Canadian Public Company Financial Reporting Update

Transcription

1 Canadian Public Company Financial Reporting Update Q Presenters Richard Cracknell, CPA, CA Partner BDO Canada rcracknell@bdo.ca Alex Fisher, CPA, CA Principal CPA Canada afisher@cpacanada.ca Janet Stockton, CPA, CA Partner BDO Canada jstockton@bdo.ca 2 REGULATORY UPDATE 3 1

2 EXEMPT MARKET FILINGS Certain exempt market filings are now required to be made on the SEDAR rather than in paper format in all Canadian jurisdictions except: British Columbia Securities Commission s filings are made through eservices Ontario Securities Commission s filings are made through Electronic Filing Portal The new filing requirement came into force on May 24, EXEMPT MARKET FILINGS 5 EXEMPT MARKET FILINGS 6 2

3 PROPOSED AMENDMENTS TO THE TSX COMPANY MANUAL Current issuer website requirements of various exchanges: 7 PROPOSED AMENDMENTS TO THE TSX COMPANY MANUAL Proposed requirement for listed issuers to maintain a publicly accessible website posting, as applicable, current copies of: Constating documents; Corporate policies that impact meetings of security holders and voting; Security holder rights plans; Security-based compensation arrangements; and Certain corporate governance documents. Proposed substitution to describing majority voting policies on an annual basis in materials sent to security holders Can be posted on the issuer s website. 8 PROPOSED AMENDMENTS TO THE TSX COMPANY MANUAL All security-based compensation arrangements must be approved by: a majority of the listed issuer's directors; and the listed issuer's security holders. Arrangements may take the form of: plans which set out the general terms and conditions of options, performance stock units, deferred stock units, restricted stock units or other awards; and individual awards not granted pursuant to a Plan; financially assisted purchases of securities; and other compensation or incentive mechanisms involving the issuance of equity securities. 9 3

4 PROPOSED AMENDMENTS TO THE TSX COMPANY MANUAL Changes to the disclosure requirements for security-based compensation arrangements: Simplified disclosure required in meeting materials on plan arrangements through introduction of new form and new and modified disclosure requirements. TSX attempting to balance between meaningful disclosure on compensation arrangements and unnecessary information ITEMS WE ARE MONITORING Proposed co-operative capital markets regulatory system Provincial Capital Markets Act (CMA) and the federal Capital Markets Stability Act (CMSA) Auditing and accounting standards in the UK and Ireland after Brexit Currently set by the UK Financial Reporting Council (FRC) FRC financial reporting standards reflect the requirements of the EU s Accounting Directive FRC project to revise the ethical and auditing standards to reflect the EU s Audit Reform package 12 4

5 ACCOUNTING REMINDERS AND IFRS NEWS 13 Accounting Reminders and IFRS News AGENDA Clarifications - IFRS 15, Revenue from contracts with customers IFRS Interpretations Committee - Agenda decisions IASB work plan 14 CLARIFICATIONS IFRS 15 Revenue from contracts with customers 15 5

6 IASB ACTION Clarifications issued following TRG discussion Identification of performance obligations Principal vs. agent Licensing (point in time vs. over time revenue recognition) Application of exemption sales- and usage-based royalties Practical expedients on transition 16 IDENTIFICATION OF PERFORMANCE OBLIGATIONS Amendments clarify when goods or services are accounted for as a single performance obligation or bundled together (e.g. when items are distinct ). A promised good or service is distinct when (1) a customer can benefit from it on its own or together with other resources; and (2) the promise to transfer goods or services is separately identifiable from other promises in the contract. Factors indicating two or more promises are not separately identifiable: The entity provides service to combine goods or services that represent a combined output; One or more goods or services modifies or customizes by one or more of the other goods or services; or Goods or services are highly interdependent or highly inter-related. 17 IDENTIFICATION OF PERFORMANCE OBLIGATIONS (CONTINUED) The sub-activities identified are not separately identifiable promises in the context of the contract because the promise in the contract is to deliver an ultimate output (the devices). 18 6

7 PRINCIPAL VS. AGENT CONSIDERATIONS Amendments provide further clarity on how to assess whether an entity is acting as a principal or an agent (e.g. gross vs. net revenue presentation). The amendments clarify: The unit of account for evaluation is the specified good or service, which is a distinct good or service (or a bundle); An entity is a principal if it controls the promised good or service before transferring to the customer; A list of non-exhaustive factors indicating an entity is the principal in the transaction has been added. 19 LICENSING ARRANGEMENTS Diversity in interpretation arose from IFRS 15.B58(a): The nature of an entity's promise in granting a licence is a promise to provide a right to access the entity's intellectual property if all of the following criteria are met: a) the contract requires, or the customer reasonably expects, that the entity will undertake activities that significantly affect the intellectual property to which the customer has rights 20 LICENSING ARRANGEMENTS (CONTINUED) Since the software has significant stand-alone functionality, the license would transfer the right to use the software, therefore, the performance obligation is satisfied at a point in time. 21 7

8 LICENSING ARRANGEMENTS (CONTINUED) When has a sale or usage-based royalty been promised in exchange for a license of intellectual property? That is to say, when does the royalty restraint apply in situations where the royalty may relate to multiple performance obligations? 22 LICENSING ARRANGEMENTS (CONTINUED) Amendments made to IFRS 15 to clarify the issue: B63A B63B The requirement for a sales-based or usage-based royalty applies when the royalty relates only to a licence of intellectual property or when a licence of intellectual property is the predominant item to which the royalty relates. When the requirement in paragraph B63A is met, revenue from a sales-based or usage-based royalty shall be recognised wholly in accordance with paragraph B63 (the sales- and usage-based exemption applies). When the requirement in paragraph B63A is not met, the requirements on variable consideration apply to the sales-based or usagebased royalty. 23 PRACTICAL EXPEDIENTS Two additional practical expedients added: For completed contracts, an entity need not restate contracts that begin and end within the same annual reporting period or are completed contracts at the beginning of the earliest year presented. Only available under the full retrospective method. For contracts that were modified before the beginning of the earliest period presented, an entity need not retrospectively restate the contract for those contract modifications. It will aggregate the effect of all the modifications that occur before the beginning of the earliest year presented or for all contract modifications before the date of initial application. This may be used if the cumulative effect method is used. 24 8

9 IFRS INTERPRETATIONS COMMITTEE Agenda decisions 25 IFRS IC Decisions 2016 Meetings AGENDA DECISIONS Recent Decisions IFRS 5 issues Transition issues related to hedging Re-measurements of previously held interests Deferred taxes for exchange rate changes Separation of embedded interest rate floor from floating rate host Variable payments for asset purchases (IAS 16 and 38) Presentation Classification of liability for a prepaid card in the issuer s financial statements (IAS 32) Determining hedge effectiveness for net investment hedges (IFRS 9) Derecognition of modified financial assets (IFRS 9 and IAS 39) Accounting for repayable cash receipts (IAS 20) Recoverable amount and carrying amount of cash-generating unit (IAS 36) 26 IFRS IC Decisions January Meeting IFRS 5 ISSUES Three agenda decisions related to IFRS 5: To what extent can an impairment loss be allocated to non-current assets within a disposal group? How to present intragroup transactions between continuing and discontinuing operations? Other various IFRS 5 Non-current Assets Held for Sale and Discontinued Operations related issues. The amount of impairment that should be recognized for a disposal group should not be restricted by the fair value less cost to sell or value in use of the noncurrent assets within the disposal group. IFRS 5 possible research project in the Request for Views on the 2015 Agenda Consultation. 27 9

10 IFRS IC Decisions January Meeting TRANSITION ISSUES RELATED TO HEDGING 1 Can an entity treat a hedging relationship as a continuing hedging relationship on transition from IAS 39 to IFRS 9 if that entity changes the hedged item in a hedging relationship from an entire non-financial item (as permitted by IAS 39) to a component of the non-financial item (as permitted by IFRS 9) in order to align the hedge with the entity s risk management objective? Can only be done on a prospective basis IFRS Changing the hedged item while continuing the original hedge relationship would be equivalent to the retrospective application of the hedge accounting requirements in IFRS 9, which is prohibited except in the limited circumstances described in paragraph IFRS Can an entity continue with its original hedge designation of the entire nonfinancial item under IFRS 9? Hedge designations of an entire non-financial item could continue on transition to IFRS 9 as long as they meet the qualifying criteria in IFRS IFRS IC Decisions January Meeting RE-MEASUREMENT OF PREVIOUSLY HELD INTERESTS Whether previously held interests in the assets and liabilities of a joint operation should be re-measured in the following transactions when the asset or group of assets involved in such transactions do NOT meet the definition of a business in accordance with IFRS 3 Business Combinations: Obtaining control of a joint operation, when the entity previously had joint control of, or was a party to, the joint operation before the transaction; and A change of interests resulting in a party to a joint operation obtaining joint control over the joint operation. The party to the joint operation had rights to the assets and obligations for the liabilities relating to the joint operation before the transaction. IFRS 3.2(b) specifies that a cost-based approach should be used in accounting for an asset acquisition, and that in a cost-based approach the existing assets are generally not re-measured. No diversity in practice. 29 IFRS IC Decisions January Meeting RECOGNITION OF DEFERRED TAXES FOR THE EFFECT OF EXCHANGE RATE CHANGES ON THE TAX BASIS OF NON-CURRENT ASSETS THROUGH PROFIT OR LOSS Whether deferred taxes arising due to the effect of exchange rate changes on the tax bases of non-current assets are recognized through profit or loss IAS states that when the tax base of a non-monetary asset or liability is determined in a currency that is different from the functional currency, temporary differences arise resulting in a deferred tax asset or liability. Such deferred tax does not arise from a transaction or event that is recognized outside profit or loss and is therefore charged or credited to profit or loss in accordance with paragraph 58 of IAS 12. Such deferred tax charges or credits would be presented with other deferred taxes, instead of with foreign exchange gains or losses, in the statement of profit or loss

11 IFRS IC Decisions January Meeting SEPARATION OF AN EMBEDDED INTEREST RATE FLOOR FROM A FLOATING RATE HOST CONTRACT IN A NEGATIVE INTEREST RATE ENVIRONMENT Whether paragraph IAS 39.AG33(b) should apply to an embedded interest rate floor in a floating rate host debt contract in a negative interest rate environment; and how to determine the market rate of interest referred to in that paragraph. IAS 39.AG33(b) should be applied to an interest rate floor in a negative interest rate environment in the same way as it would be applied in a positive interest rate environment. An entity should compare the overall interest rate floor for the hybrid contract to the market rate of interest for a similar contract without the interest rate floor (ie the host contract). In order to determine the appropriate market rate of interest for the host contract, an entity is required to consider the specific terms of the host contract and the relevant spreads (including credit spreads) appropriate for the transaction. 31 IFRS IC Decisions March Meeting VARIABLE PAYMENTS FOR ASSET PURCHASES (IAS 16 AND 38) Accounting for variable payments to be made for the purchase of an item of property, plant and equipment or an intangible asset that is not part of a business combination. The IC was unable to reach a consensus on whether the purchaser recognises a liability at the date of purchasing the asset for variable payments that depend on its future activity or, instead, recognises such a liability only when the related activity occurs. No consensus was reached on how the purchaser measures a liability for such variable payments either. The IC concluded that the Board should address this issue comprehensively. 32 IFRS IC Decisions March Meeting PRESENTATION CLASSIFICATION OF LIABILITY FOR A PREPAID CARD IN THE ISSUER S FINANCIAL STATEMENTS (IAS 32) How would an entity classify a liability arising from the issue of a prepaid card? Specifically, one with no expiry, not refundable, redeemable only for goods or services, redeemable at select merchants and not containing any back-end fees. A committee rejected this issue and observed that a financial liability arises when the prepaid card is issued because: The entity has a contractual obligation to deliver cash to one of the selected merchants on behalf of the cardholder if the prepaid card is used to purchase items from one of those merchants. Even though it is possible for the prepaid card to be redeemed with the entity itself, this is only one possibility and the entity does not have an unconditional right to avoid delivering cash to settle the obligation if the card is used at one of the third party merchants. The entity would subsequently apply IFRS 9 (or IAS 39) to determine whether and when to derecognise the liability for a prepaid card

12 IFRS IC Decisions March Meeting DETERMINING HEDGE EFFECTIVENESS FOR NET INVESTMENT HEDGES (IFRS 9) How should an entity should determine hedge effectiveness when accounting for net investment hedges in accordance with IFRS 9? Specifically, should the lower of test that is required for cash flow hedges also be applied for determining the effective portion? IFRIC observed that the guidance in IFRS 9 is clear. When accounting for net investment hedges an entity should apply the lower of test in determining the effective portion of the gains or losses arising from the hedging instrument (paragraphs and in IFRS 9). 34 IFRS IC Decisions May Meeting DERECOGNITION OF MODIFIED FINANCIAL ASSETS (IFRS 9 & IAS 39) The IC discussed when a modification or exchange of financial assets results in derecognition of the original asset. The circumstances in which an entity should derecognise financial assets that have been modified or exchanged is an issue that arises in practice. IFRIC observed that due to the broad nature of the issue, it could not resolve it in an efficient manner. 35 IFRS IC Decisions May Meeting ACCOUNTING FOR REPAYABLE CASH RECEIPTS (IAS 20) related to the accounting for cash received from a government to help an entity finance a research and development project. The request asked whether the entity must recognise the cash received as a liability or in profit or loss when the cash is repayable only if the entity exploits and commercializes a project. IFRIC observed that the cash receipt gives rise to a financial liability because the entity can avoid a transfer of cash only by setting a non-financial obligation (i.e. by transferring the rights to the research to the government). The cash received from the government does not meet the definition of a forgivable loan in IAS 20 because the government does not undertake to waive repayment of the loan, but rather to require settlement in cash or by transfer of the rights to the research. IFRIC noted that part of the cash received (the difference between the cash received and the fair value of the financial liability) may represent a government grant

13 IFRS IC Decisions May Meeting RECOVERABLE AMOUNT AND CARRYING AMOUNT OF CGU (IAS 36) The IC was requested to clarify the application of paragraph 78 of IAS 36, Impairment of Assets. This paragraph sets out the guidance for considering recognized liabilities for determining the recoverable amount of a cash-generating unit (CGU) within the context of an impairment test for a CGU. IFRIC observed that when the CGU s fair value less costs of disposal considers a recognized liability, paragraph 78 requires adjusting both the CGU s carrying amount and its value in use (VIU) by the carrying amount of the liability. This makes the comparison of recoverable amount to carrying value meaningful. 37 IASB WORK PLAN 38 IASB Workplan MAJOR PROJECTS 39 13

14 IASB Workplan IMPLEMENTATION 40 CPA Canada Resources Viewpoints: Reporting Funds Flow Viewpoints: Calculating Depletion CPA Canada Resources Webinar Non GAAP Financial Measures Briefing Estimation Uncertainty 14

15 Thank you Richard Cracknell, CPA, CA Partner BDO Canada Alex Fisher, CPA, CA Principal CPA Canada Janet Stockton, CPA, CA Partner BDO Canada 43 15