The CICA’s Guide to
Accounting Standards for Private Enterprises in Canada June 2010
New Accounting Framework for Private Enterprises Accounting standards for private enterprises in Canada were issued by the Accounting Standards Board in 2009. The standards are effective for annual financial statements relating to fiscal years beginning on or after January 1, 2011. Earlier application is permitted. The standards can be found in Part II of the CICA Handbook — Accounting.
The CICA’s Website on Accounting Standards for Private Enterprises For the latest information to help you manage the transition to the new accounting standards for private enterprises go to http://www.cica.ca/PE or to the website of your provincial Institute/Ordre. Make sure to subscribe to receive email updates on new resources and information that are added to the website regularly.
About this Guide The CICA has prepared this reference guide to help you transition to new Canadian accounting standards for private enterprises. This guide provides a comparison of new accounting standards for private enterprises (Part II of the revised CICA Handbook — Accounting) to the XFI version (found in Part V of the CICA Handbook — Accounting).
About the CICA The Canadian Institute of Chartered Accountants (CICA), together with the provincial, territorial and Bermuda Institutes/Ordre of Chartered Accountants, represents a membership of approximately 75,000 CAs and 12,000 students in Canada and Bermuda. The CICA conducts research into current business issues and supports the setting of accounting, auditing and assurance standards for business, not-for-profit organizations and government. It issues guidance on control and governance, publishes professional literature, develops continuing education programs and represents the CA profession nationally and internationally. The CICA is a founding member of the International Federation of Accountants (IFAC) and the Global Accounting Alliance (GAA).
How the CICA Can Help The CICA is the recognized leader in providing information and professional education that clarifies and aids in the application of standards in Canada. Chartered Accountants of Canada, through the CICA and the provincial Institutes/ Ordre, are committed to helping you prepare for the transition.
Foreword Faced with an increasingly demanding economic environment, it is vital that private enterprises in Canada have the opportunity to use accounting standards that respond to their needs and the needs of those who use their financial statements. In 2006, the Accounting Standards Board recognized that one financial reporting framework does not fit all entities. Based on this understanding, the Board developed a strategy tailored specifically to meet the unique reporting needs of Canadian private enterprises. The new standards are derived from standards in the existing CICA Handbook — Accounting. Changes were confined to areas that were identified by stakeholders as being unnecessarily complex. As a result, most of the accounting policies and practices used by private enterprises have not changed. This should make understanding and adopting the new private enterprise standards more straightforward than implementing a completely new accounting framework. These made-in-Canada accounting standards for private enterprises are effective for fiscal years beginning on or after January 1, 2011, and include the option to early adopt. Such enterprises also have the option to adopt International Financial Reporting Standards.
Like all standards, the accounting standards for private enterprises will not remain static. Changes will be made to address new circumstances and to keep the standards current. The newly established Private Enterprise Advisory Committee, made up of preparers, business advisors, auditors and users will work to ensure modifications continue to satisfy the needs of private enterprises and the users of their financial statements. I take this opportunity to recognize the efforts of the Non-publicly Accountable Enterprises Advisory Committee, businesses and many other stakeholders who contributed to the development of this significant new set of standards. Their insights were instrumental in ensuring that the standards are of the highest quality and meet the needs of the marketplace. The CICA is pleased to provide this concise reference guide. Used as a starting point, the comparative information it contains will help you become familiar with the revised framework, easing your efforts to prepare, plan and implement the new Canadian accounting standards for private enterprises. Ron Salole Vice-President, Standards Canadian Institute of Chartered Accountants
List of Acronyms AcSB: Accounting Standards Board (Canada) CICA: Canadian Institute of Chartered Accountants EIC:
Emerging Issues Committee
FOME: Framework for Owner Managed Enterprises GAA:
Global Accounting Alliance
GAAP: generally accepted accounting principles IFAC:
International Federation of Accountants
IFRSs: International Financial Reporting Standards PICA/Ordre:
XFI:
Provincial Institutes of Chartered Accountants/Ordre des comptables agréés du Québec
Excluding Financial Instruments
CICA Handbook — Accounting The CICA Handbook — Accounting was restructured to implement the Accounting Standards Board strategy to adopt different sets of standards for different categories of entities. Preface Part I
International Financial Reporting Standards
Part II accounting standards for private enterprises Part III accounting standards for not-for-profit organizations Part IV accounting standards for pension plans Part V A complete set of the existing Handbook contents
Contents The Evolution of New Accounting Standards for Private Enterprises
1
Who is Affected?
3
Key Changes
5
Preparing for the Transition
9
Options under Accounting Standards for Private Enterprises
11
Timing
11
Implementing Accounting Standards for Private Enterprises
12
Getting Involved
13
Resources Available from Chartered Accountants of Canada
14
Summary Comparison of New Accounting Standards for Private Enterprises
15
About this Comparison
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The CICA’s Guide to Accounting Standards for Private Enterprises in Canada
The Evolution of New Accounting Standards for Private Enterprises The need for financial reporting standards that meet the unique needs of private enterprises is not new. Here are some significant milestones in the decade leading up to the approval of standards for private enterprises: 1999:
The Accounting Standards Board (AcSB) issued a research report, Financial Reporting by Small Business Enterprises that concluded standards were becoming overly complex for smaller, privately held companies.
2000: The Differential Reporting Advisory Committee was created to provide a private enterprise perspective into the standards setting process. 2002:
Differential reporting became effective for private entities that met certain conditions.
2006: The AcSB’s decision to adopt International Financial Reporting Standards (IFRSs) for publicly accountable enterprises changed the overarching system in which differential reporting was embedded, requiring a reconsideration of accounting standards for private enterprises.
The AcSB therefore conducted further research into the needs of users of private enterprise financial statements. Stakeholder consultation revealed that while most of the existing standards met their needs, some areas included unnecessary complexities. The AcSB was told disclosure requirements were becoming overwhelming and costly to prepare.
2007:
The AcSB issued an Invitation to Comment and an accompanying Discussion Paper to solicit input on the best approach for the development of standards for private enterprises.
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The CICA’s Guide to Accounting Standards for Private Enterprises in Canada
The CICA invited comment on a proposed accounting Framework for Owner Managed Enterprises (FOME).
2008: The AcSB made the decision to establish “madein-Canada” financial reporting standards for private enterprises, based on the standards in the existing CICA Handbook – Accounting (Handbook). This approach was influenced in part by the response to the FOME. The AcSB established an advisory committee, made up of preparers, auditors and users of private enterprise financial statements, to provide input on the development of the standards and propose solutions to address the issues identified through the 2006 research. 2009: The AcSB issued an Exposure Draft on the proposed generally accepted accounting principles (GAAP) for private enterprises.
New accounting standards for private enterprises were issued in December. The standards reduced measurement complexities of those areas identified by stakeholders as problematic and significantly reduced disclosure requirements. The standards are built from the existing Handbook, which is familiar to many users.
The approval of new standards gives Canadian private enterprises the option of using accounting standards developed specifically for their unique needs or IFRSs.
2010:
The new accounting standards for private enterprises are incorporated into the Handbook as Part II.
The AcSB established the Private Enterprise Advisory Committee to provide insight into areas of the standards that require improvement, additional topics that should be addressed and issues arising in practice where implementation guidance might be helpful.
The CICA’s Guide to Accounting Standards for Private Enterprises in Canada
Who is Affected? Any private enterprise can adopt the new standards. There are no qualifiers such as unanimous consent from shareholders. A private enterprise is a profit-oriented entity that is not a publicly accountable enterprise, nor an entity in the public sector. The following definition of the term publicly accountable enterprise has been adopted for the purposes of determining which Part of the CICA Handbook – Accounting applies to a reporting entity. A publicly accountable enterprise is an entity, other than a not-for-profit organization, or a government or other entity in the public sector, that: (i) has issued, or is in the process of issuing, debt or equity instruments that are, or will be, outstanding and traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets); or (ii) holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses. Banks, credit unions, insurance companies, securities brokers/dealers, mutual funds and investment banks typically meet the second criterion above. Other entities may also hold assets in a fiduciary capacity for a broad group of outsiders because they hold and manage financial resources entrusted to them by clients, customers or members not involved in the management of the entity. However, if they do so for reasons incidental to a primary business (as, for example, may be the case for travel or real estate agents, co-operative enterprises requiring a nominal membership deposit or sellers that receive payment in advance of delivery of the goods or services, such as utility companies), that does not make them publicly accountable.
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The CICA’s Guide to Accounting Standards for Private Enterprises in Canada
Key Changes The accounting standards for private enterprises contain many parts of the existing Handbook that stakeholders indicated did not cause significant concerns. Important changes have been made to simplify the process and better meet the needs of the marketplace. Some key changes are as follows:
Simplification in measurement A significant area of simplification that will affect many private enterprises is financial instruments. A new standard (Section 3856) was developed to replace the various financial instrument sections in the existing Handbook. Section 3856 requires most financial instruments to be measured at cost (or amortized cost). Only equities quoted in an active market and free-standing derivatives are required to be measured at fair value. However, there is an option to measure other financial instruments at fair value if a private enterprise wishes. The standard also covers a number of other important aspects of accounting for financial instruments. The impact of adopting Section 3856 will depend on whether or not the enterprise previously used the XFI version of the Handbook. Notable simplifications were also made to the accounting for asset retirement obligations, employee future benefits, development costs, goodwill, and stock-based compensation.
Retaining the choices Differential reporting options currently available to private enterprises are retained. Private enterprises continue to have a choice on how to account for investments in subsidiaries, significantly-influenced investees and joint ventures. They will also continue to have the choice of whether to use the future income taxes method or taxes payable to account for income taxes.
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The CICA’s Guide to Accounting Standards for Private Enterprises in Canada
Disclosure requirements Required note disclosures have been significantly reduced so as to focus on the needs of the users of private enterprise financial statements. In particular, there are fewer requirements for disclosure of assumptions, reconciliations and detailed breakdowns of balance sheet and income statement numbers. As a result, the cost of preparing financial statements is lower but sufficient information is provided to give fair presentation of an enterprise’s financial position, operating results and cash flows and to help users gauge when to ask for more information on specific issues or transactions. To facilitate compliance with disclosure requirements, the standards include a Compilation of Disclosure Requirements that reproduces all of the specific disclosure requirements contained in the standards.
Emerging Issues Committee Abstracts In creating a principles-based financial reporting system, the AcSB concluded that it would not be appropriate to include the type of detailed guidance contained in the Emerging Issues Committee (EIC) Abstracts. Therefore, the Abstracts have not been carried forward to the new standards. However, parts of 29 Abstracts were considered to contain significant guidance that was important for private enterprises and this guidance has been incorporated in the standards. These are identified in the comparison on pages 18-36.
First-Time Adoption The guidance for first-time adoption is contained in Section 1500, First-time Adoption. To ensure that the entity’s first set of financial statements prepared under the new standards is transparent for users and comparable over all periods presented, the overall approach is retroactive application. This means that the financial statements have to be restated in accordance with the new standards and presented as if the entity has always applied these standards.
The CICA’s Guide to Accounting Standards for Private Enterprises in Canada
However, in some cases retrospective application may lead to costs that outweigh the benefits. Section 1500 provides exemptions from the general retrospective application requirement for certain specific areas. For example, although no changes were made to Section 3840, Related Party Transactions, a company may not have recorded past related party transactions in accordance with Section 3840. Section 1500 allows the company, on first-time adoption, not to restate such prior transactions. As a result of these exemptions, first-time adoption of the new standards will generally be straightforward. Section 1500 also includes specific prohibitions to the general retrospective application requirement. These are for areas where changes would involve hindsight. In order for the user to be able to understand the changes when the new standards are adopted, Section 1500 requires the financial statements to show the comparative year prepared on the same basis. Disclosure of changes to the opening retained earnings and a reconciliation of the prior year net income is also required. For example, for an entity’s 2011 calendar year end, it will be required to present its 2010 comparative financial statements using the new standards. In addition, it needs to disclose an opening balance sheet as at January 1, 2010 using the new standards, a reconciliation showing all the changes to the January 1, 2010 retained earnings as a result of adopting these standards and a reconciliation of the 2010 net income.
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The CICA’s Guide to Accounting Standards for Private Enterprises in Canada
Preparing for the Transition The implications of the transition to the new accounting standards for private enterprises will depend on what accounting standards the entity is currently using: Canadian GAAP, XFI, differential reporting, International Financial Reporting Standards (IFRSs) or non-GAAP. The implications will also depend on the entity’s transactions. Regardless of the entity’s circumstances, becoming familiar with the applicable standards should be the first step.
IFRSs or New Accounting Standards for Private Enterprise? Once an entity is familiar with the private enterprise standards it can decide whether adopting the new standards or IFRSs best meets its needs. Questions to consider include the following:
What are the Users’ Needs and Expectations? Users of the entity’s financial statements may want the entity to report on the same basis as its peers in order to maintain comparability. As such, whether the entity adopts IFRSs or accounting standards for private enterprises may be influenced by its industry practice or norm. For example, are its peers predominately publicly accountable entities or international companies that will be applying IFRSs or does the industry consist primarily of private enterprises that will be adopting private enterprise standards?
What are the Entity’s Future Plans? If the entity has plans to go public, issue public debt or access foreign financing (debt or equity) over the next few years, it may be appropriate to adopt IFRSs.
What Financial Reporting Standards are Used by the Consolidated Group? If the entity reports to a foreign parent that complies with IFRSs or has a number of subsidiaries that report in IFRSs, adopting IFRSs may be the preferred choice.
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The CICA’s Guide to Accounting Standards for Private Enterprises in Canada
Options under Accounting Standards for Private Enterprises Once an entity has decided to adopt accounting standards for private enterprises it should carefully consider the exemptions available under Section 1500, First-time Adoption, as well as accounting policy choices under the various sections of the new standards going forward.
Timing Although the private enterprise standards are effective for years beginning on or after January 1, 2011, private enterprises have the option of early adoption. An entity may wish to adopt the standards for its 2010 year end in order to take advantage of simplification to areas such as employee future benefits or reduced disclosure requirements. Of course the decision to early adopt will affect the entity’s transition timeline. One-time disclosure and presentation requirements for the entity’s first set of financial statements issued under the new standards need planning and preparation. Entities need to assess whether resources are available to prepare this information in time for 2010 year ends. The entity should also consider which exemptions in Section 1500 it may want to select. For example, an entity may choose to apply fair value to its fixed assets. (This exemption allows a one-time revaluation of fixed assets to fair value and may be desirable to some entities.)
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The CICA’s Guide to Accounting Standards for Private Enterprises in Canada
Implementing Accounting Standards for Private Enterprises While implementation of the new standards will differ from entity to entity depending on the type of transactions and the existing set of accounting standards used, there are some basic steps to follow: 1.
Identify the person or team of people who will be implementing the new standards.
2.
Determine the required training and impact on the entity’s human and other resources (e.g. information technology systems to capture and produce the required information).
3.
Review Section 1500, First-time Adoption and assess options.
4.
Review the entity’s financial statement items and transactions and become familiar with the applicable sections of the standards in order to determine the magnitude of change from current financial statements.
5.
Draft the notes to the financial statements rather than adapting existing notes to new requirements. This will ensure the entity is not just adding to the notes but is benefiting from the reduction in disclosure. Use the Compilation of Disclosure Requirements in Part II of the CICA Handbook – Accounting.
6.
Consider the impact on other areas of business such as debt covenants, banking agreements and employee bonuses.
7.
Communicate the differences in the financial statements with key stakeholders such as bankers and shareholders.
The CICA’s Guide to Accounting Standards for Private Enterprises in Canada
Getting Involved The Accounting Standards Board is committed to ensuring that accounting standards for private enterprises keep pace with the dynamic and changing needs of this vital segment of the Canadian economy. A national advisory committee has been established to provide ongoing insight. The Private Enterprise Advisory Committee is comprised of volunteers from across Canada who represent a cross-section of stakeholders including financial statement users, financial statement preparers and accounting professionals. Committee members will advise the AcSB on areas within the framework that require improvement and additional topics that should be addressed. They will also identify issues arising in practice where implementation guidance might be helpful. Any changes to the standards will go through the AcSB’s normal due process, including exposure of draft proposals for comment. Constituents are encouraged to contact the committee to suggest areas that should be considered: Greg Edwards, CA Principal Accounting Standards Board 277 Wellington Street West Toronto ON M5V 3H2 Canada Email:
[email protected] Telephone: 416- 204-3462 Fax: 416- 204-3412
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The CICA’s Guide to Accounting Standards for Private Enterprises in Canada
Resources Available from Chartered Accountants of Canada The CICA, along with the provincial Institutes/Ordre, provide information and learning opportunities to assist members and the broader business community develop the knowledge and expertise they need to excel in their professional capacities. We hope this guide helps you by providing a high-level comparison of the new standards to the XFI version of Part V of the CICA Handbook – Accounting. Other resources include: •
Getting Familiar with new Canadian Accounting Standards for Private Enterprises – a free webinar
•
Accounting Standards for Private Enterprises FAQ
For more information visit the www.cica.ca/PE or your provincial Institute/Ordre website.
Summary Comparison of New Accounting Standards for Private Enterprises
(Part II of the revised CICA Handbook — Accounting) to XFI Version (Part V)
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The CICA’s Guide to Accounting Standards for Private Enterprises in Canada
About this Comparison As of December 31, 2009 This comparison has been prepared by the staff of the Accounting Standards Board (AcSB) and has not been approved by the AcSB. This document provides a high-level comparison of accounting standards for private enterprises (Part II) and the XFI version of Part V of the CICA Handbook – Accounting (Handbook). It covers significant recognition and measurement differences only and does not necessarily include all of the differences that might arise in a particular entity’s circumstances. Presentation and disclosure requirements are not within the scope of this comparison. Presentation requirements for Part II are provided in Section 1520, Income Statement, Section 1521, Balance Sheet, and Section 1540, Cash Flow Statement. A compilation of disclosure requirements is also provided in Part II of the Handbook. This document should not be used in preparing financial statements. To understand fully the implications of preparing financial statements in accordance with Part II of the Handbook, users of this comparison must refer to the standards themselves.
The CICA’s Guide to Accounting Standards for Private Enterprises in Canada
The standards in Part II and the XFI Version of Part V of the Handbook are based on common conceptual frameworks. Part V of the Handbook was used as a starting point in developing the standards in Part II. Standards in Part V that are largely irrelevant to the private enterprise sector have been excluded from Part II and a limited number of issues that have caused significant concern for private enterprises have been reconsidered. However, the majority of the recognition and measurement requirements in Part V of the Handbook do not cause significant concern for private enterprises and have been retained in Part II “as is”. Emerging Issues Committee (EIC) Abstracts of Issues Discussed have been excluded from Part II but in a limited number of instances, guidance on significant issues addressed in EIC Abstracts has been incorporated into Part II. This comparison is organized according to Handbook Sections and Accounting Guidelines and reflects standards issued as of December 31, 2009. The term “converged” has been used in the comparison when the standards in Part II are substantially the same as the relevant standards in the XFI version of Part V. Similar requirements compiled in a single standard in Part II that were previously reflected in two or more standards in Part V, are not considered “differences” for the purpose of this comparison.
17
Not significant
N/A None
Significant on first-time adoption of accounting standards for private enterprises in Part II
Section 1100, Part II, is converged with XFI Section. Section 1100, Part II, has been redrafted to be consistent with the content of Part II. No corresponding standard in Part II. Section 1400, Part II, is converged with XFI Section.
No corresponding standard in XFI standards.
Section 1100, Generally Accepted Accounting Principles
—
Section 1400, General Standards of Financial Statement Presentation
Section 1500, First-time Adoption
Section 1100, Generally Accepted Accounting Principles
Section 1300, Differential Reporting
Section 1400, General Standards of Financial Statement Presentation
—
* The assessment of significance of differences is a judgment made by AcSB staff in general terms. A difference may be significant to a particular transaction or entity depending on its materiality or nature.
None
Significance* of differences
Section 1000, Part II, is converged with XFI Section.
Comparison of accounting treatments
Section 1000, Financial Statement Concepts
Handbook standards Part II
Section 1000, Financial Statement Concepts
Handbook standards Part V (XFI)
The following table of concordance relates each accounting standard for private enterprises in Part II of the CICA Handbook — Accounting, to the corresponding standard in XFI version of Part V. The table does not include differences in disclosure requirements.
18 The CICA’s Guide to Accounting Standards for Private Enterprises in Canada
Handbook standards Part II
Section 1505, Disclosure of Accounting Policies
Section 1506, Accounting Changes
Section 1508, Measurement Uncertainty
Section 1510, Current Assets and Current Liabilities
Handbook standards Part V (XFI)
Section 1505, Disclosure of Accounting Policies
Section 1506, Accounting Changes
Section 1508, Measurement Uncertainty
Section 1510, Current Assets and Current Liabilities
None
Section 1510, Part II, is converged with XFI Section.
Certain guidance from the following EIC Abstracts has been included in Section 1510, Part II: • EIC-59 (see 1510.14); and • EIC-122 (see 1510.13).
The following Sections in Part V have been incorporated into Section 1510, Part II: • Section 3000 (see 1510.07); and • Section 3040 (see 1510.06).
N/A
Significant
Section 1506, Part II, is converged with XFI Section, except that Section 1506, Part II, permits certain accounting policy choices to be changed without meeting the criterion in 1506.06 of providing more relevant or reliable information (see 1506.09). All requirements in this Section relate to disclosures, which are outside the scope of this summary comparison.
N/A
Significance* of differences
All requirements in this Section relate to disclosures, which are outside the scope of this summary comparison.
Comparison of accounting treatments
The CICA’s Guide to Accounting Standards for Private Enterprises in Canada 19
Section 1520, Income Statement
Section 1521, Balance Sheet
—
Section 1540, Cash Flow Statement
Section 1582, Business Combinations
—
Section 1535, Capital Disclosures
Section 1540, Cash Flow Statement
Section 1582, Business Combinations
Handbook standards Part II
Section 1520, Income Statement
Handbook standards Part V (XFI)
N/A
N/A Significant for enterprises that do not provide a cash flow statement under XFI standards Significant for enterprises adopting Part II prior to 2011
No corresponding standard in Part II. Section 1540, Part II, is converged with XFI Section. However, under Part II, all enterprises must provide a cash flow statement.
Section 1582, Part II, is converged with XFI Section. Section 1582 is effective on adoption of Part II as Part II does not include Section 1581.
N/A
Significance* of differences
This presentation Section reflects balance sheet presentation requirements from other Sections – presentation is outside the scope of this summary comparison.
This presentation Section reflects income statement presentation requirements from other Sections – presentation is outside the scope of this summary comparison.
Comparison of accounting treatments
20 The CICA’s Guide to Accounting Standards for Private Enterprises in Canada
Section 1590, Subsidiaries
Section 1601, Consolidated Financial Statements
Section 1602, Noncontrolling Interests
Section 1625, Comprehensive Revaluation of Assets and Liabilities
Section 1601, Consolidated Financial Statements
Section 1602, Noncontrolling Interests
Section 1625, Comprehensive Revaluation of Assets and Liabilities
Handbook standards Part II
Section 1590, Subsidiaries
Handbook standards Part V (XFI)
None
Significant for enterprises adopting Part II prior to 2011 Not significant
Section 1602, Part II, is converged with XFI Section. Section 1602 is effective on adoption of Part II as Part II does not include Section 1600. Section 1625, Part II, is converged with XFI Section except for the accounting for income tax benefits (see 1625.43-44).
Significant for a subsidiary that would now be accounted for at fair value rather than cost
Significance* of differences
Section 1601, Part II, is converged with XFI Section.
Under Section 1590, Part II, an enterprise may account for subsidiaries by consolidating them, or using either the cost or equity method. This is consistent with the differential reporting option in XFI Section. However an investment in a subsidiary whose equity securities are quoted in an active market is not accounted for at cost, but may be accounted for at fair value.
Section 1590, Part II, is converged with XFI Section, except as noted below.
Comparison of accounting treatments
The CICA’s Guide to Accounting Standards for Private Enterprises in Canada 21
Section 1651, Foreign Currency Translation
—
—
Section 1800, Unincorporated Businesses
—
—
—
Section 1701, Segment Disclosures
Section 1751, Interim Financial Statements
Section 1800, Unincorporated Businesses
Section 3000, Cash
Section 3010, Temporary Investments
Section 3020, Accounts and Notes Receivable
Handbook standards Part II
Section 1650, Foreign Currency Translation
Handbook standards Part V (XFI)
N/A N/A None
N/A
Significant
N/A
No corresponding standard in Part II. Section 1800, Part II, is converged with XFI Section.
No corresponding standard in Part II. Guidance from XFI Section incorporated in Section 1510, Part II (see 1510.07). No corresponding standard in Part II. Measurement and impairment requirements are provided in Section 3856, Part II. Designation as “temporary” is no longer relevant. Financial instruments are classified as current if they meet the requirements in Section 1510, Part II. No corresponding standard in Part II. Guidance from XFI Section incorporated in Section 3856, Part II (see 3856.16-.19).
None, except for hedge accounting addressed in Section 3856, Part II
Significance* of differences
No corresponding standard in Part II.
Hedge accounting (other than a hedge of an investment in a self-sustaining foreign operation) is addressed in Section 3856, Part II, rather than in Section 1651, Part II, and differs from XFI Section 1650.
Section 1651, Part II, is converged with XFI Section 1650.
Comparison of accounting treatments
22 The CICA’s Guide to Accounting Standards for Private Enterprises in Canada
—
Section 3031, Inventories
—
Section 3031, Inventories
Section 3040, Prepaid Expenses
Handbook standards Part II
Section 3025, Impaired Loans
Handbook standards Part V (XFI) Often not significant
None N/A
Section 3031, Part II, is converged with XFI Section. No corresponding standard in Part II. Guidance from XFI Section incorporated in Section 1510, Part II (see 1510.06).
Significance* of differences
No corresponding standard in Part II. Guidance provided in Section 3856, Part II, differs from that in Section 3025 (see 3856.16-.19) in that alternative measurements are possible. When measurement of impairment is based on recoverable amounts, these estimates are discounted using market interest rates rather than the original effective interest rate.
Comparison of accounting treatments
The CICA’s Guide to Accounting Standards for Private Enterprises in Canada 23
Section 3050, Long-term Investments
Handbook standards Part V (XFI)
Section 3051, Investments
Handbook standards Part II
The impairment provisions in Section 3051, Part II, are consistent with those in Section 3856, Part II.
Under Section 3856, Part II, an investment in an equity security that is traded in an active market and not subject to significant influence is accounted for at fair value rather than at cost.
Under Section 3051, Part II, an enterprise may account for significantly influenced investees using either the cost or equity method. This is consistent with the differential reporting option in XFI Section 3050. However, an investment in a significantly influenced investee whose equity securities are quoted in an active market is not accounted for at cost but may be accounted for at fair value.
Section 3051, Part II differs from XFI Section 3050. Significant differences are noted below.
Comparison of accounting treatments Significant
Significance* of differences
24 The CICA’s Guide to Accounting Standards for Private Enterprises in Canada
Handbook standards Part II
Section 3055, Interests in Joint Ventures
Section 3061, Property Plant and Equipment
Section 3063, Impairment of Longlived Assets
Handbook standards Part V (XFI)
Section 3055, Interests in Joint Ventures
Section 3061, Property Plant and Equipment
Section 3063, Impairment of Long-lived Assets
None None
Section 3063, Part II, is converged with XFI Section.
Significant
Significance* of differences
Section 3061, Part II, is converged with XFI Section.
The impairment provisions in Section 3055, Part II, are consistent with those in Section 3856, Part II.
Under Section 3055, Part II, an enterprise may account for interests in joint ventures using proportionate consolidation, the cost method or the equity method. This is consistent with the differential reporting options in XFI Section. However an investment in a joint venture whose equity securities are quoted in an active market is not accounted for at cost but may be accounted for at fair value.
Section 3055, Part II, differs from XFI Section. Significant differences are noted below.
Comparison of accounting treatments
The CICA’s Guide to Accounting Standards for Private Enterprises in Canada 25
Handbook standards Part II
Section 3064, Goodwill and Intangible Assets
Handbook standards Part V (XFI)
Section 3064, Goodwill and Intangible Assets
Certain guidance from EIC-133 has been incorporated in Section 3064, Part II (see 3064.68).
Section 3064, Part II, requires goodwill impairment testing to be done at the reporting unit level, removing the requirement in XFI Section to determine fair values of individual assets and liabilities.
This is consistent with the differential reporting option in XFI Section.
Goodwill and other intangible assets – impairment testing Section 3064, Part II, requires enterprises to test goodwill and other intangible assets not subject to amortization on an events and circumstances basis, rather than each year.
Internally developed intangible assets Section 3064, Part II, permits an enterprise to make an accounting policy choice to capitalize or expense development costs.
Section 3064, Part II differs from XFI Section. Significant differences are noted below.
Comparison of accounting treatments Significant
Significance* of differences
26 The CICA’s Guide to Accounting Standards for Private Enterprises in Canada
Section 3065, Leases
Section 3110, Asset Retirement Obligations
—
Section 3110, Asset Retirement Obligations
Section 3210, Long-term Debt
Handbook standards Part II
Section 3065, Leases
Handbook standards Part V (XFI)
No corresponding standard in Part II. Guidance provided in Section 3856, Part II.
Under Section 3110, Part II, asset retirement obligations are measured at the best estimate of the expenditure required to settle the present obligation at the end of the reporting period, rather than at fair value.
Section 3110, Part II, is converged with XFI Section except that the measurement requirements have been simplified.
Certain guidance from the following EIC Abstracts has been incorporated into Section 3065, Part II: • EIC-19 (see 3065.03(r); • EIC-21 (see 3065.27); • EIC 25 (see 3065.64 and Illustrative Examples 3 and 4); • EIC-52 (see 3065.25 and Illustrative Example 5); and • EIC-97 (see 3065.26).
Section 3065, Part II, is converged with XFI Section, except that the requirements for (a) removing a lease liability from a lessee’s balance sheet, and (b) the impairment testing of lease receivables of a lessor in Section 3065, Part II, are consistent with those in Section 3856, Part II.
Comparison of accounting treatments
N/A
Significant
Not significant
Significance* of differences
The CICA’s Guide to Accounting Standards for Private Enterprises in Canada 27
Section 3240, Share Capital
Section 3251, Equity
Section 3260, Reserves
Section 3280, Contractual Obligations
Section 3290, Contingencies
Section 3400, Revenue
Section 3250, Surplus
Section 3260, Reserves
Section 3280, Contractual Obligations
Section 3290, Contingencies
Section 3400, Revenue
Handbook standards Part II
Section 3240, Share Capital
Handbook standards Part V (XFI)
None None
Section 3290, Part II, is converged with XFI Section. Section 3400, Part II, is converged with XFI Section. Certain guidance from the following EICs has been incorporated into Section 3400, Part II: • EIC-78 (see 3400.17); • EIC-79 (see 3400.22); • EIC-123 (see 3400.23-.24); • EIC-141 (see 3400.07-.10); • EIC-142 (see 3400.011); • EIC-144 (see 3400.25-.27); and • EIC-156 (see 3400.28).
N/A
None
Section 3260, Part II, is converged with XFI Section. All requirements in this Section relate to disclosures, which are outside the scope of this summary comparison.
N/A
None
Significance* of differences
All requirements in this Section relate to presentation, which is outside the scope of this summary comparison. The scope of Section 3251, Part II, is broader than XFI Section 3250. Certain guidance from EIC-132 has been incorporated into Section 3251, Part II (see 3251.10).
Section 3240, Part II, is converged with XFI Section.
Comparison of accounting treatments
28 The CICA’s Guide to Accounting Standards for Private Enterprises in Canada
Handbook standards Part II
Section 3461, Employee Future Benefits
Handbook standards Part V (XFI)
Section 3461, Employee Future Benefits
The definition of a defined benefit and defined contribution plan has been modified. The difference is not expected to be significant for most private enterprises.
Section 3461, Part II, permits defined benefit plans to be recognized and measured using either: • an “immediate recognition approach,” whereby the accounting is based on a funding valuation, the funded status of the plan is recognized on the balance sheet and there is no deferral or amortization of actuarial gains and losses or past service costs; or • the “deferral and amortization approach” as in the XFI Section, which requires a separate valuation for accounting purposes and deferral and amortization is required for past service costs and permitted for actuarial gains and losses.
Section 3461, Part II differs from XFI Section.
Comparison of accounting treatments Significant
Significance* of differences
The CICA’s Guide to Accounting Standards for Private Enterprises in Canada 29
Section 3465, Income Taxes
Section 3475, Disposal of Long-lived Assets and Discontinued Operations
—
—
Section 3610, Capital Transactions
Section 3800, Government Assistance
Section 3475, Disposal of Long-lived Assets and Discontinued Operations
Section 3480, Extraordinary Items
Section 3500, Earnings per Share
Section 3610, Capital Transactions
Section 3800, Government Assistance
Handbook standards Part II
Section 3465, Income Taxes
Handbook standards Part V (XFI)
None
N/A N/A None None
No corresponding standard in Part II. No corresponding standard in Part II. Section 3610, Part II, is converged with XFI Section. Section 3800, Part II, is converged with XFI Section.
None
Significance* of differences
Section 3475, Part II, is converged with XFI Section.
Certain guidance from the following EIC Abstracts has been incorporated into Section 3465, Part II: • EIC-104 (see 3465.75); and • EIC-146 (see 3465.65).
Section 3465, Part II, is converged with XFI Section. Under Section 3465, Part II, either the taxes payable method or the future income taxes method may be chosen. This is consistent with the differential reporting option in XFI Section.
Comparison of accounting treatments
30 The CICA’s Guide to Accounting Standards for Private Enterprises in Canada
Handbook standards Part II
Section 3805, Investment Tax Credits
Section 3820, Subsequent Events
Section 3831, Nonmonetary Transactions
Section 3840, Related Party Transactions
Section 3841, Economic Dependence
Section 3850, Interest Capitalized
Handbook standards Part V (XFI)
Section 3805, Investment Tax Credits
Section 3820, Subsequent Events
Section 3831, Non-monetary Transactions
Section 3840, Related Party Transactions
Section 3841, Economic Dependence
Section 3850, Interest Capitalized
None None
Section 3831, Part II, is converged with XFI Section. Section 3840, Part II, is converged with XFI Section. Certain guidance from the following EIC Abstracts has been incorporated into Section 3840, Part II: • EIC-66 (see 3840.44(a)); • EIC-77 (see 3840.38); • EIC 89 (see 3840.44(b)); and • EIC-103 (see 3840.33).
All requirements in this Section relate to disclosures, which are outside the scope of this summary comparison.
N/A
N/A
None
Section 3820, Part II, is converged with XFI Section.
All requirements in this Section relate to disclosures, which are outside the scope of this summary comparison.
None
Significance* of differences
Section 3805, Part II, is converged with XFI Section.
Comparison of accounting treatments
The CICA’s Guide to Accounting Standards for Private Enterprises in Canada 31
—
Handbook standards Part V (XFI)
Section 3856, Financial Instruments
Handbook standards Part II
The significant differences between the guidance on financial instruments in XFI standards and Section 3856, Part II, include the following: • Investments in equities that are traded in an active market are measured at fair value, with changes recognized in net income. An entity may also irrevocably elect on initial recognition to measure any other financial instrument at fair value. Derivatives, other than those in qualifying hedges, continue to be measured at fair value. • A single model is applied to the recognition and measurement of impairment for all financial assets. • All financial instruments are recognized on trade date. • Transaction costs on financial instruments measured at amortized cost are capitalized. Transaction costs on financial instruments measured at fair value are expensed. • The equity component of convertible debt and warrants or options issued with, and detachable from, financial liabilities may be measured at zero.
Section 3856, Part II, differs from equivalent requirements under XFI standards. The requirements in Section 3856, Part II, correspond to or replace guidance in Sections 3020, 3025, 3210, 3860, AcG-4, AcG-12 and AcG-13.
Comparison of accounting treatments Significant
Significance* of differences
32 The CICA’s Guide to Accounting Standards for Private Enterprises in Canada
Section 3860, Financial Instruments – Disclosure and Presentation
Handbook standards Part V (XFI)
—
Handbook standards Part II
No corresponding standard in Part II. Guidance provided in Section 3856, Part II.
Certain guidance from the following Sections, Accounting Guidelines and EIC Abstracts and has been included in Section 3856, Part II: • Section 3020 (see 3856.16-.19); • Section 3025 (see 3856.16-.19); • AcG-4 (see 3856.07); • AcG-12 (see 3856, Appendix B.); • AcG-13 (see 3856.30-.36); • EIC-88, 96 and 101 (see 3856.26-.29); • EIC-149 (see 3856.20-.23); and • EIC-158 (see 3856.14).
• Hedge accounting is available by designation for relationships specified in the Section if the critical terms of the hedging instrument match those of the hedged instrument. • Preferred shares issued in a specified tax planning arrangement must be classified as equity. (This is consistent with the differential reporting option in XFI Section 3860.)
Comparison of accounting treatments
N/A
Significance* of differences
The CICA’s Guide to Accounting Standards for Private Enterprises in Canada 33
Handbook standards Part II
Section 3870, Stockbased Compensation and Other Stock-based Payments
—
—
—
—
AcG-2, Franchise Fee Revenue
—
Handbook standards Part V (XFI)
Section 3870, Stock-based Compensation and Other Stock-based Payments
Section 4100, Pension Plans
Section 4211, Life Insurance Enterprises – Specific Items
Section 4250, Futureoriented Financial Information
Section 4400, Not-forprofit Organizations
AcG-2, Franchise Fee Revenue
AcG-3, Financial Reporting by Property and Casualty Insurance Companies
N/A N/A N/A
N/A
None N/A
No corresponding standard in Part II. No corresponding standard in Part II.
No corresponding standard in Part II. Part III has been reserved for the accounting standards for not-forprofit organizations. AcG-2, Part II, is converged with XFI Guideline. No corresponding Guideline in Part II.
Significant
Significance* of differences
No corresponding standard in Part II. The accounting standards for pension plans can be found in Part IV.
Section 3870, Part II, replaces the minimum value method (i.e., the ability to ignore volatility in measuring stock-based compensation) with the calculated value method. Under the calculated value method an enterprise estimates the volatility that is used as an input to a stock option pricing model based on an appropriate sector index.
Section 3870, Part II, differs from XFI Section.
Comparison of accounting treatments
34 The CICA’s Guide to Accounting Standards for Private Enterprises in Canada
N/A N/A
No corresponding Guideline in Part II. No corresponding Guideline in Part II. Guidance provided in Section 3856, Part II (see 3856, Appendix B). No corresponding Guideline in Part II. Guidance provided in Section 3856, Part II (see 3856.30-.36).
—
—
—
AcG-14, Disclosure of Guarantees
AcG-11, Enterprises in the Development Stage
AcG-12, Transfers of Receivables
AcG-13, Hedging Relationships
AcG-14, Disclosure of Guarantees
None
N/A
No corresponding Guideline in Part II
—
AcG-9, Financial Reporting by Life Insurance Enterprises
AcG-14, Part II, is converged with XFI Guideline.
N/A
No corresponding Guideline in Part II.
—
AcG-8, Actuarial Liabilities of Life Insurance Enterprises – Disclosure
AcG-7, The Management Report
N/A
—
AcG-4, Fees and Costs Associated with Lending Activities No corresponding Guideline in Part II.
Significance* of differences
—
Comparison of accounting treatments N/A
Handbook standards Part II No corresponding Guideline in Part II. Guidance provided in Section 3856, Part II (see 3856.07).
Handbook standards Part V (XFI)
The CICA’s Guide to Accounting Standards for Private Enterprises in Canada 35
AcG-19, Disclosures by Entities Subject to Rate Regulation
AcG-19, Disclosures by Entities Subject to Rate Regulation
All requirements in this Guideline relate to disclosures, which are outside the scope of this summary comparison.
N/A
None
AcG-18, Investment Companies
AcG-18, Investment Companies
AcG-18, Part II, is converged with XFI Guideline.
No corresponding Guideline in Part II.
—
AcG-17, Equity-linked Deposit Contracts
AcG-16, Oil and Gas Accounting – Full Cost
None
AcG-15, Consolidation of Variable Interest Entities
AcG-15, Consolidation of Variable Interest Entities AcG-16, Part II, is converged with XFI Guideline.
Significance* of differences
AcG-16, Oil and Gas Accounting – Full Cost
Comparison of accounting treatments None
Handbook standards Part II AcG-15, Part II, is converged with XFI Guideline. AcG15, Part II, does not apply to an enterprise that chooses to prepare non-consolidated financial statements.
Handbook standards Part V (XFI)
36 The CICA’s Guide to Accounting Standards for Private Enterprises in Canada
Provincial Institutes/Ordre The Institute of Chartered Accountants of Bermuda 31 Queen Street Boyle Building, 3rd Floor Hamilton, Bermuda HM 11 (441) 292-7479 www.icab.bm The Institute of Chartered Accountants of Nova Scotia 1791 Barrington Street, Suite 1410 Halifax, Nova Scotia B3J 3L1 (902) 425-3291 www.icans.ns.ca The New Brunswick Institute of Chartered Accountants 55 Union Street, Suite 250 Mercantile Centre Saint John, New Brunswick E2L 5B7 (506) 634-1588 www.nbica.org The Institute of Chartered Accountants of Prince Edward Island 56 Water Street, 2nd Floor Charlottetown, PEI C1A 7K7 (902) 894-4290 www.icapei.com
The Institute of Chartered Accountants of Newfoundland and Labrador 95 Bonaventure Avenue, Suite 501 St. John’s, Newfoundland A1B 2X5 (709) 753-7566 www.ican.ca Ordre des comptables agréés du Québec 680, rue Sherbrooke Ouest, e 18 étage Montréal, Québec H3A 2S3 (514) 288-3256 1 800 363-4688 www.ocaq.qc.ca The Institute of Chartered Accountants of Ontario 69 Bloor Street East Toronto, Ontario M4W 1B3 (416) 962-1841 1 800 387-0735 www.icao.on.ca The Institute of Chartered Accountants of Manitoba 500–161 Portage Avenue East Winnipeg, Manitoba R3B 0Y4 (204) 942-8248 1 888 942-8248 www.icam.mb.ca
The Canadian Institute of Chartered Accountants 277 Wellington Street West Toronto, Ontario M5V 3H2 (416) 977-3222 www.cica.ca
© The Canadian Institute of Chartered Accountants NIEDU052
The Institute of Chartered Accountants of Saskatchewan 3621 Pasqua Street Regina, Saskatchewan S4S 6W8 (306) 359-1010 www.icas.sk.ca The Institute of Chartered Accountants of Alberta 580 Manulife Place, 10180–101 Street Edmonton, Alberta T5J 4R2 (780) 424-7391 1 800 232-9406 (for Alberta, outside Edmonton) www.icaa.ab.ca The Institute of Chartered Accountants of British Columbia Suite 500, One Bentall Centre 505 Burrard Street, Box 22 Vancouver, British Columbia V7X 1M4 (604) 681-3264 1 800 663-2677 www.ica.bc.ca If you are in the Yukon, please contact the Institute of Chartered Accountants of British Columbia. If you are in the Northwest Territories or Nunavut, please contact the Institute of Chartered Accountants of Alberta.
