Private Enterprise Advisory Committee Notes – October 27, 2021

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.

Other Topics

The Private Enterprise Advisory Committee discussed the following application issues that have arisen in practice:

1. Section 3056, Interests in Joint Arrangements – The Committee discussed the definition of a jointly controlled enterprise and considered whether the existence of a bare trust is sufficient to conclude that a jointly controlled enterprise exists. The Committee agreed that the assessment of whether a joint arrangement is a jointly controlled operation or a jointly controlled enterprise depends on the facts and circumstances of each arrangement and requires professional judgment. The Committee also thought that the existence of a bare trust alone would not be sufficient to conclude a jointly controlled enterprise exists. The Committee did not recommend standard setting.

2. Section 3856, Financial Instruments – The Committee discussed scenarios in practice relating to applying the guidance for retractable or mandatorily redeemable shares issued in a tax planning arrangement.

   The first two scenarios discussed involved preferred shares, mandatorily redeemable by the company upon the holder’s death. These scenarios included life insurance policies whose proceeds factored into the redemption amount of the preferred shares. The Committee considered whether the preferred shares were within the scope of paragraph 3856.23. The Committee thought that sufficient guidance existed in the standard to determine that the tax planning arrangement was within the scope of paragraph 3856.23. The Committee also discussed whether the preferred shares should be classified as equity or a liability; and if the shares are a liability, what guidance should be applied to determine the redemption amount. The Committee thought sufficient guidance existed in Section 3856 to determine whether the shares are equity or a liability. If the shares are a liability, members noted that judgment needs to be applied when measuring the liability and standards other than Section 3856 should be considered. The Committee thought sufficient guidance existed in Section 3856 and in other standards and, therefore, did not recommend standard setting.

   The Committee discussed another scenario involving mandatorily redeemable preferred shares issued in a tax planning arrangement where indirect ownership or indirect control of the enterprise issuing the shares exists. The Committee discussed applying paragraph 3856.23(a), which requires control be retained by the shareholder receiving the shares in the arrangement. The Committee noted the guidance refers to Section 1591, Subsidiaries, where details are available on assessing control. The Committee observed that the AcSB’s podcast series and webinar were helpful in applying judgment to these scenarios and recommended the Board issue a communication directing stakeholders to these resources.