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May 2021

2020 changes to Part I

Jun 01, 2021

On June 1, 2021, the Accounting Standards Board (AcSB) released a document summarizing the endorsement activities carried out as part of its due process in support of the changes made to IFRS Standards in Part I of the CPA Canada Handbook – Accounting in 2020.

The 2020 changes made to Part I to incorporate new or amended IFRS Standards, as well as the Board’s endorsement activities for each change, is summarized in Appendix 1.

The 2020 changes to Part I include COVID-19-Related Rent Concessions, Interest Rate Benchmark Reform – Phase 2, amendments to IFRS 17 Insurance contacts, and more.

Review the press release and changes on the AcSB's website.

Accounting and Auditing Standards Oversight Councils Initiate Review of Standard Setting in Canada

May 13, 2021

On May 13, 2021, the Accounting Standards Oversight Council (AcSOC) and Auditing and Assurance Standards Oversight Council (AASOC) announced that they have initiated a review of Canadian standard setting. The Independent Review Committee on Standard Setting in Canada was formed to review of the governance and structure for establishing accounting, auditing, and assurance standards, as well what might be needed for the future – including sustainability standards.

The Committee will make recommendations to ensure Canadian standard setting will continue to be independent and internationally recognized.

Review the press release.

AcSB Draft Strategic Plan 2022-2027

May 25, 2021

On May 25, 2021, the Accounting Standards Board (AcSB) released its Draft Strategic Plan, which focuses on enhancing the relevance of financial and non-financial information reported. Comments are requested by October 15, 2021.

It has been a decade since the AcSB established the four parts of the CPA Canada Handbook – Accounting. Since then, the financial reporting landscape has evolved considerably. Information needs of stakeholders have expanded as they are increasingly relying on information reported outside of the financial statements.

The AcSB wants to enhance the relevance of financial and non-financial information reported. As a result, they are proposing the following three strategies to address the changing needs of our stakeholders:

  • Deliver relevant and high-quality accounting standards.
  • Demonstrate leadership in reporting beyond traditional financial statements.
  • Raise the AcSB’s international influence.

Review the Draft Strategic Plan on the AcSB's website.

AcSB Exposure Draft – Disclosure Requirements in IFRS Standards — A Pilot Approach

May 03, 2021

On May 3, 2021, the Accounting Standards Board (AcSB) issued its Exposure Draft that corresponds to the IASB’s Exposure Draft on this topic. Comments are requested by October 21, 2021.

The AcSB would like input from Canadian respondents on the following additional question regarding the proposed amendment:

The IASB has developed the proposed amendment in accordance with its due process for application around the world. Assuming the Exposure Draft proposal is finalized and approved by the IASB in accordance with its due process, do you think that the proposal is appropriate for application in Canada? If not, please specify which aspects of the proposal, and what circumstances, make the accounting requirement proposed in the Exposure Draft inappropriate.

Review the press release and exposure draft on the AcSB's website.

AcSB Exposure Draft – Lack of Exchangeability (Proposed amendments to IAS 21)

May 18, 2021

On May 18, 2021, the Accounting Standards Board (AcSB) issued its Exposure Draft that corresponds to the IASB’s Exposure Draft on this topic.

The AcSB will not be submitting a response letter to the IASB Exposure Draft. However, this decision will be reviewed throughout the comment period and reconsidered based on stakeholder feedback. As a result, stakeholders are encouraged to reply to the AcSB prior to July 15, 2021 to support their ongoing discussions.

Review the press release and exposure draft on the AcSB's website.

House panel approves proposal to require country-by-country financial reporting

May 26, 2021

The House Financial Services Committee has approved legislation that would direct the Securities and Exchange Commission to require publicly traded corporations with annual revenue of USD 850 million or more to disclose certain tax and nontax information on a country-by-country basis.

These reports would include basic information from a corporation on each of its subsidiaries, and country-by-country financial information that aggregates all of its subsidiaries in each country—including profits, taxes, employees, and tangible assets.

Review the full article.

IASB publishes amendments to IAS 12

May 07, 2021

On May 7, 2021, the International Accounting Standards Board (IASB) published "Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12)" that clarify how companies account for deferred tax on transactions such as leases and decommissioning obligations.

 

Background

The IFRS Interpretations Committee received a submission about IAS 12 Income Taxes and the recognition of deferred tax in relation to leases (when a lessee recognizes an asset and a liability at the lease commencement) and decommissioning obligations (when an entity recognizes a liability and includes the decommissioning costs in the cost of the item of of property, plant and equipment). The submitted fact pattern assumed that lease payments and decommissioning costs were deductible for tax purposes when paid and identified different approaches in practice.

The Committee discussed the submission and came to the conclusion that the matter was relevant and widespread, as there are various kinds of contracts and fact patterns affected. Moreover, the question as to whether tax deductions are attributable to a contract, a (single) asset/liability, or rather to cash flows, and as to which consequences this may have for determining temporary differences, is fundamental within IAS 12. Therefore, the Committee recommended that the IASB develop clarifying amendments to IAS 12.

The IASB discussed the issue and in July 2019 published an exposure draft of proposed clarifying amendments, which have now been finalized.

 

Changes

The main change in Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12) is an exemption from the initial recognition exemption provided in IAS 12.15(b) and IAS 12.24. Accordingly, the initial recognition exemption does not apply to transactions in which both deductible and taxable temporary differences arise on initial recognition that result in the recognition of equal deferred tax assets and liabilities. This is also explained in the newly inserted paragraph IAS 12.22A.

     

    Effective date and transition

    The amendments are effective for annual reporting periods beginning on or after January 1, 2023. Early adoption is permitted.

    An entity applies the amendments to transactions that occur on or after the beginning of the earliest comparative period presented. It also, at the beginning of the earliest comparative period presented, recognizes deferred tax for all temporary differences related to leases and decommissioning obligations and recognizes the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at that date.

     

    Additional information

     

    IASB publishes exposure draft of revised Practice Statement on Management Commentary

    May 27, 2021

    On May 27, 2021, the International Accounting Standards Board (IASB) published the exposure draft "Management Commentary" in an effort to update the 2010 IFRS Practice Statement 1 "Management Commentary". Comments are requested by November 23, 2021.

     

    Background

    At its meeting in March 2017, the IASB generally agreed that they should be playing a more active role in wider corporate reporting. At the meeting in November 2017, the Board members decided preliminarily that being the specialists in financial reporting they are best placed to provide the link between financial and non-financial information and the best way forward would be to revise the Management Commentary Practice Statement so that it could serve as an anchoring point for other frameworks. One of the key points to address would be to promote alignment between financial and ‘other’ information disclosed by an entity.

    Since the IASB's decision to revise the Practice Statement, reporting on sustainability and ESG aspects has gained a lot of traction and the information needs of investors and creditors have evolved. Independently of the IASB’s work on management commentary, the Trustees of the IFRS Foundation have taken up an initiative on sustainability reporting and are currently considering setting up a board for setting IFRS sustainability standards. The IASB's project on management commentary and the initiative of the IFRS Foundation are connected in that entities would be able to use the standards issued by the new sustainability standards Board to to help them identify some of the information needed to comply with the revised Practice Statement

     

    Key proposals

    The proposals in ED/2021/6 Management Commentary are divided into three parts, each of which has several subsections:

    • Part A — General requirements. This part specifies requirements for identifying management commentary and the related financial statements, for authorizing management commentary and for including a statement of compliance. It also sets out the objective of management commentary. Key proposals are:
      • Management commentary identifies the financial statements to which it relates. If the related financial statements are not prepared in accordance with IFRSs, the management commentary would disclose the basis on which the financial statements are prepared.
      • Management commentary that complies with all requirements of the Practice Statement includes an explicit and unqualified statement of compliance.
      • Management commentary that complies with some, but not all, of the requirements of the Practice Statement may include a qualified statement of compliance that identifies the departures from the requirements of the Practice Statement and gives the reasons for those departures.
      • The objective of management commentary is to provide information that enhances investors' and creditors’ understanding of the entity’s financial performance and financial position reported in its financial statements and provides insight into factors that could affect the entity’s ability to create value and generate cash flows across all time horizons, including in the long term.
    • Part B — Areas of content. This part specifies six areas of content for management commentary, and requires management commentary to provide information that meets disclosure objectives for each of those areas of content. It also includes the requirement that management commentary should focus on key matters. Key proposals are:
      • The proposed six areas of content are:
        • the entity’s business model,
        • management’s strategy for sustaining and developing the entity’s business model,
        • the entity’s resources and relationships,
        • risks to which the entity is exposed,
        • the entity’s external environment, and
        • the entity’s financial performance and financial position.
      • The proposed disclosure objectives for the areas of content are:
        • a headline objective describing the overall information needs of investors and creditors for the area of content,
        • assessment objectives describing the assessments that rely on information provided for the area of content, and
        • specific objectives describing the detailed information needs of investors and creditors for the area of content.
      • Key matters that management commentary should focus on are:
        • key features of the entity’s business model,
        • key aspects of management’s strategy,
        • key resources and relationships,
        • key risks,
        • key factors and trends in the external environment, and
        • key aspects of financial performance and financial position.
      • Generally, an entity would report on matters that could affect the entity’s long-term prospects, on intangible resources and relationships, and on environmental and social matters.
    • Part C — Selection and presentation of information. This part contains guidance on the selection of information to include in management commentary and the presentation of that information. Key proposals are:
      • In the context of management commentary, information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that investors and creditors make on the basis of the management commentary and of the related financial statements.
      • Identifying material information requires management to apply judgement.
      • Information about a matter may be material because of the nature or magnitude of that matter, or a combination of both.
      • Information about possible future events that have not yet affected the entity’s financial performance or financial position may be material depending on the potential effects of the events on the amount and timing of the entity’s future cash flows.
      • Materiality judgements need to be reassessed each reporting period.
      • Information provided in management commentary must be complete, balanced, accurate as well as clear and concise.
      • Information in management commentary is more useful if it is comparable, verifiable, and coherent.
      • Metrics used to describe material information in management commentary should be derived from metrics that management uses to monitor key matters and to measure progress in managing those matters.

    The deadline for submitting comments on these proposals is November 23,  2021.

     

    Effective date and status of the Practice Statement

    The exposure draft proposes that the Practice Statement would supersede IFRS Practice Statement 1 Management Commentary for annual reporting periods beginning on or after the date of its issue. The Practice Statement is not an IFRS and its application is not mandatory. Financial statements can comply with IFRSs even if they are not accompanied by management commentary or if they are accompanied by management commentary that does not comply with the Practice Statement.

     

    Additional information

    Review the following additional information on the IASB's website:

     

    IASB supports narrow-scope amendment to IFRS 17

    May 27, 2021

    At its meeting on May 27, 2021, the IASB discussed the presentation of comparative information on initial application of IFRS 17 and IFRS 9. Insurers raised concerns about an accounting mismatch between financial assets and insurance contract liabilities that could arise from the continued application of IAS 39. The staff suggested the Board could consider adding a specific transition requirement to IFRS 17 to enable insurers to present comparative information on a basis that is consistent with how IFRS 9 would be applied going forward, without unnecessarily disturbing the transition requirements in IFRS 9.

    The majority of Board members and all Board members who participated in the discussion agreed that something should be done. When discussing the staff's analysis, they stressed that

    • communication about this possible narrow-scope amendment is very important,
    • they had been aware of the problem, but not of its magnitude,
    • evidence provided by the insurers has become much more well-founded because implementation is progressing,
    • the amendment would be very specific and narrow-scope, so this is not "opening IFRS 17 up again",
    • the stable platform for IFRS 17 is very important, however, this possible amendment is smoothing implementation, rather than disrupting it,
    • while the optionality of the amendment would mean a decrease of comparability between companies, comparability within the financial statements of the individual companies increases.

    The staff will bring back detailed proposals for the possible narrow-scope amendment at a future meeting.

    IASB to conduct fieldwork on its disclosure review ED

    May 07, 2021

    On May 7, 2021, the International Accounting Standards Board (IASB) is inviting preparers of financial statements to participate in fieldwork to test the proposals in the exposure draft ED/2021/3 "Disclosure Requirements in IFRS Standards — A Pilot Approach (Proposed amendments to IFRS 13 and IAS 19)" published on March 25 that contains proposed guidance for itself when developing and drafting disclosure requirements in IFRSs in future as well as proposed amendments to IFRS 13 "Fair Value Measurement" and IAS 19 "Employee Benefits" that result from applying the proposed guidance to those standards.

    The IASB is looking for preparers that would conduct fieldwork using its instructions and questionnaires to test the application of the proposed new requirements in IFRS 13, IAS 19 or both. Participants would then summarize and report the results of the fieldwork.

    Review the press release on the IASB's website.

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