Financial Statement Concepts

The AcSB discussed feedback from its Medium and Small Practitioners Advisory Committee, Not-for-Profit Advisory Committee, and Private Enterprise Advisory Committee on topics to be included in updated financial statement concepts for Parts II and III of the Handbook.

The AcSB discussed the differing needs of financial statement users of Parts II and III of the Handbook and how to structure updated concepts to ensure the needs of all users are considered during standard setting. Currently, Section 1000, Financial Statement Concepts, establishes financial statement concepts for Part II of the Handbook, while Section 1001, Financial Statement Concepts for Not-for-Profit Organizations, establishes financial statement concepts for Part III of the Handbook. Part III preparers apply Part II standards to the extent that Part II standards address topics not addressed in Part III. The Board thinks that it is important that updated concepts specifies that the needs of Part III users must be considered when developing Part II standards. To ensure the needs of all users are considered, the Board tentatively decided to develop a single set of financial statement concepts covering both Parts II and III of the Handbook. The Board directed staff to discuss with its advisory committees whether there are fatal flaws with its tentative decision to issue a single set of concepts for Parts II and III of the Handbook.

The AcSB discussed feedback from its advisory committees that financial statement users of Parts II and III of the Handbook can often request additional information about an entity outside the financial statements. However, additional information may not be available for all Part III users to the same extent it is available to Part II users. The availability of additional information is often considered by the Board when developing new standards or amendments. The Board tentatively decided to articulate in updated financial statement concepts that the availability of additional information will be considered by the Board during the standard-setting process.

The AcSB discussed feedback from its advisory committees whether each of the following topics in the International Accounting Standards Board’s (IASB) Conceptual Framework for Financial Reporting would be fit for purpose for Canadian private enterprise and not-for-profit organizations:

• the objectives of general purpose financial statements; and
• qualitative characteristics of useful financial information.

The AcSB agreed with feedback from the advisory committees that the following topics would be fit for purpose for Canadian private enterprise and not-for-profit organizations with some amendments to remove capital market focused wording. The Board tentatively decided to:

• replace the term “conservativism” with “prudence” in updated standards as “prudence” is more neutral than “conservatism”; and
• distinguish between fundamental and enhancing qualitative characteristics in updated financial statement concepts.

The Board also directed staff to consider whether any of the amendments to the IFRS^® for SMEs Accounting Standard concepts proposed in the IASB’s Exposure Draft, “Third Edition of the IFRS for SMEs Accounting Standard,” would be appropriate for inclusion in updates of concepts in Parts II and Part III of the Handbook.

For more information on the background and benefits of the Financial Statement Concepts project, please visit the following webpage: “What You Need to Know about Financial Statement Concepts.”

The Private Enterprise Advisory Committee continued discussions related to the AcSB’s project to improve Financial Statement Concepts in Part II of the CPA Canada Handbook – Accounting. The Committee provided feedback on whether each of the following topics from the International Accounting Standard Board’s (IASB) Conceptual Framework would be fit for purpose for Canadian private enterprises:

• the objectives of general purpose financial reporting;
• qualitative characteristics of useful financial information; and
• financial statements and the entity.

The Committee noted that the updated terminology and provisions in the IASB’s Conceptual Framework could enhance preparers’ and practitioners’ understanding of Financial Statement Concepts. These improvements may lead to greater consistency in applying the standards outlined in Part II of the Handbook, while also aiding the AcSB in the standard-setting process. The Committee also provided feedback on potential modifications and revisions to ensure these topics are suitable for Canadian private enterprises.

The AcSB will discuss the Committee’s feedback at its meeting in November 2024.

For more information on the background and benefits of the Financial Statement Concepts project, please visit the following webpage: “What You Need to Know about Financial Statement Concepts.”

The Not-for-Profit Advisory Committee received an overview of the AcSB’s project to update Financial Statement Concepts in Parts II and III of the Handbook. This project will focus on:

• clarifying the purpose and intended use of Financial Statement Concepts; and
• ensuring Financial Statement Concepts are appropriate for private enterprises and not-for-profit organizations in Canada.

The Committee discussed the Board’s decision to move Financial Statement Concepts to a separate section within the Handbook outside of accounting standards. This is consistent with the approach used by other national and international standard setters for their conceptual frameworks. Committee members acknowledged that this decision is not likely to alter current practice. However, Committee members noted that it will be critical to retain the importance of Financial Statement Concepts as a foundational tool for understanding financial statements and accounting standards.

In October 2024, the Committee will begin to discuss topics to be updated in Financial Statement Concepts as part of this project.

The Private Enterprise Advisory Committee received an overview of the AcSB’s project to update Financial Statement Concepts in Parts II and III of the Handbook. This project will focus on:

• clarifying the purpose and intended use of Financial Statement Concepts; and
• ensuring Financial Statement Concepts are appropriate for private enterprises and not-for-profit organizations in Canada.

The Committee discussed the AcSB’s decision to move Financial Statement Concepts to a separate location within the Handbook outside of accounting standards. This is consistent with the approach used by other national and international standard setters for their conceptual frameworks.

Committee members acknowledged that this decision is not likely to alter current practice. Nevertheless, they emphasized the need to clearly communicate that this change does not diminish the significance of concepts nor signal a shift in the objectives of ASPE. The Committee also highlighted the necessity for additional educational materials to effectively convey the intended use and application of Financial Statement Concepts.

In October 2024, the Committee will begin to discuss topics to be updated in Financial Statement Concepts as part of this project. 

The AcSB discussed and approved a project proposal for a project to update Financial Statement Concepts in Parts II and III of the Handbook.

The project will focus on:

• clarifying the purpose and intended use of Financial Statement Concepts; and

• ensuring Financial Statement Concepts are appropriate for private enterprises and not-for-profit organizations in Canada.

The AcSB does not expect these updates to significantly impact current practice or the application of existing authoritative accounting standards. However, updating Financial Statement Concepts will provide greater clarity on topics that will assist the AcSB in standard setting and help preparers and practitioners interpret and apply the standards.

The Not-for-Profit Advisory Committee received an overview of financial statement concepts in Parts II and III of the CPA Canada Handbook – Accounting. In addition, the Committee considered a comparison of Canadian domestic concepts to conceptual frameworks in other jurisdictions.

The Committee discussed the purpose of financial statement concepts, including how they serve as foundational elements for the AcSB when developing accounting standards. Further, the Committee discussed how preparers and practitioners use these concepts when applying standards.

Committee members noted that preparers and practitioners use concepts to gain a deeper understanding of accounting standards and to aid in appropriate application of the standards. This includes areas which require professional judgment as well as areas in which accounting principles are developing.

The Committee discussed whether NFPOs require financial statement concepts that are different than those for for-profit enterprises. While some Committee members noted that there are differences in the purpose of financial statements for NFPOs, there is a need to keep the financial statement concepts in Parts II and III of the Handbook closely aligned.

The AcSB will discuss the Committee’s feedback at its meeting in April 2024 as part of its ongoing research on financial statement concepts.

The Private Enterprise Advisory Committee received an overview of financial statement concepts in Parts II and III of the CPA Canada Handbook – Accounting. Additionally, the Committee received a comparison of Canadian domestic concepts to conceptual frameworks in other jurisdictions.

The Committee discussed the purpose of financial statement concepts, including how they serve as foundational elements for the AcSB in the development of accounting standards. Further, the Committee discussed how preparers and practitioners use these concepts when applying standards.

The Committee discussed the location of concepts within the Handbook and considered whether concepts are an accounting standard or whether concepts should be included in the Handbook outside of accounting standards similar to the International Accounting Standards Board and the Financial Accounting Standards Board conceptual frameworks, which are separate sections outside of accounting standards.

Committee members noted that preparers and practitioners use concepts to gain a deeper understanding of accounting standards and to aid in determining proper application. This includes areas that require professional judgment, as well as areas in which accounting principles are developing. Committee members also noted that a decision framework for applying qualitative characteristics in financial statement concepts would improve consistency of application.

In April 2024, the AcSB will discuss the Committee’s feedback as part of the Board’s ongoing research on financial statement concepts.

The AcSB discussed the next steps of its Financial Statement Concepts project. The Board will consider this project when developing the exposure draft proposals for the Contributions project and monitor the timing of commencing a more thorough project in conjunction with other priorities for Parts II and III of the CPA Canada Accounting – Handbook.

The AcSB discussed its research project to undertake a targeted review of the financial statement concepts in Parts II and III of the Handbook. The Board’s discussion considered the interaction between the financial statement concepts and its projects on Combinations and Contributions, and next steps on the Financial Statement Concepts project. The Board decided that the Combinations exposure draft and Contributions consultation paper will be used to gather feedback from stakeholders that will assist the Board in determining the future direction of the Financial Statement Concepts project.

The AcSB discussed a financial statement concepts project proposal for Parts II and III of the CPA Canada Handbook – Accounting. The Board approved the project to include:

• elements (definition of an asset, liability, revenue and net assets);
• recognition;
• measurement;
• presentation and disclosure; and
• unit of account.

The Board directed the staff to prioritize work on the definitions of an asset and liability in conjunction with its ongoing domestic projects.