Section 3856 - Financial instruments

Effective date:

January 1, 2011 except for subsequent amendments

Published by the AcSB:

December 2009

Overview

This Section establishes principles for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of an entity's future cash flows.

The key features of the Section are as follows:

  • All financial assets and financial liabilities are initially measured at fair value. (Adjusted by transaction costs for those that will not be subsequently measured at fair value).
  • All financial assets and liabilities are subsequently measured at cost (or amortized cost) except for investments.  However, a private enterprise may measure any other financial asset or liability at fair value if it chooses and makes that choice when the instrument is first recognized.
  • Embedded derivatives in non-financial contracts are not accounted for as financial instruments.
  • A single impairment process applies to all financial assets. Impairment write-downs are based on the difference between the current carrying amount of the asset and the highest amount the enterprise could expect to receive from holding the asset, settling the asset or exercising its right to collateral.
  • Hedge accounting can be used only when the critical-terms of the hedging instrument match those of the hedged instrument.
  • The issuer of a financial instrument that contains both a liability and equity component is permitted to measure tax equity component at zero.
  • Retractable preferred shares issued in tax planning arrangements will be classified as equity until the holder requires redemption of the shares.

History of Section 3856

Date

Development

Comments

December 2009

Part II of the CPA Canada Handbook  issued

Effective for fiscal years beginning on or after January 1, 2011.

This Section simplifies the accounting for financial instruments by providing a single accounting standard that applies to all financial assets and liabilities.

October 2011

Annual improvements

This Section has been amended as follows:

  • Paragraph .33 provides additional guidance on the accounting treatment of hedges of anticipated transactions.
  • Paragraphs .35-.36 and .A62-.A63 increase the maximum number of days between a hedged transaction and the maturity of a hedging forward contract from 14 to 30.
  • Paragraphs .35-.36 and .A64 clarify qualifying conditions for hedging a prepayable interest-bearing financial asset or financial liability with an interest rate swap.
  • Paragraphs .55-.56 amend the transition provisions for hedges meeting the revised requirements that were entered into prior to the date the amended Section was issued.
  • Paragraphs .A63-.A63C clarify the conditions for concurrent hedging of commodity and foreign currency risks in an anticipated purchase or sale of a commodity.
  • Effective for periods beginning on or after January 1, 2011. Earlier adoption permitted.

October 2012

Annual improvements

Paragraph .19A, has been added to eliminate an inconsistency with Section 1520, Income statement.

Effective for periods beginning on or after January 1, 2013. Earlier adoption permitted.

October 2013

Annual improvements

This Section has been amended as follows:

  • Paragraph .03(k) has been amended to clarify that contingent consideration is remeasured when the contingency is resolved.
  • Paragraph .A26A has been added to clarify that a financial instrument redeemable only by economic compulsion, rather than contractual requirement, is not classified as a financial liability.
  • Paragraph .A62A has been added to clarify the treatment of hedging relationships using foreign exchange forward contracts that mature before the hedged item is recognized.

Effective for periods beginning on or after January 1, 2014. Earlier adoption permitted.

October 2014

Annual improvements

This Section has been amended as follows:

  • Paragraph .33(c) has been amended to clarify the accounting for a hedging item when a reporting period ends between the date the hedged transaction occurs and the date the hedging item matures.
  • Paragraph .42 has been amended to clarify that disclosure of the carrying amount of impaired financial assets is required for financial assets other than current trade receivables.

Effective for periods beginning on or after January 1, 2015. Earlier adoption permitted.

Decem­ber 2018

Retractable or Mandatorily Redeemable Shares Issued in a Tax Planning Arrangement (Amendments to Sections 1591, 3251 and 3856)

The amendments are effective for annual financial statements relating to fiscal years beginning on or after January 1, 2020. Earlier application is permitted.

Decem­ber 2018

Accounting for Related Party Financial Instruments and Significant Risk Disclosures (Amendments to Section 3856, Financial Instruments)

The amendments are effective for annual financial statements relating to fiscal years beginning on or after January 1, 2020. Earlier application is permitted.

April 2020

A correction has been made to paragraph 3856.68(b). The correction is to better reflect the AcSB's intent that an enterprise is not required to retrospectively apply the amendments specified in that paragraph to financial instruments that do not exist on the date the amendments are first applied.

Correction to clarify the intent of the AcSB with respect to financial instruments exchanged in a related party transaction that do not exist at the date amendments are applied for the first time.

 

April 2020

Ac­count­ing for Re­lated Party Fi­nan­cial In­stru­ments and Sig­nif­i­cant Risk Dis­clo­sures (Amend­ments to Sec­tion 3856, Fi­nan­cial In­stru­ments)

At its meeting on April 15, 2020, as a result of the impact of the Covid 19 pandemic, the AcSB decided to defer the effective date of these amendments to Section 3865 by one year to fiscal years beginning on or after January 1, 2021. Earlier application continues to be permitted.

April 2020

Re­tractable or Manda­to­rily Re­deemable Shares Is­sued in a Tax Plan­ning Arrange­ment (Amend­ments to Sec­tions 1591, 3251 and 3856)

At its meet­ing on April 15, 2020, as a re­sult of the im­pact of the Covid 19 pan­demic, the AcSB de­cided to de­fer the ef­fec­tive date of these amendments by one year to fis­cal years be­gin­ning on or af­ter Jan­u­ary 1, 2021. Ear­lier ap­pli­ca­tion con­tin­ues to be per­mit­ted. The related amendments to the CPA Canada Handbook – Accounting Part II were issued on August 1, 2020.
April 2021

2021 Annual improvements

Section 3856, Illustrative Example 3, has been amended to use an assigned value of $45,000. The amendment is effective for annual financial statements relating to fiscal years beginning on or after January 1, 2022. Earlier application is permitted.
February 2022

Interest Rate Benchmark (IBOR) Reform – see completed project

Sec­tion 3856 has been amended to provide relief to debt modification accounting and hedge accounting during the reform of benchmark interest rates (IBOR reform). Specifically, the amendments: (a) provide an optional expedient to account for debt modifications that are related to IBOR reform as a continuation of the existing contract and not as an extinguishment; and (b) require qualifying hedging relationships to continue upon a change in certain critical terms related to IBOR reform. These amendments are effective for fiscal years ending on or after February 1, 2022. Earlier application is permitted, including in financial statements not yet authorized for issue.
September 2023

This Section has been amended to clarify the initial measurement of financial instruments acquired or liabilities assumed when a business is transferred between two enterprises under common control.

These amendments are effective for fiscal years ending on or after January 1, 2025. Earlier application is permitted, including in financial statements not yet authorized for issue.

Note: The above summary does not include details of consequential amendments made as the result of other projects.

Private Enterprise Advisory Committee Meeting Notes

  • February 7, 2018 - Discussed a summary of the feedback obtained from outreach activities on the Exposure Draft
  • February 2, 2017 - Discussed the results of field testing conducted to assess the viability of permitting a classification exception on the condition of retention of control of an enterprise.
  • December 1, 2016 - status of ongoing field testing to assess the viability of applying “retention of control of an enterprise” as a condition for a classification exception
  • June 14, 2016 - Analysis of the viability of a classification exception on the basis of retention of control over the enterprise
  • June 14, 2016 - Feedback to the “Post-implementation Review of Section 3856, Financial Instruments”
  • February 17, 2016 - Scope of the classification exception and the characteristics of tax planning arrangements
  • October 6, 2015 - Issues summarized in the Feedback Statement, “Post-implementation Review: Section 3856, Financial Instruments”
  • October 6, 2015 - Comments received by stakeholders in response to the AcSB’s Exposure Draft, “Redeemable Preferred Shares Issued in a Tax Planning Arrangement”
  • April 1, 2015 - Post-implementation Review of Financial Instruments
  • December 17, 2014 - 2015 Annual Improvements: Disclosure of Impairment Loss or Reversal of a Previously Recognized Loss
  • December 17, 2014 - Post-implementation Review of Financial Instruments
  • September 16, 2014 - Annual Improvements 2015: Disclosure of Impairment Loss or Reversal of a Previously Recognized Loss
  • September 16, 2014 - Annual Improvements 2015: Financial Instruments

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