TRANSLATION. We would appreciate receiving a copy of the English translation of our comments.

Transcription

1 5, Place Ville Marie, bureau 800, Montréal (Québec) H3B 2G2 T Téléc TRANSLATION June 13, 2017 Michael Puskaric, CPA, CMA Director, Public Sector Accounting Public Sector Accounting Board 277 Wellington Street West Toronto, Ontario M5V 3H2 Dear Sir: Please find enclosed the comments of the Technical working group on the public sector Public sector accounting of the Ordre des comptables professionnels agréés du Québec on the Exposure Draft entitled Asset Retirement Obligations, Proposed Section PS We would appreciate receiving a copy of the English translation of our comments. Please note that neither the Ordre des comptables professionnels agréés du Québec nor any of the persons involved in preparing the comments shall have any liability in relation to their use and no guarantee whatsoever shall be provided regarding these comments, as specified in the following disclaimer. Yours truly, Annie Smargiassi, CPA auditor, CA Representative of the Technical working group on the public sector Public sector accounting Encl. Disclaimer and comments

2 DISCLAIMER Subject to the conditions described herein, the documents prepared by the working groups of the Ordre des comptables professionnels agréés du Québec (the Order), hereinafter referred to as the "comments," provide the opinion of members on statements of principles, documents for comment, associates drafts and final exposure drafts published by the Accounting Standards Board, Auditing and Assurance Standards Board, Public Sector Accounting Board, Risk Management and Governance Board, and by other organizations. The comments submitted by the working groups should not be relied upon as a substitute for engagements entrusted to professionals with specialized knowledge in their field. It is important to note that the legislation, standards and rules on which the comments are based may change at any time and that, in some cases, the comments may be controversial. Neither the Order nor any person involved in preparing these comments shall have any liability in relation to their use and no guarantee whatsoever shall be provided regarding these comments. These comments are not binding on the Order s technical working groups or the Office of the syndic in particular. Users of the comments shall take full responsibility for, and assume all risks relating to, the use of the comments. They agree to release the Order from any claim for damages that could result from a decision they made based on these comments. They also agree not to mention the comments in the opinions they express or the positions they take. Exposure Draft entitled Asset Retirement Obligations, Proposed Section PS

3 TERMS OF REFERENCE OF THE WORKING GROUP The terms of reference of the working group of the Ordre des comptables professionnels agréés du Québec are to collect and channel the views of practitioners and members in business, industry, government and education, as well as those of other persons working in related areas of expertise. For each exposure draft or other document reviewed, the working group members share the results of their analysis. Consequently, the comments below reflect the views expressed and, unless otherwise specified, all of the working group members agree on these comments. The Order has not acted upon and is not responsible for the comments expressed by the working group. GENERAL COMMENTS Members reiterated that they support the adoption of a public sector standard on asset retirement obligations (ARO), and thought that proposed Section PS 3280 was well drafted. Members are concerned about how the adoption of this new public sector standard might affect sites contaminated with asbestos. They pointed out that the example in paragraph.19 of the proposed section provided an interpretation that differs from interpretations generally obtained when the criteria for liability recognition in Section PS 3200 are analyzed for such situations. Members also mentioned that paragraphs.28 to.30 of the proposed section on asset retirement costs at the network or the component level should be clarified. Members wondered whether PSAB s real intention is to have the recognition of an ARO depend on whether the assets were recognized at the network or the component level. To illustrate their concern, members used the example of the transformer station and power transformers in paragraph.28 of the proposed section. In this context, assuming the entity accounts for the cost at the network level, members questioned whether PSAB s intention was for an ARO to be initially recognized in relation to the retirement of two series of power transformers (required to cover the expected total life of the transformer Exposure Draft entitled Asset Retirement Obligations, Proposed Section PS

4 station as a 50-year network). Alternatively, is the intention to only recognize one series of power transformers, i.e. those that will have to be retired when the entire network is retired at the end of an estimated 50-year period? ANSWERS TO PSAB S SPECIFIC QUESTIONS 1. Do you agree that the scope of this proposed Section should be expanded to include asset retirement obligations associated with tangible capital assets no longer in productive use? Members agree that these tangible capital assets should be included in the scope of Section PS 3280, taking into account paragraph.33, which recommends that in this situation the asset retirement cost should be expensed in the period. 2. Bearing in mind the explanations provided in the Scope section of the Issues Analysis, do you agree that asset retirement obligations included in SOLID WASTE CLOSURE AND POST-CLOSURE LIABILITY, Section PS 3270, should be accounted for using the same principles as those proposed by this Section? While some members raised concerns about the possible increase in liabilities and net debt which may result from this amendment, combined with the possible need to amend expected recoveries recognized in accordance with the current standard, members nevertheless support the inclusion of solid waste closure in the scope of this section. Members believe that a single recognition and measurement approach for asset retirement obligations should be used, and that having several standards addressing similar situations could create confusion and application issues. 3. Do you agree that this proposed Section should be applied to legal obligations only, including obligations created by promissory estoppel, and thereby exclude constructive and equitable obligations? If not, please provide examples of asset retirement obligations that are not legally enforceable. Exposure Draft entitled Asset Retirement Obligations, Proposed Section PS

5 Overall, members indicated that this restriction has the practical advantage of limiting the work and analyses required to apply the proposed standard. Considering that PSAB was unable to identify practical examples of AROs resulting from constructive and equitable obligations, some members support the proposed scope restriction. These members are in favour of a scope that would apply to legal obligations only (including obligations created by promissory estoppel). However, this position may need to be reviewed based on analyses and discussions leading to the development of the final version of the standard if examples of AROs created by constructive and equitable obligations were identified in practice. Some members, however, expressed concerns in this regard, specifically indicating that an inability to identify concrete examples is not necessarily sufficient in itself to justify limiting the scope of the standard. These members believe that it should be possible to argue that this type of obligation should not be recognized if it arises. In their discussions, members raised the following concerns, among others, about the scope of the proposed standard: Wouldn t the existence of an internal policy on the retirement of tangible capital assets in the absence of a legal obligation (or if the internal policy were stricter than the applicable legal obligations) likely result in the recognition of an ARO? Is this not an instance of constructive or equitable obligation? Members discussed the example of a bridge or an overpass. In the absence of indepth knowledge of the legal obligations associated with these infrastructures, the discussions were based on the premise in paragraph.36 to the effect that generally there is no legal obligation associated with the retirement of this type of infrastructure. Members expressed concern that an ARO may not be recognized for these infrastructures, considering that they have a limited life and must inevitably be retired at the end of their life given their nature. Members pointed out significant differences between these infrastructures, which must inevitably be retired, even in the absence of an explicit legal obligation to that effect, given their hazardous condition at the end of their useful life. They also mentioned other examples of infrastructure, such as roads, buildings or sewer systems, which can be secured at Exposure Draft entitled Asset Retirement Obligations, Proposed Section PS

6 the end of their life without necessarily having to be retired. Members wondered whether such scenarios could be examples of constructive and equitable obligations that should be included in the scope of the proposed standard. 4. Do you agree with the capitalization of asset retirement obligations associated with fully amortized assets? If not, please provide examples to support your response. Members agree with this approach, indicating that the proposed recognition method is the same as the one for improvement or redevelopment costs of an otherwise fully amortized capital asset. 5. Do you agree with expensing asset retirement obligations associated with unrecognized tangible capital assets? If not, please provide examples to support your response. Members were unable to identify cases in which this situation might occur. Therefore, they would like PSAB to provide clarifications or examples in the proposed standard. The only examples they could identify related to situations where tangible capital assets are recognized at a nominal amount, fully amortized, or recognized in batches, making it impracticable to retrieve specific information about each of these assets in the entity s accounting records. Members believed, however, that none of these situations is an example of an unrecognized tangible capital asset. Based on the definitions of an asset and a tangible capital asset, and taking into account the recommendations in Section PS 3150 on contributed tangible capital assets, members are unable to identify the circumstances under which a public sector entity could have an unrecognized tangible capital asset. 6. Do you find the decision tree in Appendix A useful in understanding the boundaries between the proposed Section and LIABILITY FOR CONTAMINATED SITES, Section PS 3260? Exposure Draft entitled Asset Retirement Obligations, Proposed Section PS

7 Members support the inclusion of a decision tree in the appendix of the proposed standard. However, they were concerned that the decision tree, as presented, could suggest that the application of the recommendations in proposed Section PS 3280, PS 3260 and PS 3200 is mutually exclusive for each situation analyzed. If this is not PSAB s intention, members believe that this should be explicitly stated. To illustrate their concern, members provided the example of a buried oil tank. In the members opinion, this situation could create an ARO associated with the legal obligation to remove the buried tanks at the end of a specified period or the end of their useful life (in accordance with the recommendations in proposed Section PS 3280), as well as a liability for contaminated sites in relation to accidental contamination that may occur when the tank is buried (in accordance with Section PS 3260). 7. Are there any other tangible capital assets or circumstances that would not be covered by either the proposals in the Exposure Draft or LIABILITY FOR CONTAMINATED SITES, Section PS 3260? Members gave the example of contaminated land that is no longer in productive use. They provided the following reasons for their concern about the fact that this scenario is not included in the scope of any standard: The consequential amendments proposed in paragraph.05 of Section PS 3260 remove any reference to an operation no longer in productive use; Land that is not retired would be excluded from the scope of proposed Section PS Do you agree with the proposed consequential amendments? Members expressed their concerns about the subject in their response to the previous question. 9. Do you agree with the transitional provisions? Exposure Draft entitled Asset Retirement Obligations, Proposed Section PS

8 Members raised the following concerns about the proposed transitional provisions: They believe that the wording of paragraph.68 should be clarified to emphasize that three initial application methods are permitted (prospective application, retroactive application and the simplified retrospective approach); Members believe that the simplified retrospective approach should be better explained and illustrated. In their opinion, this method is similar in many respects to the retrospective application method with no restatement of prior periods described in paragraph PS (b): o If this is the case, members believe that the terminology used in the transitional provisions in the proposed new standard should be consistent with the terminology used in Section PS 2120; o If there are differences between the two methods, members believe that they should be better highlighted. In the members view, clarifications should be provided on prospective application. As an example, members mentioned that the transitional provisions in paragraph.62 of RESTRUCTURING TRANSACTIONS, Section PS 3430, explicitly indicate that the new standard applies only to transactions occurring on or after the initial application date. Members wondered whether this was PSAB s intention for the transitional provisions of the new proposed standard. They believe this should be explicitly specified; Members believe that the method described in paragraphs B8 to B10 should be explicitly specified, given that the transitional provisions provide for three different methods that a public sector entity can use on the first-time adoption of the new proposed standard. Exposure Draft entitled Asset Retirement Obligations, Proposed Section PS