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.
Subsequent Measurement of Goodwill and Recognition of Acquired Intangible Assets
The Private Enterprise Advisory Committee discussed challenges related to the subsequent measurement of goodwill and recognition of intangible assets acquired in business combinations. The Committee also explored the idea of allowing private enterprises to amortize goodwill and offering relief from the recognition of intangible assets acquired in a business combination.
The Committee expressed concerns about the cost and complexity of goodwill impairment tests. Many Committee members indicated that goodwill often lacks information usefulness for financial statement users like creditors and lenders as banks typically do not factor in goodwill for lending decisions. Therefore, most Committee members supported reintroducing goodwill amortization but as an accounting policy choice.
Most Committee members preferred not separately recognizing some or all intangibles acquired in business combinations, provided goodwill is amortized. They noted that separately valuing intangibles upon acquisition is costly and of limited value to most private enterprise financial statement users because lenders rarely consider intangibles as security and often do not differentiate between goodwill and other intangibles.
Some Committee members suggested qualitative disclosure for separately identifiable intangibles in a business combination, particularly those that can be sold or licensed independently from other assets.
In January 2024, the AcSB will discuss the Committee’s feedback as part of the Board’s ongoing research. The Board will also consider the input from the Small Practitioners Working Group and the Not-for-Profit Advisory Committee then decide whether to advance to the project-proposal stage.
Strategic Research
The Private Enterprise Advisory Committee received an overview of the feedback received on its Consultation Paper I, “Exploring Scalability in Canada,” which closed for comment on July 31, 2023. The Committee discussed scaling solutions from a private enterprise perspective, including proposals to simplify or implement tiering in Part II of the CPA Canada Handbook – Accounting, and the need for a new framework for smaller entities.
The Committee discussed feedback received on Consultation Paper I that indicated that Part II of the Handbook is too complex, with Committee members providing mixed views on this feedback. Some thought that some standards in Part II of the Handbook are too complex to apply or result in information that is not useful to financial statement users. Examples provided include accounting for financial instruments, related party transactions, business combinations, and employee stock options. Other Committee members thought that many of the challenges that private enterprises face when applying these standards are because the underlying transactions are complex, not necessarily the standards themselves.
At its January 2024 meeting, the AcSB will consider the feedback from the Private Enterprise Advisory Committee, the Not-for-Profit Advisory Committee, and the Small Practitioners Working Group in determining next steps on this project.
Amendments to Frameworks in Other Jurisdictions
The Private Enterprise Advisory Committee considered recent amendments issued in other jurisdictions to assess whether any of the amendments would provide significant benefit to Canadian private enterprises reporting under Part II of the Handbook. The Committee discussed amendments made to the following frameworks:
- IFRS® Accounting Standards issued by the International Accounting Standards Board (IASB);
- U.S. generally accepted accounting principles (GAAP) issued by the U.S. Financial Accounting Standards Board (FASB);
- Public Benefit Entity Standards issued by the New Zealand External Reporting Board (XRB); and
- Australian Accounting Standards issued by the Australian Accounting Standards Board (AASB).
The Committee discussed the IASB’s amendments to International Accounting Standard (IAS) 1, Presentation of Financial Statements, relating to the classification and disclosure of non-current liabilities with covenants. The Committee indicated that, based on the current guidance in Part II of the Handbook, disclosing covenants to be complied with after the reporting date is inconsistent in practice. So, clarifying the disclosure requirements within the standard would be helpful. While the Committee agreed with the concept of the amendments made to IAS 1, if considered for Part II of the Handbook, some Committee members noted revisions would be required for the amendments to meet private enterprises’ needs.
The Committee also discussed amendments issued by the FASB, IASB, and AASB relating to disclosing supplier finance arrangements. The Committee indicated that disclosing these arrangements is useful to financial statement users and recommended that the AcSB consider a similar disclosure requirement in ASPE.
Finally, the Committee discussed the XRB's amendments relating to disclosing total fees paid to an entity’s audit or review service provider. The Committee noted that this information is already communicated to those charged with governance and therefore further disclosure in the financial statements is not needed.
The AcSB will consider the Private Enterprise Advisory Committee’s feedback at the December 2023 Board meeting.
Annual Plan
The Private Enterprise Advisory Committee discussed potential new projects to assist the AcSB in developing its 2024-2025 Annual Plan. The Committee recommended that the Board prioritize projects concerning the measurement of investments in a related party transaction and related party combinations.
The Committee also discussed the potential costs and benefits of adopting a control-based model for the recognition of revenue currently addressed in Section 3400, Revenue in Part II of the Handbook. The Committee noted that the costs and complexities of moving to a control-based model would likely be significant for private enterprises, and questioned whether it would result in different accounting outcomes for these entities. The Committee suggested that these costs could be reduced if the AcSB provided adequate transition relief to entities.
The AcSB will consider feedback from the Private Enterprise Advisory Committee and the Not-for-Profit Advisory Committee, and the results of its Future Domestic Work Plan Consultation Survey in December 2023 when it begins developing next year’s annual plan.
Other Topics
Uncertain tax positions
The Private Enterprise Advisory Committee discussed an application question raised relating to uncertain tax positions and whether application guidance and/or standard setting is needed. The Committee noted that although explicit guidance does not exist in Part II of the Handbook, other guidance does exist that can be applied. Some Committee members apply Section 3290, Contingencies, while other members look to guidance in other jurisdictions using the GAAP hierarchy. The Committee recommended that the AcSB consider application guidance in this area to clarify which guidance should be applied when uncertain tax positions arise.
Non-reciprocal, non-monetary transactions
The Committee also discussed an application question raised relating to a non-reciprocal, non-monetary transaction. In the scenario considered, a start-up entity occupies part of an unrelated party’s building and is not charged rent. The questions considered are whether Section 3831, Non-monetary Transactions, applies and how the transaction should be measured.
The Committee considered three different views for the measurement of the transaction:
(a) View A: Measure the transaction at the fair value of the consideration received in accordance with the concepts in paragraph 3831.06;
(b) View B: Paragraph 3831.06 is not applicable because an asset was not exchanged by the entity and therefore the transaction is measured at the carrying amount of nil in accordance with paragraph 3831.07; and
(c) View C: Section 3831 is not applicable and another standard, such as Section 3400, should be considered.
Most Committee members indicated that they have not seen this type of transaction in practice and think it would be quite rare. In considering the options above, some Committee members noted that while options may not be extensive, View A or View B could be supportable. The Committee agreed that it would be important to understand the business rationale behind the transaction and ensure that the transaction, including the measurement basis, is adequately disclosed in the financial statement notes.