PSAB - Financial Instruments – Narrow Scope Amendments [Completed]
Effective date(s): |
This project was completed in 3 phases. See below for the effective dates of the amendments to the PSA Handbook of each phase |
Last updated: |
June 2021 |
Overview
In conjunction with the decision to move forward with Section PS 3450, Financial Instruments, the Public Sector Accounting Board (PSAB) investigated an number of accounting issues brought forward by stakeholders during recent consultations. The project is being carried out in several phases.
Phase I
The initial phase of this project was to develop options for PSAB to address the following: (i) the accounting treatment of a bond repurchase; (ii) certain application issues; and (iii) improvements to the transitional provisions.
On January 31, 2019, the PSAB released an Exposure Draft that proposed, subject to comments received following exposure, to amend Section PS 3450, "Financial Instruments". The Basis for Conclusions, which accompanied the Exposure Draft, addresses alternative views and the Board position, with its reasons. Comments were requested by May 1, 2019.
The PSAB approved the necessary amendments to Section 3450 at its meeting on December 12-13, 2019.
On April 1, 2020, the amendments to Section 3450 were issued to the PSA Handbook. In summary, the amendments are as follows:
Bond repurchase transactions
The most substantive issue addressed relates to the accounting treatment for bond repurchase transactions. Specifically, the amendments no longer require bond repurchase transactions to be treated as extinguishments, unless they meet the criteria set out in paragraph PS 3450.043 (legally discharged) or paragraph PS 3450.048 (exchange of debt).
Section application
The following amendments have been made: (i) clarification that Section PS 3450 does not apply unless a contractual right or a contractual obligation underlies a receivable or payable; (ii) clarification on how a transfer of collateral pursuant to a credit risk management mechanism in a derivative contract is accounted for; and (iii) addition of application guidance confirming that derecognition of a financial asset does not occur if the transferor retains substantially all the risks and benefits of ownership.
Transitional provisions
The following clarifications have been made: (i) controlling governments should use the carrying values of the financial assets and liabilities in the records of its government organizations when consolidating a government organization; (ii) any unamortized discount, premium, or transaction costs associated with a financial asset or financial liability in the cost or amortized cost category should be included in the item's opening carrying value; and (iii) in cases where derivatives were not recognized or were not measured at fair value prior to adopting Section PS 3450, any difference between the previous carrying value and fair value should be recognized in the opening balance of accumulated remeasurement gains and losses.
The amendments are effective for fiscal years beginning on or after April 1, 2021, with earlier application permitted.
Phase II
Phase II deals with the Scope exclusion of certain activities by the Federal government. Section PS 2601, Foreign Currency Translation, excludes foreign exchange balances “intended to sustain foreign exchange reserves and orderly conditions in the foreign exchange market for the Canadian dollar or to provide assistance to foreign countries.” PSAB investigated whether derivatives that are used as part of such activities should be excluded from the scope.
On January 3, 2020, the PSAB released an Exposure Draft that proposes a specific amendment to permit the Federal government of Canada to present foreign exchange gains or losses directly in the statement of operations for those financial instruments associated with Canada’s foreign reserves. Comments were requested by March 4, 2020.
At its meeting on July 3, 2020, the PSAB approved the Phase II proposals. The amendments permit the federal government to present exchange gains and losses related to its foreign reserves, including the associated derivatives, directly in the statement of operations.
On October 1, 2020, these amendments to Sections PS 1201, PS 2601 and PS 3450 were issued to the PSA Handbook.
Phase III
Phase III consists of two proposals, as follows:
- A proposal to clarify the presentation of derivatives, namely that public sector entities may present the remeasurement impact of derivatives separately on the statement of change in net debt. Other minor presentation clarifications have also been included.
- A proposal to allow all public sector entities to make an accounting policy election to recognize exchange gains and losses, including the exchange gain or loss component of changes in fair value, directly in the statement of operations. The proposed election would be available for any financial asset or financial liability arising from a foreign currency transaction.
For further details refer to our news item dated July 30, 2020. Comments on the Exposure Drafts are requested by October 28, 2020.
At its meeting on December 9, 2020, the PSAB approved the narrow-scope amendments to the PSA Handbook in respect of its two proposals re Phase III of the project. The amendments will be effective for fiscal years beginning on or after April 1, 2022 and will be reflected in the PSA Handbook in the Spring of 2021.
On April 1, 2021, these amendments to Sections PS 1201, PS 2601 and PS 3450 were issued to the PSA Handbook. The amendments are effective for fiscal years beginning on or after April 1, 2022, with earlier application permitted. Transitional provisions have also been introduced in Section PS 2601.
Other developments
April 2021
On April 1, 2021, the amendments to Sections PS 1201, PS 2601 and PS 3450 in respect of Phase III were issued to the PSA Handbook.
October 2020
On October 1, 2020, the amendments to Sections PS 1201, PS 2601 and PS 3450 in respect of Phase II were issued to the PSA Handbook.
July 2020
On July 30, 2020, the PSAB issued two Exposure Drafts on the presentation of derivatives and recognizing exchange gains and losses.
April 1, 2020
On April 1, 2020, the amendments to Section PS 3450 in respect of Phase I were issued to the PSA Handbook.
March 2020
On March 31, 2020, the PSAB released the Basis for Conclusion, which describes the Board’s amendments to Section PS 3450, Financial instruments. This includes changes to the accounting treatment of bond repurchase transactions, clarification of transitional provisions, and other minor improvements.
January 2020
On January 3, 2020, the PSAB released an Exposure Draft that proposes a specific amendment to permit the Federal government of Canada to present foreign exchange gains or losses directly in the statement of operations for those financial instruments associated with Canada’s foreign reserves. Comments are requested by March 4, 2020.
January 2019
On January 31, 2019, the PSAB released an Exposure Draft that proposes, subject to comments received following exposure, to amend Section PS 3450, "Financial Instruments". The Basis for Conclusions, which accompanies the Exposure Draft, addresses alternative views and the Board position, with its reasons. Comments are requested by May 1, 2019.
August 2018
In August, 2018, the staff of the PSAB updated the information in respect of this project to advise that the PSAB expects to issue an Exposure Draft in Q1/2019.