AcSB

Private Enterprise Advisory Committee Notes – September 10, 2019

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.

Revenue

The Committee considered stakeholder feedback on the AcSB Exposure Draft, "Revenue" and provided advice on staff’s recommendations based on the feedback. Committee members recommended that the Board:

clarify that the guidance related to determining the unit of account and whether to combine or segment contracts is applicable to all types of revenue transactions;
provide decision trees for the identification of units of account and allocation of revenue;
include the residual approach for estimating the stand-alone selling price of an item in multiple-element arrangements when such a stand-alone selling price is not directly observable; and
include an illustrative example for the accounting of upfront non-refundable fees or payments in respect of license agreements.

The Committee also discussed feedback and staff recommendations related to:

costs to include when measuring the degree of completion based on the ratio of cost incurred to total estimated costs;
criteria to consider when accounting for bill and hold arrangements;
the disclosure requirements for different arrangements; and
transition provisions.

The Board will consider the Committee’s feedback at its September 2019 meeting.

Related Party Combinations

The Committee discussed the input received from the related party combinations working group. This included examples of common transactions and feedback on the frequency and variations of these transactions. The Committee discussed whether there are other common transactions that should also be explored.

Overall, Committee members advised considering more complex transactions, such as those structured through holding companies and trusts. The Committee also recommended considering transactions that involve both related and unrelated parties.

The Committee also discussed whether the Board should consider amending the guidance in Section 1582, Business Combinations, relating to the definition of a business. In particular, the Committee discussed the merits of introducing a simplified test to determine whether the assets acquired in a combination constitute a business similar to the concentration test from IFRS 3 Business Combinations. The Committee advised that adding the simplified test to Section 1582 will help reduce challenges with determining whether the assets acquired in a transaction constitute a business.

The Committee also discussed whether the definition of a business should be addressed concurrently with the related party combinations project. The Committee advised that amendments to the definition of a business in Section 1582 should not be undertaken concurrently with the related party combinations project as these projects are not interdependent on one another.

The Committee also recommended that the Board consider:

clarifying the definition of a related party; and
providing guidance on the accounting for a merger of entities (for example, the merger of a parent and its subsidiary where the parent company previously accounted for its subsidiary using the cost method).

The Board will consider the Committee’s feedback at its next meeting in December 2019.

Relevance of Financial Statements

The Committee continued its discussions on the relevance of private enterprise financial statements to provide advice before the Board’s November 2019 strategic planning session. The Committee discussed the reporting requirements of three jurisdictions similar to Canada and advised that the research should be expanded to include additional jurisdictions that have similar characteristics to, and have extensive trade relations with, Canada.

The Committee also considered research on emerging lending trends, and the benefits and challenges with private enterprises in Canada applying frameworks other than Accounting Standards for Private Enterprises (ASPE). Committee members noted that IFRS^® Standards remains an option for private enterprises but think that IFRS for SMEs would not benefit stakeholders as an alternate to ASPE. The Committee further advised that a compliance-based framework could benefit smaller enterprises that currently do not apply a GAAP framework.

The Board will consider the Committee’s feedback at its strategic planning session in November 2019.

2020-2021 AcSB Annual Plan

The Committee discussed topics the Board previously identified as future priorities and which projects to undertake in its next Annual Plan. The Committee advised the Board to consider projects on cloud computing, relief from recognition of intangibles and amortization of goodwill, and accounting for insurance contracts with cash surrender value in the next fiscal year.

Due Process

The Committee discussed amendments to its Terms of Reference and Statement of Operating Procedures.

The Committee supported the amendments to its Terms of Reference and approved the Statement of Operating Procedures for ratification by the AcSB.