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Eric English: Okay. I think everyone’s on now. So, let’s go ahead and get started. Good afternoon, everyone, and welcome to today’s Domestic Accounting Standards Update webinar.
Just to note that attendance at this webinar and successful completion of the quiz may count towards your CPD requirements.
A link to the quiz will be displayed at the end of the session and also included in the chat. Upon successful completion of the quiz, you’ll be emailed a certificate for your records.
I note that slides will be available for download a couple of days following the session.
Before we get started, a quick reminder that the opinions stated today reflect those of the presenters and do not necessarily reflect the views of the Accounting Standards Board.
On behalf of the Accounting Standards Board, it is now my pleasure to introduce today’s speaker, Armand Capisciolto.
Armand is the Chair of the Canadian Accounting Standards Board. He has served on the Accounting Standards Board since 2015, including as a member, Vice-Chair and now Chair.
His extensive experience as a standard-setter also includes chairing the AcSB’s Private Enterprise Advisory Committee and membership on the IFRS Accounting Standards Discussion Group. A quick introduction to myself as well. I’m Eric English, a Principal of the Accounting Standards Board staff.
I work closely with the Board, external parties, and volunteers to develop high-quality accounting standards and other guidance for public companies, private enterprises and not-for-profit organizations.
I’m also the current Secretary of the Accounting Standards Board’s Private Enterprise Advisory Committee.
And briefly review our agenda for today. In this session, we will cover: the AcSB’s strategic and annual plans, recently issued or effective domestic standards, the AcSB’s current work plan for domestic standards, and other occurring events and activities that the AcSB is undergoing. If you have any questions throughout the webinar, you can type them into the Q&A function as we go along.
And depending on time, we’ll try to get to as many as we can at the end of the session.
So before moving forward, we wanted to do a couple of quick polls to get to know who’s listening to today’s webinar live.
And so our first poll is: What is your current role? So, I’ll just push the poll out. We’ll get everyone a moment to respond here.
Okay, just a few more seconds until we have everyone.
Okay. And so it looks like we’re mostly … we have a lot of practitioners or professional advisors. And … but then still a good mix of financial statement prepares, and still a few users out there as well. So, that’s great to hear. We have a have a good mix.
Okay. And then one more question. I’ll push this out: What category of reporting entity is most relevant to your current role?
And will give everyone another moment to answer that polling question.
Okay, I think we have mostly everyone there.
Okay. So, mostly private enterprises, but still a few not-for-profit organizations. And a few people, at 20%, have said they’re all relevant to my current role. So, I think there’ll be some good material for the participants that we have here today. So, with that, I will now pass it over to Armand to discuss our first agenda item.
Armand Capisciolto: Okay. Thanks, Eric. And welcome, everyone, to our update today. If we go to the next slide …
So, when we look at our strategic and annual plans … We set our strategic plan every five years. We’re currently working on our 2022-2027 strategic plan, and that plan drives our annual plan, which we’re now in our 2024-2025 annual plan. And when we talk about our strategic plan… Go to the next slide.
We have three key areas of focus strategically that we’re working on. So again, we’re in the third year of a five-year plan, so, moving many of these strategies forward. And the first is what I’ll call our bread and butter. What we do, what most people think about when they think about what the Accounting Standards Board does, is we deliver relevant high-quality accounting standards. So that’s our standard-setting, our issuing of guidance, which we’ll talk a little bit about later on. In addition to that, we have to acknowledge we don’t operate in a vacuum. There’s other reporting that organizations do. So, we want to support, improving the quality of reporting beyond the traditional financial statements, but very much focus on how those different reporting interact with financial statements.
And the last strategic pillar of our strategic plan is growing–the Accounting Standards Board’s international influence–which impacts how we influence the IASB, which ends up being Part I of our Handbook, the IFRS Standards, but also our influence in promoting best practice. Whether we’re on international committees related to developing international not-for-profit standards doesn’t mean we’re going to adopt those standards by any means. But it’s being part of the national standard-setting kind of environment and ensuring that we are influencing the international process.
As far as our annual plan goes, we have a number of things outlined. It’s a great read. I’m sure you’ve all read it already. I’m going to focus mainly on our domestic one when I talk about this. So, and we’re going to talk about this in more detail. But from a domestic standpoint, we have a number of projects we’re working on: insurance contracts, cash surrender value, scaling the standards, goodwill and intangible assets. We’re dealing with some application guidance. We’re dealing with contributions for not-for-profits. We’re dealing with pensions.
All of which will be discussed in a little bit more detail later on in the session. As well domestically, we are going to start having discussions about the post-implementation review related to redeemable … retractable or mandatorily redeemable shares (I like to refer to it as ROMARS) and discussing whether there’s a need for an invitation to comment, or whether we can just get comments from our advisory committees to complete that post-implementation review. Also, looking at all the great input that we received from all of you. We had a survey–a domestic work plan survey–and people … a lot of people responded to it. So, we’re again incorporating the feedback we received in that survey into our plan and into the projects we’re working on. But … so, we have quite a bit on our plate from a domestic standpoint. And that’s in addition to moving some of the international projects forward. So, with that, I will turn it back to Eric, who will go over some recently issued or amended domestic standards.
Eric English: Okay. Thanks, Armand. So, as Armand said, we’re now moving on to our next agenda item, domestic standards or amendments that have been recently issued.
As the slide summarizes the key domestic standards and amendments, and the effective dates for each of these projects. So, as Armand mentioned, we have been quite busy over the past couple of years, and we have a lot of things that continuing to work on this year, too.
One amendment we wanted to highlight on this slide is Related Party Combinations, which becomes effective for year-ends on or after January 1, 2025.
These amendments arose from concerns the AcSB had heard regarding complexities in applying Section 3840, Related Party Transactions.
In response, the Board published this narrow-scope improvement, which addresses accounting for: a combination between enterprises or businesses under common control, and financial assets acquired or financial liabilities assumed in a combination between enterprises undercoming control.
There is one area of judgment you’ll need to consider when implementing these amendments. They include an option in paragraph 3840.44(b), when carrying amounts are used to account for the combination. An entity can choose to retrospectively restate prior periods or prospectively account for these transactions.
When determining which option to use, it may be important to consider the needs of financial statement users, amongst other factors, as part of your assessment.
In response to the Exposure Draft consultation, the AcSB also heard concerns regarding related party combinations, which were outside the scope of the project.
The AcSB will continue to consider these concerns as part of future work plans.
More information on each of these topics is included in appendix to these slides that you can refer to afterwards.
I’ll now pass it back to Armand to kick off the discussion on our domestic work plan.
Armand Capisciolto: Okay. So, let’s start getting to some of the details of the projects we’re working on. So, Scaling the Standards.
We issued a Consultation Paper last March–so, March 2023–of exploring different options for scaling the standards. In that feedback statement–or in that Consultation Paper–we had ideas about tearing standards, we had ideas about issuing new frameworks.
And what we heard back–we did a lot of consultation on that; we spoke to a lot of people about it–and what we heard consistently was people didn’t really want any more frameworks. They didn’t want any new frameworks. But what we also heard consistently from people was Part II is too complex.
And to be honest, that surprised us as a Board a little bit. But that doesn’t mean we don’t need to do anything with that. So, it was a surprise. So, we need to look into that. So, what are we doing? So, if we go to the next slide… The Board has approved a project that we are referring to as a detailed review of Part II.
And what this is we’re going to look at each standard and try to identify: What are the challenges? What is creating this complexity that people told us about? And in many cases, people gave us specific examples. And then we’re going to look at where those complexities are and consider, well:
Is there a simplification needed to the standard? Is there optionality that maybe needs to be added?
Are the requirements fine, but the drafting is just really, really hard to read, and we need to think about redrafting it? Or in many cases, is there nothing to do? And at the end of the day, where we’re making these changes, where we decide to think about changes, where we decide to include optionality? For me, anyway, one of the key things is as long as I’m not impairing the decision usefulness of the information to the users, are there simplifications that can be made? So, we’re going through that process now. The staff are going through standard by standard. We’re talking to our committees about these issues standard by standard, and there will be a second Consultation Paper next year outlining our potential solutions to, as I said, simplify some aspects of ASPE without necessarily impairing the decision usefulness of the information that’s provided to users.
So with that, we’d like to get a little bit of feedback from you on: What do you think some of the more challenging areas are? So yes, we’ve heard, these are ones that have come up on a bit of the feedback, but I’d like to hear from you. Of these four, which is the most challenging?
Eric English: We’ll just give everyone a few more seconds to respond there. We have most responses.
Armand Capisciolto: And, Eric, we’ve only allowed them to choose one, right? I’m sure some people would choose all four if they could, right?
Eric English: Yes, I think we forgot the “all the above” option.
Armand Capisciolto: But not surprising, we’re seeing 3856, Financial Instruments, gets almost 50% of the vote. Business Combinations coming in second there. Revenue and Related Party Transactions a little bit lower. But I think this comes down to maybe all of them are that because I know when I think about some of the areas where we get them, a lot of questions right now, or a lot of issues are raised to us, Revenue and Related Party Transactions are high up on that list.
So, it may not be that the people who answer Financial Instruments or Business Combinations don’t think those other ones are complex; just they only are able to choose one.
But the fact that 29% of you mentioned Business Combinations, I think, is a perfect segue into the next project we want to talk about, which is a Subsequent Measurement of Goodwill and Relief from Recognition of Intangible Assets.
This has been an item that has been on our potential project list for some time. And we’ve made the decision this year to move it forward. And I think most people, I would hope, understand the current requirements, and ask me for dealing with goodwill and impairment and the identification of intangibles.
But what we have heard, and we’ve heard this a lot, is that identifying and measuring intangibles in a business combination when you’re performing that purchase price allocation could be very costly and subjective.
The goodwill impairment test when there’s indicators is also very costly to perform. So when we think about accounting standards, both of those are high on the cost side.
But when we talk to users or some users, primarily lenders, a lot of them tell us:
We’re not overly interested in what the goodwill number is, or what the intangibles are, because those aren’t necessarily things we’re going to lend against. So, it’s a high cost …
These are high-cost standards with limited benefit. And if we’re not achieving that cost-benefit test, maybe we need to do something about that as standard-setters. So, we are working towards an Exposure Draft that would allow some optionality. And that optionality would be to provide optional relief from recognizing certain or all intangibles. We’re still debating whether it’s certain or all in a business combination and also an option to allow the amortization of goodwill. So, we think it could significant … [inaudible]
[inaudible]… for any of these choosing to take this option on but not having to measure all intangible assets, and then wouldn’t eliminate impairment because you’d still have to look at impairment of goodwill if indicators exist. However, if impairment is declining over time, the number of times you might have to do an impairment test might decrease substantially. So, trying to reduce the cost but still providing that optionality because we know some users may care about this, and therefore companies may want to still do what the current accounting is.
We are doing round tables actually before the Exposure Draft to inform us so we know as much as we possibly can know about what people think about these issues. Before we issue the Exposure Draft, there’s English events on the 27th of May and June 12th, and a French event on May 30th. So, sign up and let us know what you think about where we’re going with this project. But we’re also going to give you a chance to let us know what you think now with a couple of polling questions. So, the first polling question: If we allowed amortization of goodwill, if we reintroduce it, should it be optional? Or should it be mandatory? Or you’re not sure.
Okay. Looks like the numbers are coming in. And a pretty strong majority that should be a policy choice, so optional. And if you want to vote again on this, outside of this webcast, you can follow me on LinkedIn. And we have some polls posted on LinkedIn, so feel free to share there. But if we go to the second poll then, which is related to the other aspect of this: If relief from recognition of intangibles is provided, should it be provided on all intangibles acquired or only certain intangibles, or we shouldn’t even go down this path, and no relief should be provided?
A slight majority for yes, it should be for all; a little less than the majority we saw for the goodwill amortization though. So again, thank you for participating in those polls and providing us with that input.
Okay. Switching gears a little bit to Contributions.
So, again, March 2023, we issued an Exposure Draft proposing a lot of things related to contributions, including moving to a single approach for recognizing revenue from restricted contributions.
And, as most people know, there’s currently an accounting policy choice. So, that was issued in March; sort of draft period ended in in September. And we received a lot of feedback during that period.
And we also did additional outreach after September. And the reason we did additional outreach is we had very mixed views on the proposals.
So, we’re doing some outreach to get a better understanding of what users wanted, also, kind of throwing some other options out there to get people’s feedback. And again, more mixed views. Yes, a lot of mixed views. But what we did hear in that addition, that period of additional outreach, was:
Although users said a single model would be helpful, they said they are not having any problems working with two models and they can actually navigate the two models pretty well.
The other thing that we heard in the preliminary outreach and the additional outreach we did is when you look at the not-for-profit sector, to call it a sector is actually probably misleading, because there’s so much in there, right? There’s some broader public sector stuff that meets the definition of not-for-profit organization. There’s charities. There’s foundations. So what we heard is a single recognition model. It doesn’t meet the diverse needs within this group that we call not-for-profit organizations.
And based on what the users told us, the cost of moving to a single model could be quite high. However, there’s limited benefit, because the users are telling us they can navigate the two models.
So, all that being said, what does that mean? The Board decided we need to pull back on our original proposals of moving to one model and allow that … continue to allow … accounting policy choice.
So, what does this mean? What are the next steps? We’re not abandoning this project, because what we did hear is we did hear a lot of positive feedback on certain aspects of the proposals. For example, clarifying the definition of what a restriction is, clarifying what an endowment is, some of the disclosure and presentation items that were proposed–people like those and thought they would improve the information that was available.
So, we are working on a second Exposure Draft. And how I would describe what this second Exposure Draft is going to be? It’s going to be improvements to the two models. So, we’ll still allow two models.
However, by clarifying and improving the guidance, the news, the two standards will be applied more consistently but still having two models.
So, we’re working through … Again, as many people know who followed this project, the original proposals looked a lot like the deferral method. And so a lot of the targeted improvements are already embedded in that original Exposure Draft. But now we have to work through some of the issues that exist with the restricted fund method, because one of the things we did hear from people who did like the proposals was there are issues in applying the restricted fund method, and therefore, the deferral method didn’t necessarily have those issues. That’s why they like the proposals versus us going the opposite direction. But what we did hear in those discussions was, there are current issues that need improvement in how the restricted fund method is applied. So, we’re working through those. We’re going to take our time to get it right. And a second Exposure Draft will be coming in the future. If you want to know more about this, we will be issuing a Feedback Statement. I believe it will be out this week. It’s supposed to be out this week. And this will outline for you some of the feedback we heard, why we made the decisions we made as a Board, and also outlines the path forward.
So, be on the lookout for that, and give it a read. I think you’ll find it very informative.
And with that, I will turn it back over to Eric, who will talk about some changes coming or proposals coming [inaudible] to pension plans.
Eric English: Thanks, Armand. So, the AcSB conducted research and developed proposals to improve the presentation and disclosure of investments held by pension plans under Part IV of the Handbook.
The proposals seek to make improvements in three areas, that being: fair value disclosures, disclosures of interest in investment vehicles, and presentation and disclosure of investment expenses. In developing these proposals, the Board consulted with its Pension Plan Advisory Committee.
The Board plans to issue an Exposure Draft in Spring 2024 with a comment period of at least 90 days.
We will be conducting outreach to inform interested and affected parties about this Exposure Draft and to obtain feedback on the proposals, including French and English roundtables, to tentatively take place in Fall 2024.
The project page, which has been linked on this slide, will be updated as events are scheduled, and you’ll be able to find registration links there.
You can also view the project page to see updates on next steps and timelines.
The AcSB is also currently undertaking a research project related to Section 4450, Reporting Controlled and Related Entities for Not-for-Profit Organizations.
At its meeting in March, the Board decided that their research will not include changes to the current choice between consolidating and disclosing controlled entities for not-for-profit organizations.
Instead, the Board discussed that the purpose of the project is to improve the transparency of the financial statements for financial statement users regarding the relationship that entities have with related and controlled entities.
The AcSB approved a project proposal to amend Section 4450 to improve the disclosures related to controlled and related entities;
introduce illustrative examples to assist in the application of the definitions of control, significant influence and economic interest in not-for-profit organizations in Section 4450;
and revisit the current definitions of control, significant influence and economic interests held in not-for-profit organizations, if necessary, based on any relevant findings gained from the development of illustrative examples.
At the March 2024 meeting, the Board discussed feedback received on the project, and proposed next steps to develop illustrative examples to support the application of definitions in Section 4450.
These steps include the forming of a small focus group of experts who will help to provide a better understanding of the diverse scenarios encountered in practice.
Consultation with the working groups and advisory committees is tentatively scheduled for March to July 2024.
Following these consultations, the AcSB will review feedback and begin to develop proposals later in the year.
Insurance contracts with cash surrender value is a project taken on by the AcSB to address diversity and practice in this area.
Parts II and III of the Handbook did not specifically address this topic. The Board issued an Exposure Draft in November 2023, which closed for comment on January 31, 2024.
The Accounting Guideline is expected to be issued in September 2024. Based on feedback received and the proposed guidance in the Exposure Draft, the Board has decided that the Accounting Guideline will require recognition of cash surrender value as an asset in the balance sheet, measured at the cash surrender amount;
require recognition of the annual change and cash surrender value and premium payments in the income statement on a net basis where the net debit is reported as an expense, and the net credit is reported as income.
It will require disclosure of the carrying amount of cash surrender value in aggregate for all insurance policies with cash surrender value, and the caption in the balance sheet that includes cash surrender value, if not separately presented.
It will require disclosure of the caption in the income statement that includes the change in cash surrender value, if not separately presented on the face of the income statement.
And lastly, will defer the effective date of the proposed guideline to year-ends beginning on or after January 1, 2026.
Note that this Accounting Guideline will also be applicable for not-for-profit organizations.
This slide highlights a couple of research projects that the Board is currently working on. As part of the AcSB’s strategic plan, the AcSB committed to evaluating the Handbook’s Preface to assess whether the applicability of each framework to each reporting into the category meets current needs.
The AcSB will work to identify the types of entities that are directed by the Preface to apply an accounting framework and explore if their financial reporting needs are adequately met.
If not, the Board will also explore alternative options and consider if changes to the Preface are needed.
Another research topic the AcSB is currently undertaking relates to Financial Statement Concepts.
At its April meeting, the AcSB reviewed research performed to date on this topic and discussed the benefits of a potential Financial Statement Concepts modernization project.
The Board agreed that Financial Statement Concepts in Parts II and III should be reviewed to ensure they are fit for purpose for Canadian entities.
While a modernized set of Financial Statement Concepts would not be expected to significantly impact the application of existing account and standards, an updated set of concepts could benefit preparers and practitioners. It could include additional guidance to assist in applying authoritative standards, help to determine accounting treatment in emerging areas where standards do not yet exist, or assist in areas that require judgment.
From the Board’s perspective, having modernized definition of financial statement elements could also help us to set standards in response to emerging issues.
The AcSB will discuss a project proposal for Financial Statement Concepts at its June 2024 meeting.
So before moving on to some of our other topics, we would like to ask a polling question to gather your thoughts on our Financial Statement Concepts project.
I’ll just push the question out here: What is the most appropriate way to describe how you apply or use the Financial Statement Concepts in Parts II and III of the Handbook?
We’ll just give everyone a moment to reply there.
Okay, one more second, and then we’ll display the poll results.
Okay, so we have a little bit of a split here between As Application Guidance or As Guidance When No Standard Exists. And then a few–about 19%–saying that they don’t use the Financial Statement Concepts. And I think could see that we only have 1% using it As a Replacement for Handbook Standards.
Armand Capisciolto: Okay. That 1%. We’re worried about that 1%.
This is this is very helpful. Glad to see that most are in B and D, but A is okay as well. This is good to know as we move forward with this project.
Eric English: Great! Yes, anyways, I’ll pass it back now to you, Armand. Speak about other current events and activities, and unless you wanted to comment on some of these survey results a little bit more.
Armand Capisciolto: No, it’s very helpful for us to know this.
When I think of finance, concepts are obviously very important. People are using it or are using them. Majority said. But they’re also very helpful, very important to us as standard-setters to make sure we’re setting standards in a consistent fashion and are really our framework for ensuring we’re consistent and how we’re applying the definition of an asset and how we’re applying the definition of a liability and to be very transparent with people … part of the discussion on contributions. And you’ll see … I believe you’ll see this in the feedback statement is there was a lot of debate on what is the definition of a liability. And modernized concepts would potentially help us in standard-setting in that in dealing with some of those tough questions.
But as we move on and talk about some other things, and we’re going to talk about Guidance.
The first thing I have to kind of level-set is what the heck are we talking about when I say we’re going to talk about guidance.
Because our standards are guidance, right? When we talk, there’s authoritative guidance, which is the actual standards in the Handbook, as well as the Accounting Guidelines that we issue, such as the one that we’re close to issuing; on that, Eric just spoke about relates to insurance contracts with cash surrender value. So those are authoritative guidance.
There’s also non-authoritative guidance–non-authoritative guidance or some non-authoritative guidance that is actually in your Handbook, such as the Basis for Conclusions. If you don’t read Basis for Conclusions, I highly recommend reading Basis for Conclusions.
It really helps with the interpretation of standards, because it explains why the Board decided what it did. So, if you’re looking at a requirement in the standard, and you can go to the Basis and see what kind of the process the Board went through in making its conclusion related to that paragraph, that will give you insights in applying the standard. And those are in your Handbook for you to read and apply.
But there’s also things outside of the Handbook. There’s In Briefs publication. There’s webinars. There’s podcasts. I’ve heard there’s some really good podcasts on the application of ROMARS. If you’re ever having questions on that, you should check out that are out there.
And we think of guidance. We also think that guidance doesn’t necessarily always come from the standard-setter. There’s others that issue guidance that’s very helpful and people should look at.
However, we decided that we needed to develop a framework for issuing guidance. And the reason we decided as a Board–and we say this framework, it’s a framework for us as a Board to make decisions–because we have been getting a lot of queries that practitioners, preparers are dealing with in practice. And we had to, as each of these come in, decide if we’re going to do anything with them. And up until working on this framework, we kind of had an ad hoc approach of which issues we would take on, which ones we wouldn’t take on. We’re necessarily transparent about why we were taking things on and not taking things on. So, this framework will help us be more consistent in what we do take on and be more transparent in communicating back to you why we’re not taking something on or are taking something on.
So, if we go to the next slide in this beautiful diagram, which I’m going to walk through … But you don’t need to know the details about everything on here. But I just wanted to walk through this so you understand the process.
So, individuals, committees at outreach events … Various issues get brought to us.
On our website, if you have an issue that you want the Board to think about, there’s actually mechanisms on the website to submit issues.
So if you have something, you can use that.
But like I said before–right now, we are getting these issues, and we are making these ad hoc decisions.
What we’re going to do in the first step is, once we identify the issue, the first step is now to determine if this is something the Board should take on. We don’t have all the time in the world. There is only so many hours in the day. There’s only so many resources. So, we have to make sure we’re spending our time on the right things.
So, through our committees, through some offline outreach, we need to look … when an issue is submitted, we need to look at three things to determine whether we’re going to take it on: (1) Is there actually diversity in practice? Because if there isn’t diversity in practice and everybody’s doing the same thing, they’re probably doing … there probably isn’t a problem if there isn’t diversity. (2) Is the issue prevalent?
This is important because the Accounting Standards Board is by no means a help desk. So, is this a one-off issue? Or is this a relatively common issue that’s impacting a number of entities and therefore is prevalent?
And therefore something that is prevalent, and there’s diversity, that’s starting to hint towards … well, there might be some standard-setting needed, or something for the Accounting Standards Board to do.
And then the last thing we would look at, and this would be through outreach, through some of our user networks that we utilize, including user members of our committees, is: What is the impact on the decision of users?
Again, diversity isn’t necessarily always a bad thing. And, to be honest, if you want principle-based standards, and you want the application of professional judgment, there will be diversity. It’s inevitable that there will be diversity if you have principal-based standards and the application of professional judgment. But if that diversity isn’t not necessarily impacting the decisions of users, is it a problem? Is it something for us to deal with? So that’s the first step through our committees, through some offline outreach, to determine if it’s even worth us discussing. And we will–if we decide it’s not worth discussing–we will communicate back to the submitter as to why we didn’t think it met this criteria to discuss.
That will then lead us to the next step, which is actually discussing it at our committees–so, our private enterprise advisory committee or a not-for-profit advisory committee or a pension plan advisory committee–the various committees we have for the various parts of the Handbook.
And again, we are talking with domestic standards here only. When we talk about IFRS, that’s a whole different ball game.
So, we will then discuss the issue at our committee level, and we have preparers, practitioners, users that are committees.
And especially if these issues are prevalent, these will be issues that many of our members of our committees have actually dealt with.
And as a result, we want to get some input from them: Well, you dealt with this issue. You came to a conclusion.
How did you come to a conclusion? What was some of the judgment that you applied in coming to that conclusion?
So, what we’ll do with that, we’ll have that discussion. All that discussion will be noted. It will not end up in the meeting notes of that committee. But we will mention that we discussed it, and it will then get all of the information on diversity prevalence impact, as well as the judgmental discussions that occur at the committee level will be forwarded to the Board. The Board will then discuss the issue, and the Board will make a decision what is standard-setting needed. If standard-setting is needed, we’ll consider adding it to our project. We’ll add it to our project list and see where it fits in, depending on the urgency. But if we decide that standard-setting is not needed, what we will do is in our decision summary is outline why we don’t think standard-setting is needed. And in many cases of the issues we dealt with to date, we have concluded that that standard-setting isn’t needed because the Board felt professional judgment could be applied. But just saying “apply professional judgment” isn’t very helpful. So what we want to do is in that decision summary provide some insights as a Board as to where that professional judgment can be applied, how you might think about applying professional judgment in those circumstances so that our decision summary provides some guidance as to how the issue could be dealt with.
And, therefore, our decision summaries, the Board’s decision summaries, will be kind of the source of this guidance. And we’re still working on some of the logistics of this and that. Eventually, we’ll have a searchable database for these issues on our website so you don’t have to remember that in February of 2004 the Board discussed this issue, have to remember that seven years later. We’ll have some searchable items there. Our website will also be updated to have the criteria we’ll be using to assess whether these issues are even worth the Board discussing will also be available on the website. At the at the end of the day, what we want from this, I think, in addition to providing some guidance through the decision summaries … And in some cases, we might decide other action is appropriate whether it’s a publication or a webinar or a podcast–whatever it is–we might decide in addition to the decision summary, there is more needed. But the other benefit, I believe, of this is transparency and how we’re making our decisions. And, hopefully, as we do some of these, and we illustrate how the Board intended professional judgment to be applied when writing the standards, hopefully, that in itself is guidance for other issues. And the people can look at that and say, “Wow! This is how they want a professional judgment applied in this situation. Maybe I can apply it the same way in a different situation.” So, we think these can be helpful beyond just the issues at hand. It’s early days. We just approve this. We’re going through our first … Actually, our last PIAC meeting, we discussed a couple of issues, and the Board will be discussing a few of those issues under this new framework at our next meeting. So it’s early days. We’re going to tweak and adjust as necessary as we learn from this exercise. But we hope people will find what we’re doing useful and helpful. And if not, we’re here to listen. And tell us, and you can give us some input into this through the various means you can … that you can reach out to the Board.
So, that is our guidance framework. Staying on the topic of guidance. We are going to be issuing some Non-authoritative Guidance in the near future.
Climate risks and opportunities are something that gets talked about related to sustainability standards. But just because these … If they’re risks, they’re risks regardless of whether an entity is having to report on sustainability or not. And those risks, ultimately, will eventually make their way into the financial statements. I like to say everything eventually ends up as a debit or a debit and a credit. And those risks changing consumer sentiment–all those things–they impact future cash flows and business models and therefore financial performance. So we are not … There’s no specific standard related to climate-related risks in Part II and Part III, but that doesn’t mean the risks don’t exist and then those risks don’t potentially impact amounts recorded in the financial statements. So this mini-series of publications will talk about the existing standards and how some of those risks will manifest themselves in the application of those standards. So, be on the lookout for this–a series of publications.
It’s an important topic. So with that, I think I’m turning it back over to Eric to talk about how you can get involved and contact us.
Eric English: Thanks. Thanks, Armand. So, we want to know what you think. And we’re always interested in hearing from you. You can send us a question or comment directly on our website, which is linked on this slide. Just noticed. I know we’ve gotten a couple of questions in the Q&A. These slides will be available on our website. And [inaudible] a couple of days after the presentation, which you will find some of the links we’ve been referring to.
You can also share your views by volunteering to join an advisory committee or one of our working groups.
We post volunteer opportunities on our website, or you can reach out to one of the staff contacts on this slide to find out about any open opportunities, join a committee or working group.
And to stay up to date on the AcSB’s activities, register for an account on the FRAS Canada’s website and subscribe to our bi-weekly e-newsletter, the Standard.
And we’ve also included our social media links on this page, which you can use to follow and keep up with our activities.
Finally, this page includes a link to our website, where you can find more information on some of our ongoing projects.
And so, lastly, this includes a link to our post-webinar quiz on this slide. We’ll also include a link to the quiz in the chat. You can use this QR code. If you have your cell phone, you can scan the QR code and access the quiz there. But it will be posted in the chat and will also be available in these slides emailed out in a couple of days.
So, you will be able to access that in due course.
So that brings us to the question period of today’s session. Just a reminder: If you haven’t already, you can submit a question using the Q&A function in the chat, and we’ll try to get to as many questions as we can before the end of the session.
So, let’s take a look here. Armand, I saw one come up on our project on Goodwill, Amortization and Relief from the Recognition of Acquired Intangible Assets in the Business Combination.
The question is: Is this proposal surrounding goodwill release and recognition of intangible assets in a business combination intended to align with the private company expedient under U.S. GAAP.
Armand Capisciolto: Great question! I don’t know if it’s intended to align. Well, I’d say, it’s inspired by. It’s one of the inspirations related. And, to be honest, this has been on our potential project list for a while since the U.S. put out their private company expedient related. That’s where a lot of their requests came for us to do the same.
It’s going to be similar … Where we’re going, it’s going to be similar in the optionality. Calling the area of debate that we’re struggling with is the U.S expedient on the recognition of intangibles only–
and I may be getting this; I might not be 100% right in this–only applies to customer-based intangibles. So, it does not …
It does not … We add a polling question: Should it be all or some? And majority said: all. Well, in the U.S., it’s not all. It’s just customer-based ones, and ones that can’t be sold, including ones that can’t be sold … yes … that are caught.
So, we’re potentially exploring going a little farther with the number of intangibles that we’re saying could be subsumed into goodwill. The other area–and I see another question that came in, Eric, on use of life of goodwill and the amortization period–this is also an area that we’re currently debating and looking forward for people attending the outreach sessions to provide their input. So, the U.S., their approach with the amortization period is to a default to 10 years and a max of 10 years. If you cannot determine … if you cannot determine ... sorry. If you can determine a use of life, it only goes to 10 years. It’s the maximum. But if you can’t, there’s a default of 10 years. So, we’re having some debate on whether we have a default or not. If we have a default, is it also a max?
Again. Some of these are some of the things that we’ll be exploring with people at the outreach sessions. I think the one thing is when you’re subsuming some of these intangibles into goodwill, I think you’re adding things to goodwill that aren’t really goodwill that actually have useful lives. So, I think it does become …
If I’m subsuming a bunch of customer lists in and I think the customer lists only have a life of five years, that might be helpful in in determining: well, maybe I should use five years for my goodwill in general. So, again, these are … the question was highlighting the assurance problem with it. Yes. That’s why we’re contemplating a default and a max in our discussions. But again, more debate on this to happen at the outreach sessions.
Eric English: Thanks for those, Armand. So, another question that came up around our guidance framework is: Now that GASPE isn’t being updated, practitioners are lacking in application resources.
Are there any thoughts to providing more application resources for practitioners to ensure consistent application of standards? And I think this ties into a little bit about what we were talking about earlier.
Armand Capisciolto: Yes. So, the Guide to ASPE is no longer available. That was a product; that was a subscription service that you could subscribe to through CPA Canada.
A couple of things is–and I hope most people understand this–is: Although the standard-setting process is housed within CPA Canada, we are independent of CPA Canada, the Accounting Standards Board, so it was not a product of the Accounting Standards Board. That being said, the fact that it’s no longer available may be one of the reasons we’re getting more application questions coming to the Accounting Standards Board, and we are utilizing … and led us to developing our guidance framework. So, our framework is our new process. Like I said, it’s in its early days.
Give it some time to work its way through and see how we’re dealing with it, dealing with issues that get submitted. So, that is our current response to the request for guidance. And, like I said, those requests might be related to the fact that GASPE isn’t available, but that is outside of the scope of our mandate as the standard-setter.
Eric English: Thanks, Armand. We have about five minutes left. So maybe just … we’ll take one more question here.
This one’s relating to financial statement concepts. So, as a financial statement preparer, I am concerned that changes to financial statement concepts could result in additional complexity that would be challenging to implement.
Is there something that the Board is considering as part of this research?
Armand Capisciolto: Well, I think a couple of things that we have to remember about concepts is:
Concepts do not override any existing accounting standards.
So, when we change the concepts, we’re not changing any of the … When we change the costs, there might be some consequential amendments that we need to deal with where there’s references to the concepts. But there’s no plan if we move down this Conceptual Framework modernization project to then revise standards route so they align with the concepts and therefore cause changes to how people are accounting for things. So, there should be limited impact on current accounting. The only potential impact on current accounting is where there was a situation where existing standards don’t exist in accounting, policy was developed.
If that accounting policy is no longer consistent with the current framework, there could be a change there. That being said, we have a very complete set of standards. My personal opinion is there’s very little that doesn’t fit within the scope of an existing standard. Therefore, there isn’t a lot that you should be developing an accounting policy for utilizing the concepts.
However, what the concepts will do is: Once they’re changed, that is when we as a standard-setter now look at amending or issuing a new standard, the concepts are where we start.
We always start with: Okay, if we’re recognizing an asset doesn’t mean the definition of an asset, we can make a decision to sway from the concepts. We issued an accounting guideline this year on cloud computing, where we provided an option to recognize the implementation cost related to cloud computing as an asset even though it does not meet the definition of an asset in our current concepts.
Changing concepts, we are not going to revisit the cloud computing decision. Because that was a decision the Board made, and the Board outlines that, and it’s based for conclusions that we considered the concepts, we made a decision to sway from the concepts for various reasons–in that case, probably a cost-benefit reason. So, I think when we think about concepts, I don’t see changing the concepts creating any complexity at all.
Like I said, I see them as being more impactful on our future standard-setting. And, again, as a Board, especially with our domestic standards, that cost-benefit test is something that we take very seriously. And if there’s a rationale to … that it would create overly complex standards, we would have a debate as a Board on whether or not we go down that path or not.
Eric English: Thanks, Armand. So, everyone, we’re nearing the end of the webinar. So, we probably won’t have time to get to all the remaining questions. Make sure before we sign off today that you have had a chance to click the link to the post-webinar quiz, which is available in the chat function.
If you aren’t able to reach it there, we will be sending out the slides. They’ll be available on our website. And we’ll also send them out by email in a couple of days, where you can access the quiz there. And so with that, that’s all we have for today’s session. So, thank you, Armand, for your time today. And thank you to our audience for taking the time to join us.
The on-demand version of this presentation will be made available shortly after today’s live webinar.
The slides will be available to download on the webinar registration page in the next couple of days. There’s some helpful links that you can access through the slides.
If you have any questions, you can reach out to the staff listed on the earlier slide at any time. With that, thank you for participating in today’s webinar and have a great afternoon, everyone.