What's New in Accounting Standards?

PROFESSIONAL DEVELOPMENT PROGRAM What's New in Accounting Standards? COPYRIGHT Accounting Standards Board All rights reserved. No part of this publication/course material may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means (photocopying, electronic, mechanical, recording or otherwise) without the prior written permission of the copyright holder and publisher. DISCLAIMER This course material deals with complex matters and may not apply to particular facts and circumstances. As well, the course material and references contained therein reflect laws and practices which are subject to change. For these reasons, the course material should not be relied upon as a substitute for specialized professional advice in connection with any particular matter. Although the course material has been carefully prepared, neither the Chartered Professional Accountants of British Columbia, the course author and/or firm, nor any persons involved in the preparation and/or instruction of the material accepts legal responsibility for its contents or for any consequence arising from its use. Fall 2016

What s New in Accounting Standards? October 4, 2016 Vancouver Presenters Linda Mezon, FCPA, FCA, CPA (MI) Linda F. Mezon is the Accounting Standards Board Chair and has served in this capacity since July 1, 2013. Combined with her previous board experience as a volunteer member, she has over 11 years of experience as a standard setter. Prior to her appointment as Chair, Linda was the Chief Accountant of the Royal Bank of Canada (RBC), responsible for the interpretation and application of IFRS and U.S. GAAP. She also monitored compliance with Canadian regulatory requirements on financial disclosure and was responsible for auditor independence. Before RBC, Linda held other senior positions in industry, including four years of experience in public accounting. Linda is a member of the Board of Directors of the Toronto Rehabilitation Institute Foundation and the Dancer Transition Resource Centre, and their finance committees. Paul Hargreaves, CPA, CMA Paul Hargreaves has been with the BC Dairy Association since 2001 where he is responsible for financial reporting, budget planning and controls. He previously worked as a consultant and as Executive Director at a community-based childcare and youth services provider. Paul s community involvement is extensive, having acted as President of the Parkgate Community Services Society, a not-for-profit organization delivering community recreation, youth outreach and childcare programs. He has been Treasurer for the BC Agricultural Research and Development Corporation, and is a member of the Finance and Audit Committee of the BC Agriculture Council. He is also the Chair of the AcSB s Not-for-Profit Advisory Committee. Kathryn Ingram, CPA, CA Kathryn Ingram is a Principal with the Accounting Standards Board (AcSB). Her work includes improving Accounting Standards for Private Enterprises by leading the projects on Agriculture and Subsidiaries and Investments. Kathryn contributes to the ongoing development of International Financial Reporting Standards (IFRS) by soliciting the views of Canadians and developing well-reasoned comment letters. She also assists the AcSB in the consideration of IFRS implementation issues in Canada. Prior to joining the staff of the AcSB, Kathryn worked for several public accounting firms.

October 4, 2016 What s New in Accounting Standards? Linda Mezon, FCPA, FCA Chair, Accounting Standards Board Paul Hargreaves, CPA, CMA Member, Accounting Standards Board Kathryn Ingram, CPA, CA Principal, Accounting Standards The views expressed in this presentation are those of the presenters, not necessarily those of the AcSB. Agenda AcSB s 2016-2021 Strategic Plan How the Accounting Standards Board (AcSB) is working for Canadians Standard-setting in Canada Developments in Canadian GAAP For Private Enterprises For Not-for-Profit Organizations (NFPOs) For Publicly Accountable Enterprises 2 1

2016-2021 Strategic Plan Visit www.frascanada.ca 3 AcSB Strategy for Private Enterprises Maintain the standards established in 2011 No intention to converge to IFRS Key principles in managing ASPE: Focus on cost/benefit for preparers and users in the private enterprise sector Changes should significantly improve standards Monitor events in other jurisdictions Provide sufficient guidance but not rulesbased 4 2

AcSB Strategy for NFPOs Maintain separate set of standards that address specific needs of users of NFPOs For non-unique transactions and circumstances, direct NFPOs to Part II of the CPA Canada Handbook Accounting Cost/benefit considerations Symmetry with public sector standards is desirable when user needs are aligned Looking at global environment for sector and examining best practices 5 AcSB Strategy for Publicly Accountable Enterprises Support the application in Canada of IFRS Influence the development of IFRS Recognize some entities apply U.S. GAAP instead Permitted by Canadian securities regulators for duallisted companies Regardless of framework, add value for publicly accountable enterprises 6 3

Changing Role of Standard-setters Focus on application and monitoring implementation Make evidence-based decisions Gathering data about the different types of enterprises in Canada Adapt to changing marketplace More complex transactions Greater globalization 7 Private Businesses in Canada 1.2 Million Private Businesses in Canada Other 21% Construction 12% Manufacturing 4% Wholesale trade 5% Other services (except public administration) 9% Retail trade 12% Accommodation and food services 7% Health care and social assistance 9% Administrative and support, waste management and remediation services 4% Professional, scientific and technical services 12% Transportation and warehousing 5% 8 4

NFPOs in Canada Number of NFPOs by Province Percentage of Total Revenues Quebec 29% Ontario 28% Alberta 12% Atlantic Canada 8% British Columbia 13% Other 10% 160,000 private and public sector NFPOs in Canada Quebec 22% Ontario 43% Alberta 9% Atlantic Canada 5% British Columbia 10% Other 11% 9 Publicly Accountable Enterprises in Canada About 3,600 entities listed on Canadian stock exchanges Over 90% are only listed in Canada and use IFRS Foreign Private Issuers (FPIs) filing with the SEC Canada leads by wide margin As of December 31, 2015 there are 923 FPIs filing with the SEC 292 Canada (32%) 119 Cayman Islands (13%) 127 European Economic Area 39 United Kingdom (4%) and 24 Netherlands (3%) 87 Israel (9%) Note: Canadian stock exchanges include the Toronto Stock Exchange, TSX Venture Exchange and the Canadian Securities Exchange. 10 5

Publicly Accountable Enterprises in Canada At December 31, 2015, total market capitalization of 281 of the 292 FPIs domiciled in Canada is $1.4 trillion 63% of the total domestic market 70% of companies apply IFRS and 30% apply US GAAP Market Capitalizaiton (Billions of $CAD) 1,200 1,000 800 600 400 200 0 Total Market Capitalization of FPIs Domiciled in Canada $1.0 Trillion (200) IFRS IASB $363 Billion (79) US GAAP Note: Of the 292 FPIs in Canada, only 281 had a market cap reported by the TMX and YCharts as at December 31, 2015. Two companies of the 281 were excluded as they did not file annual reports. This data was compiled by the AcSB s staff based on publicly available information. 11 Hearing from Canadians 12 6

AcSB Committees Private Enterprise Advisory Committee Advises the AcSB on changes to ASPE Not-for-Profit Advisory Committee Advises the AcSB on changes to Accounting Standards for NFPOs in the private sector IFRS Discussion Group Public meetings to: Raise awareness of Canadian application issues Recommend to the AcSB issues to refer to the IASB or IFRS Interpretations Committee Revisiting the Group s mandate & effectiveness 13 Standard-setting Phases Research Discussion Paper Project Plan Approval Exposure Draft Final Standard Postimplementation Review 14 7

Standard-setting Work Plans ASPE NFPO IFRS Major improvements Interpretations n/a n/a Narrow scope amendments Annual improvements Post implementation Review 15 Part II Private Enterprises Changes effective in 2016 Significant projects 16 8

ASPE Changes Effective in 2016 Subsidiaries (Section 1591) New guidance on determining if control exists other than through equity interests Control by contractual terms Approach based on concepts in IFRS 10 Accounting policy choice retained Replaces AcG-15 Refer to Project Page for further details 17 ASPE Changes Effective in 2016 Joint arrangements (Section 3056) Free choice in accounting for joint arrangements eliminated Jointly controlled operations/assets Cost/equity methods no longer permitted Jointly controlled enterprises Choice between cost/equity method or to analyze if actually an interest in assets and liabilities Refer to Project Page for further details 18 9

ASPE Changes Effective in 2016 Investments (Section 3051) Scope includes investments subject to significant influence and other non-financial instrument investments Does not include other investments Guidance on contributions and other transactions between an investor and an equity-accounted investee Consistent with guidance in Section 3056 19 ASPE Changes Effective in 2016 2015 Annual Improvements: Business Combinations (Section 1582) Clarifies disclosure requirement Investments (Section 3051) and Leases (Section 3065) Adds disclosure of impairment losses or reversals Property, Plant and Equipment (Section 3061) Amends a disclosure requirement to align with practice 20 10

ASPE Changes Effective in 2016 2015 Annual Improvements: Employee Future Benefits (Section 3462) Applies to defined benefit plans Clarifies accounting for measuring a defined benefit obligation 21 ASPE Project Clarifications to Subsidiaries and Joint Arrangements Exposure draft issued in May 2016 Amendments propose to clarify: Applicability of transition provisions Accounting for voting interest Requirement to assess control through contractual arrangements Final amendments to be issued in Q4 2016 Effective January 1, 2017 or 2018 (can early adopt) Research Discussion Paper Project plan approval Exposure Draft Final Standard Post implementation Review 22 11

ASPE Project Subsidiaries and Investments Final standard to be issued in Q4 2016 Effective January 1, 2018 (can early adopt) Provides guidance on how to apply the cost method Address diversity in practice Refer to the Project Page for further details Research Discussion Paper Project plan approval Exposure Draft Final Standard Post implementation Review 23 ASPE Project 2017 Annual Improvements Exposure Draft issued comments due by December 15, 2016 Amendments proposed relate to: Disclosures: accounting policies, impaired lease receivables Clarifications to Section 1521, Balance Sheet and Section 1651, Foreign Currency Translation Final amendments to be issued in July 2017 Effective January 1, 2018 (can early adopt) Research Discussion Paper Project plan approval Exposure Draft Final Standard Post implementation Review 24 12

ASPE Project Redeemable Preferred Shares Extensive deliberation of input received Further outreach conducted Exploring viability of conditions for classification exception Field testing being performed Refer to the Project Page for further details Research Discussion Paper Project plan approval Exposure Draft Final Standard Post implementation Review 25 ASPE Project - Agriculture Discussion Paper issued in Q4 2015 Cross-country roundtables underway Themes emerging from feedback Purchased agricultural produce should be within scope Concerns expressed over using cost to measure unharvested crops and bearer animals Refer to the Project Page for further details Research Discussion Paper Project plan approval Exposure Draft Final Standard Post implementation Review 26 13

ASPE Standards Update Questions? 27 Part III Not-for-Profit Organizations Changes effective in 2016 Significant projects 28 14

NFPO Changes Effective in 2016 Narrow-scope amendments to standards: Reporting Controlled and Related Entities by Not-for-Profit Organizations (Section 4450) Adds definition of proportionate consolidation from former Interests in Joint Ventures, Section 3055 in Part II Consider changes to ASPE 29 NFPO Project Improvements Project Upcoming Exposure Draft Recognize write-downs of tangible and intangible assets Recognize collections at cost or nominal value Refer to the Project Page for further details Research Discussion Paper Project plan approval Exposure Draft Final Standard Post implementation Review 30 15

NFPO Project Contributions Revenue Recognition Diversity in practice today because have two methods Only jurisdiction with multiple methods Purpose of project is to improve comparability across the sector Refer to the Project Page for further details Research Discussion Paper Project plan approval Exposure Draft Final Standard Post implementation Review 31 NFPO Project Reporting Controlled and Related Entities Project will consider whether to require: Consolidation of controlled NFPOs Equity method for controlled profit-oriented enterprises Refer to the Project Page for further details Research Discussion Paper Project plan approval Exposure Draft Final Standard Post implementation Review 32 16

NFPO Other Potential Projects AcSB is considering whether to add other projects to its agenda including: Related party transactions Combinations between NFPOs Monitor the Project Work Plan 33 NFPO Standards Update Questions? 34 17

Part I IFRS Major changes effective in 2018 and 2019 Significant projects Appendix Other changes effective in 2016 Regulatory Deferral Accounts (IFRS 14) Series of narrow scope amendments and annual improvements Other changes effective in 2017 and 2018 Implementation and research projects 35 IFRS Major Change Effective in 2018 Financial Instruments (IFRS 9) New impairment model Changes when impairment losses are recognized and information that must be considered when measuring losses Estimate and account for expected credit losses, starting from when money is first lent or invested Some changes to classification and measurement Refer to Project Summary and Project Page for further details Refer to IDG report extracts on Impaired Assets on Transition and Transition 36 18

IFRS Major Change Effective in 2018 Revenue (IFRS 15) New criteria for when revenue is recognized When customer has control of goods or services Contracts with multiple deliverables Disaggregate Allocate revenue Refer to Implementation page for further details including Project Summary and links to webcasts Narrow-scope clarifications also effective in 2018 Refer to IDG report extract on Transition 37 IFRS Major Change Effective in 2019 Leases (IFRS 16) Comparable reporting under FASB and IASB Standards for most aspects Primary difference is lease expenses in income statement and cash flows in cash flow statement Eliminates the classification of leases as either operating or finance leases for a lessee Recognize lease assets and liabilities instead Refer to Implementation page for further details including the Project Summary and links to a number of webcasts 38 19

IFRS Project Insurance No standard on insurance Existing IFRS allows insurers to maintain current accounting practices on transition to IFRS Standards around the world varied and are low quality New standard has elements in common with key aspects of current Canadian methodology Current value model versus cost model IASB conducting field testing New standard expected in early 2017 Related deferral of effective date of IFRS 9 Refer to the Project Page for further details Research Discussion Paper Project plan approval Exposure Draft Final Standard Post implementation Review 39 IFRS Project Conceptual Framework Expected to be issued in 2017 Why does the project matter? Will affect future standard-setting projects for new and revised standards Is used to interpret or develop policy when no standard applies to a transaction or event Refer to the Project Page for further details Research Discussion Paper Project plan approval Exposure Draft Final Framework Post implementation Review 40 20

IFRS Project Rate-regulated Activities IASB deliberations ongoing following September 2014 Discussion Paper AcSB is increasing its level of activity on the project Compiling evidence on the decision-usefulness of financial information that reflects the economics of rate-regulated activities AcSB paper to be discussed at international meetings this month Refer to Project Page for more details Research Discussion Paper Project plan approval Exposure Draft Final Standard Post implementation Review 41 IFRS Project Disclosure Initiative Objective Improve guidance to help entities provide more relevant disclosures Research project on Principles of Disclosure Discussion Paper expected in December 2016 Other topics How to make judgements about materiality Better guidance on distinguishing changes in accounting policies with changes in estimates Refer to the Project Page for further details Research Discussion Paper Project plan approval Exposure Draft Final Standard Post implementation Review 42 21

Upcoming IASB Visit IASB members and staff involved in various activities throughout the week including: IFRS Update Webinar on October 12 AcSB Chair, Linda Mezon will moderate IASB member, Stephen Cooper will provide an update on IFRS Submit questions in advance as part of registration IFRS 15 Panel Discussion on October 14 43 IFRS Standards Update Questions? 44 22

Reporting How we Work for Canadians Visit www.frascanada.ca 45 How to Get Involved Let us know what you think Respond to proposals Attend public roundtables / conference calls Volunteer for an Advisory Group Watch website or contact us: Staff Contact Phone Email ASPE Kelly Khalilieh (416) 204 3453 kkhalilieh@cpacanada.ca NFPO Grace Lang (416) 204 3478 glang@cpacanada.ca IFRS Kathryn Ingram (416) 204 3475 kingram@cpacanada.ca 46 23

Stay Up-to-Date Email updates www.frascanada.ca/subscribe Tailor your subscription 47 Stay Up-to-Date Website www.frascanada.ca/acsb 48 24

Appendix IFRS: Other Changes and Projects 49 IFRS Changes Effective in 2016 New standard: Regulatory Deferral Accounts (IFRS 14) Provides interim guidance on rate-regulated activities Allows entities to continue previous accounting policies for regulatory deferral account balances 50 25

IFRS Changes Effective in 2016 Narrow-scope amendments to standards: Consolidated Financial Statements (IFRS 10, IFRS 12 and IAS 28) Clarifies three issues associated with investment entities Joint Arrangements (IFRS 11) Adds new guidance on how to account for acquiring a joint operation that is a business 51 IFRS Changes Effective in 2016 Narrow-scope amendments to standards: Presentation of Financial Statements (IAS 1) Clarifies disclosures and encourages judgment Property, Plant and Equipment and Intangible Assets (IAS 16 and IAS 38) Clarifies use of revenue-based methods of depreciation and amortization 52 26

IFRS Changes Effective in 2016 Narrow-scope amendments effective January 1, 2016: Separate Financial Statements (IAS 27) Permits equity method to account for investments in subsidiaries, joint ventures and associates Agriculture (IAS 41) Changes accounting for bearer plants to be property, plant and equipment 53 IFRS Changes Effective in 2016 Annual Improvements 2012 2014: Non-current Assets Held for Sale and Discontinued Operations (IFRS 5) Clarifies accounting for a change in a disposal plan Financial Instruments: Disclosure (IFRS 7) Clarifies disclosures about the continuing involvement in transferred assets for servicing agreements 54 27

IFRS Changes Effective in 2016 Annual Improvements 2012 2014: Employee Benefits (IAS 19) Clarifies the accounting for currencies when there is no deep market in high quality corporate bonds Interim Financial Reporting (IAS 34) Requires cross-reference to information disclosed outside of the interim financial statements (for example, the MD&A) 55 IFRS Changes Effective in 2017 Narrow-scope amendments to standards: Income Taxes (IAS 12) Clarifies how to account for deferred tax assets related to debt instruments measured at fair value Statement of Cash Flows (IAS 7) Requires entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities 56 28

IFRS Changes Effective in 2018 Narrow-scope amendments to standards: Revenue from Contracts with Customers (IFRS 15) Clarifies some requirements and provides additional transitional relief for companies that are implementing the new standard 57 IFRS Changes Effective in 2018 Narrow-scope amendments to standards: Share-based Payment (IFRS 2) Provides requirements on the accounting for: The effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments Share-based payment transactions with a net settlement feature for withholding tax obligations A modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled 58 29

IFRS Implementation Projects Project Classification of Liabilities Transfers of Investment Property Annual Improvements 2014 2016 Foreign Currency Transactions and Advance Consideration Definition of a Business and Accounting for Previously Held Interests Uncertainty over Income Tax Treatments Remeasurement at a Plan Amendment, Curtailment or Settlement / Availability of a Refund of a Surplus from a Defined Benefit Plan Next Step Issue IFRS Amendment Issue IFRS Amendment Issue IFRS Amendments Issue IFRIC Interpretation Consider Feedback from Public Consultation Decide Project Direction Decide Project Direction 59 IFRS Implementation Projects Project Changes in Accounting Policies and Estimates Clarifications to IFRS 8 arising from the Post Implementation Review Annual Improvements 2015 2017 Post implementation review of IFRS 10, IFRS 11 and IFRS 12 relating to consolidated financial statements, and joint arrangements Post implementation review of IFRS 13 Fair Value Measurement Next Step Publish Exposure Draft Publish Exposure Draft Publish Exposure Draft Initiate Review Initiate Review 60 30

IFRS Research Projects Project Disclosure Initiative: Principles of Disclosure Business Combinations under Common Control Dynamic Risk Management Financial Instruments with Characteristics of Equity Share based Payment Discount Rates Primary Financial Statements Goodwill and Impairment Next Step Publish Discussion Paper Publish Discussion Paper Publish Discussion Paper Publish Discussion Paper Publish Research Summary Publish Research Summary Decide Project Scope Decide Project Direction 61 31