash surrender value of a life insurance contract. The Committee agreed that measurement at the cash surrender amount provides the most useful information and is consistent with how many preparers currently measure cash surrender value of a life insurance contract.

The Committee supported the AcSB’s tentative decision to remove the requirement to disclose the amounts of acquisitions and terminations during the period and to retain the requirement to present change in cash surrender value and policy premiums on a net basis. The Committee also supported revising proposed Accounting Guideline 21, Accounting for Life Insurance Contracts with Cash Surrender Value, to clarify that subsequent measurement of cash surrender value would occur on the entity’s reporting date.

The Committee supported the AcSB’s tentative decision to defer the effective date by one year to January 1, 2026, to provide additional time for implementation of the Guideline. The Committee also agreed with the Board’s tentative decision to provide a consequential amendment to Section 1500, First-time Adoption, to allow the transition relief to apply on a first-time adoption of ASPE.

The AcSB will consider input from the Private Enterprise Advisory Committee as well as the Not-for-Profit Advisory Committee at its meeting on June 19-20, 2024. The Board expects to publish the final Accounting Guideline in Q3 2024.

Strategic Research – Preface

The Private Enterprise Advisory Committee received an overview of the AcSB’s research project on the Preface to the Handbook and preliminary research findings. The Committee discussed the purpose of the Preface and whether the Preface directs entities to apply the most appropriate accounting framework based on entities’ reporting needs and objectives.

The Committee discussed some types of entities, such as co-operatives or sports and social clubs, that apply different accounting frameworks depending on their ownership structure or purpose (i.e., member-benefit organizations versus for-profit clubs). Some members indicated that there can be differences in how these entities operate, which is why a different framework is applied . None of the members indicated that there are issues with how entities use the Preface to determine the part of the Handbook to apply, nor did they indicate that any changes to the Preface are needed.

The Committee also discussed certain types of non-listed entities that apply Part I of the Handbook, and considered whether a different framework such as ASPE would better meet their reporting needs. For captive and mutual insurance entities, some Committee members noted that IFRS® Accounting Standards are relevant as they include a standard on insurance contracts whereas ASPE does not. For smaller, less complex government business organizations, some members noted that IFRS can be onerous to apply; however, a member also noted that scaling the requirement to apply a framework based on size and/or complexity could be challenging.

The AcSB will discuss the Committee’s feedback at its meeting on June 19-20, 2024, as part of its ongoing research project on Evaluating the Preface.

AcSB Guidance Framework

The Private Enterprise Advisory Committee received an update on the guidance framework that was approved by the AcSB in March 2024 to respond to requests for guidance from interested and affected parties.

The Committee discussed how to determine whether an issue raised meets the criteria within the framework for further discussion. This includes questions related to prevalence and diversity of the issue, and the impact of the accounting outcome on users’ decisions. These criteria will be posted on the AcSB’s website for the public to understand the process and to provide transparency on how the Board considers issues.

If an issue meets the criteria, it will be discussed by the relevant advisory committee at a subsequent meeting. The Committee will seek to understand the judgments involved in coming to accounting conclusions on the issue. All this information will be given to the AcSB to determine the appropriate course of action.

The Committee then discussed the importance of the Board performing a risk assessment before issuing a final standard to determine whether areas warrant additional implementation support.

Application Questions

The Private Enterprise Advisory Committee discussed application questions on the following topics:

related party business combination amendments; and
disclosure of accounting policies.

The discussion focused on the prevalence of the issues, diversity-in-practice issues, and how to apply the guidance in the standards and professional judgment to the issues. The AcSB will further discuss these application issues at its May 2024 meeting, and these discussions will be reported in the Decision Summary thereafter.