Accounting for Related Party Financial Instruments and Significant Risk Disclosures (Proposed Amendments to Section 3856, Financial Instruments) [Completed]
Effective date: |
The amendments to Section 3856 are effective for fiscal years beginning on or after January 1, 2021 (was for fiscal years beginning on or after January 1, 2020), with earlier application permitted. |
Last updated: |
April 2020 |
Overview
Based on feedback received from respondents to its Post-implementation Review of Section 3856, Financial Instruments, the Accounting Standards Board (AcSB) undertook this project to clarify the guidance pertaining to the following areas: (i) the scope of related party financial instruments; (ii) the measurement of related party compound financial instruments; and (iii) amending the financial instrument risk disclosure requirements.
On completion of the project, the final amendments to Part II were issued to the CPA Canada Handbook in December 2018. Section 3856 has been amended to:
- require financial instruments in a related party transaction be measured at cost, except for equity or debt quoted in an active market, debt instruments when the inputs significant to the determination of the fair value of the instrument are observable or derivative contracts, that are initially measured at fair value;
- determine cost based on whether an instrument has repayment terms or not;
- align the subsequent measurement requirements of a financial instrument with the instrument's initial measurement;
- require a financial asset transferred in a related party transaction be assessed for impairment before an enterprise recognizes the forgiveness of the asset;
- provide guidance on how to measure an impairment of a debt and equity instrument in a related party transaction measured at cost;
- require a private enterprise recognize the forgiveness of a related party financial asset in equity or net income;
- require a not-for-profit organization to recognize forgiveness of a related party financial asset in the statement of operations; and
- require enterprises to prepare their financial instrument disclosures using enterprise-specific information.
The amendments are effective for annual financial statements relating to fiscal years beginning on or after January 1, 2020. Earlier application is permitted.
Other developments
December 2018
On December 12, 2018, the AcSB issued the Basis for Conclusions – Accounting for Related Party Financial Instruments and Significant Risk Disclosures.
On December 1, 2018, the final amendments to Section 3856 in respect of this project were issued to the CPA Canada Handbook.
October 2017
On October 31, 2017, the AcSB issued an Exposure Draft proposing amendments to Section 3856, related to the accounting for financial instruments between related parties and significant risk disclosures. Stakeholders are encouraged to submit their comments by January 29, 2018.
February 2017
On February 28, 2017, the staff of the AcSB updated this project to indicate that the AcSB expects to issue an Exposure Draft for comment in Q4/2017.