1. Accounting

ACCOUNTING STANDARDS FOR PRIVATE ENTERPRISES (ASPE)

New developments

Accounting for Related Party Financial Instruments and Significant Risk Disclosures (Proposed amendments to Financial Instruments, Section 3856)
Exposure draft issued by the AcSB in October 2017 proposes to amend Section 3856 with respect to the accounting for financial instruments between related parties and significant risk disclosures. Initial measurement of related party financial instruments will be as follows:

  • financial instruments measured at cost, unless the instrument is equity that is quoted in an active market or a derivative contract,
  • financial instruments that are quoted in an active market and derivative contracts measured at fair value without any adjustment.

Subsequent measurement will be as follows:

  • investments in equity instruments that are quoted in an active market and derivative contracts measured at fair value,
  • all other instruments measured at cost, less any reduction for impairment.

An enterprise would be required to first assess for, and recognize in net income, any impairment of a related party financial asset before the forgiveness of the related party financial asset is recognized. There will be added guidance on how NFPOs initially measure related party financial instruments.

Requirements would be added to Section 3856 for an enterprise to disclose when it recognizes the forgiveness of a related party financial asset or extinguishment of a related party financial liability in net income because it was impracticable to determine whether the amount forgiven or extinguished originated in the normal course of operations. Disclosures about significant risks arising from derivatives would be permitted to be included with risks arising from other financial instruments, as opposed to requiring this disclosure to be illustrated separately.

Comment period ends on January 29, 2018.

Retractable or Mandatorily Redeemable Shares Issued in a Tax Planning Arrangement (Proposed amendments to Sections 1591, 3251 and 3856)
Exposure draft issued by the AcSB in September 2017 proposes to modify the accounting for retractable or mandatorily redeemable shares issued in a tax planning arrangement. The proposed amendments are as follows:

  • The classification exception in Financial Instruments, paragraph 3856.23, would be amended to focus on whether control of the enterprise issuing the shares is retained.
  • Guidance on assessing the effect of substantive rights in the control assessment would be added to Subsidiaries, Section 1591.
  • The amendments would require a reassessment of the classification of the retractable or mandatorily redeemable shares issued in a tax planning arrangement classified as equity only when a subsequent event or transaction occurs that indicates one or more of the conditions for equity classification may no longer be met. Reclassification of retractable or mandatorily redeemable shares to financial liabilities would be required when the conditions for equity classification are no longer met at the reassessment date.
  • Retractable or mandatorily redeemable shares issued in a tax planning arrangement initially classified as financial liabilities would be prohibited from being subsequently reclassified to equity even if conditions change.
  • Retractable or mandatorily redeemable shares issued in a tax planning arrangement classified as financial liabilities would be measured at the redemption amount.
  • Guidance would be added in Equity, Section 3251, to present as a separate component of equity the effect of classifying and measuring the retractable or mandatorily redeemable shares as financial liabilities and to disclose the nature of the separate component of equity.

The AcSB proposes the effective date of the amendments to be for fiscal years beginning on or after January 1, 2020. Comment period ends on January 15, 2018.

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