Related Party Combinations

The AcSB continued discussing and considered feedback from its Private Enterprise Advisory Committee and Small Practitioners Working Group on narrow-scope proposals to be included in an exposure draft. The narrow-scope proposals address an application question from practice considered under the Board’s Guidance Framework regarding the amendments issued in September 2023 to Section 3840, Related Party Transactions, in Part II of the CPA Canada Handbook – Accounting Standards for Private Enterprises (ASPE).

In September 2024, the AcSB tentatively decided on a narrow-scope amendment to paragraph 3840.44(b) proposing that when carrying values are used and the combination is accounted for prospectively, an option to account for the combined enterprise as either a new entity with no comparatives or as a continuation of one of the combining entities with comparatives of that entity would be allowed. The proposal would not amend the option to account for the combination retrospectively for the entire period in which the combination occurred and for all prior periods, and this option would continue to be available.

The AcSB considered feedback from Private Enterprise Advisory Committee and the Small Practitioners Working Group and decided to propose further edits to improve the understandability of the proposals.

The AcSB also discussed and considered feedback from Private Enterprise Advisory Committee and Small Practitioners Working Group on the proposed effective date and transition guidance. The Board decided to propose an effective date of January 1, 2026, with earlier application available. The Board discussed that a later effective date may not be needed, as the proposals are expected to make the existing guidance easier to apply and therefore enterprises may want to adopt the proposals as soon as they are available. The Board also decided to propose that the amendments be applied prospectively to be consistent with the transition guidance for the Related Party Transactions amendments issued in September 2023, and because the proposals are not expected to change how a combination was accounted for by enterprises that early adopted those amendments.

The AcSB gave permission to proceed to the final balloting stage. Once complete, the Board expects to issue the exposure draft in December 2024 with a 60-day comment period.

The Private Enterprise Advisory Committee discussed narrow-scope proposals to be included in an exposure draft to address an application question regarding the amendments issued in September 2023 to Section 3840, Related Party Transactions, in Part II of the Handbook.

These amendments added an option in paragraph 3840.44(b) to either retrospectively restate all prior periods when carrying values are used to account for a combination or prospectively account for these transactions from the date that the transfer occurred. The application question asked which comparative figures, if any, should be presented when an enterprise applies the new option to account for the combination prospectively from the date the transfer occurred.

The Committee discussed the AcSB’s tentative decision to propose a narrow-scope amendment that would allow an option in paragraph 3840.44(b)(i) to account for the combined enterprise as either a new entity or as a continuation of one of the combining entities when the combination is accounted for prospectively. The Committee discussed that this would address the application question raised, but they also provided recommendations to clarify the options available, thereby making the proposed guidance easier to understand. The Committee also recommended that the Board consider other amendments to paragraph 3840.44 to clarify when the guidance in this paragraph applies and to which types of combinations.

The Committee also discussed the proposed effective date and transition guidance. The Committee agreed with staff’s recommendation to propose an effective date of January 1, 2026, with earlier application available because the proposals are expected to make the current guidance easier to apply and therefore most enterprises would want to adopt the proposals as soon as they are available. The Committee also agreed with staff’s recommendation to apply the proposals prospectively to be consistent with the transition guidance for the Related Party Transactions amendments issued in September 2023, and because the proposals would not have changed how a combination was accounted for by enterprises that early adopted those amendments.

The AcSB will consider the Committee’s feedback, as well as feedback from its Small Practitioners Working Group at its meeting in October 2024.

The AcSB continued discussing narrow-scope proposals to be included in an exposure draft to address an application question from practice regarding the amendments issued in September 2023 to Section 3840, Related Party Transactions, in Part II of the Handbook.

These amendments added an option in paragraph 3840.44(b) to either retrospectively restate all prior periods when carrying values are used to account for a combination, or prospectively account for these transactions from the date that the transfer occurred. The application question asked which comparative figures, if any, should be presented when an enterprise applies the new option to account for the combination prospectively from the date the transfer occurred.

The AcSB tentatively decided to propose a narrow-scope amendment that would allow an option in paragraph 3840.44(b)(i) to account for the combined enterprise as either a new entity or as a continuation of one of the combining entities when the combination is accounted for prospectively. The Board discussed that this would allow preparers to consider the information needs of its financial statement users and provide information that is relevant and decision useful.

The AcSB will seek further input on the exposure draft proposals from its Private Enterprise Advisory Committee and Small Practitioners Working Group in October 2024. The Board will consider input from the Committee and the Group, and will continue discussing the proposals at its October 2024 meeting. The Board plans to issue an exposure draft in the last quarter of 2024.

Related party business combinations

The AcSB discussed and considered input from its Private Enterprise Advisory Committee on an application issue raised regarding the amendments to Section 3840 , Related Party Transactions, in Part II of the Handbook issued in September 2023. These amendments added an option in paragraph 3840.44(b) to either retrospectively restate all prior periods when carrying values are used to account for a combination or prospectively account for these transactions. The question discussed is, when the new option is applied to account for a combination prospectively from the date that the transfer occurred, what comparative figures, if any, are presented?

Committee members advised that this is a common scenario arising in practice.

The AcSB considered various options to address the issue through authoritative or non-authoritative guidance. The Board directed staff to gather further information and decided to continue discussing the question at its June 2024 meeting.

Application Question – Guidance Framework

The AcSB continued discussing an application question from practice regarding the amendments issued in September 2023 to Section 3840, Related Party Transactions, in Part II of the Handbook. These amendments added an option in paragraph 3840.44(b) to either retrospectively restate all prior periods when carrying values are used to account for a combination, or prospectively account for these transactions from the date that the transfer occurred.

The question raised is, when the new option is applied to account for a combination prospectively from the date that the transfer occurred, what comparative figures, if any, are presented?

The AcSB discussed the feedback from the Private Enterprise Advisory Committee and the following views have emerged:

• an enterprise must identify an acquirer and report comparative figures of the acquiring entity; or
• an enterprise should apply professional judgment to consider the needs of financial statement users, and, in some scenarios, there could be no comparative figures.

Given the diverse views, the Committee recommended that the AcSB issue guidance to clarify the application of the amendment.

The AcSB considered this feedback and noted that the current language in paragraph 3840.44(b) could infer that determining an acquirer is required when carrying values are used to account for the transaction prospectively from the date that the transfer occurred. The Board discussed that in some scenarios, identifying an acquirer could be complex or onerous for private enterprises.

The AcSB tentatively decided to develop an exposure draft for a narrow-scope amendment to Section 3840. The Board will discuss the exposure draft proposals at its meeting in September 2024. The Board expects to issue an exposure draft in Q4 2024.