The Canadian Accounting Standards Board met this week to discuss accounting for financial instruments with particular reference to the recent FASB pronouncements and the ongoing IASB fair value project. I have previously reported on the Canadian reactions to the recent FASB positions.
Deloitte has issued a useful discussion of these Canadian deliberations. You can find the Decision summary from this week’s AcSB meeting on the AcSB website.
Yesterday the AcSB issued a press release on their positions.
The flavour of the responses was and has been a reaffirmation of the AcSB resolve to continue to move toward IFRS and not to make any abrupt diversion, albeit maybe temporarily to US GAAP. The Canadian Banks have been crying foul to this position since many have argued that all this puts them at a disadvantage vis a vis the US which is Canada’s major trading partner. The proposed changes though clarify the Canadian position and will provide some assistance to Canadian companies on valuation of financial instruments (including Canadian Banks).
There were two major areas covered in this week’s meeting.
Fair Values
The AcSB made NO changes to Canadian GAAP on fair values at this time at least. The Board reviewed the recently issued FASB FSP FAS 157-4 and concluded that it IS consistent with Canadian GAAP. Preparers can reason that they can follow FSP 157-4 and consider the results in accordance with Canadian GAAP under the general principles in CICA Handbook 1100 Generally Accepted Accounting Principles. Interestingly they also noted that following the IASB paper Measuring and Disclosing the Fair Value of Financial Instruments in Markets that are no longer Active, issued late last year, would also constitute Canadian GAAP. I have not done a detailed comparison. Clearly then much care will need to be taken in disclosing the methods used for fair value determination.
Of course we are still on track with the IFRS project on fair value and we expect the IASB to issue an exposure draft on the subject very soon.
Impairments of Debt Instruments
There are a number of proposed amendments that will bring current Canadian GAAP more into line with IFRS but according to Deloitte “may create additional differences between Canadian GAAP and US GAAP”.
The changes are not trivial and will change how some financial instruments are classified measured and disclosed. One interesting proposal is to adopt the definition of Loans and Receivables (carried at amortized cost subject to impairment write downs) from IAS 39. This will permit debt securities that are not traded in an active market to be classified in the loans and receivables classification. This treatment is not allowed under current Canadian GAAP.
An Exposure Draft of the proposed changes and the transitional provisions proposed is due to be issued by May 30, 2009.
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