© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Focus on financial reporting 2016 Annual update

kpmg.ca

Contents Introduction 3

Ways KPMG can help 4

Publicly accountable enterprises 5

Financial Reporting Considerations Arising from Global Events 5

Update on IFRS 5

Canadian Regulatory Developments Applicable to all Issuers 13

US GAAP Update & US Regulatory Developments 17

Private enterprises 25

Developments in Accounting Standards for Private Enterprises 25

Not-for-profit organizations 28

Accounting Standards for Not-for-Profit Organizations

(Part III of the CPA Canada Handbook – Accounting) 28

Public sector entities 30

Developments in Public Sector Accounting Standards 30

Appendix 32

Acronyms 32

Websites 32

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Introduction The past couple of years have seen a number of significant new standards being released, such as

Revenue, Leases, and Financial Instruments. Additionally, there have been a number of amendments

issued to various standards. Recently the International Accounting Standards Board (IASB) confirmed that

the theme for its activities until 2021 will be “Better Communication” in financial statements. The IASB

aims to improve the communication effectiveness of financial statements by taking a fresh look at how

financial information is presented and grouped together. The US Financial Accounting Standards Board

(FASB) has also moved its focus away from the major standards (revenue recognition, leases, and financial

instruments) during the latter half of 2016, and has shifted its efforts to foundational issues, such as the

statement of cash flows and the disclosure framework. While the objectives of the IASB and FASB are

similar, the projects are no longer being jointly developed.

The IASB’s and FASB’s new Revenue and Financial Instruments Standards will take effect in 2018 (and in

2019 for the FASB’s Impairment Standard), followed by Leases one year later (in 2019). Collectively, the

adoption of these standards will require significant time and resources. With just over a year to complete

implementation efforts for those standards effective in 2018, public companies should strive to finalize

their detailed assessments as quickly as possible to allow sufficient time to design and implement new

processes and controls and calculate the transition adjustment (i.e., opening retained earnings adjustment

and restated periods if retrospectively adopting the standard).

The rapidly approaching effective dates have also drawn the attention of regulators. Both European

and US regulators have issued statements with respect to their expectation of transparent disclosures

regarding the impact of the new standards on the financial statements. Specifically, they have indicated

that they would expect disclosures of the expected impact of the new standards and status of

implementation projects as early as the 2016 annual financial statements. In November 2016, the

Ontario Securities Commission (OSC) issued Staff Notice 52-723, Financial Reporting Bulletin, which

also highlights the expectation for increasingly detailed disclosure about the expected effects of the new

standards. The OSC explained that as reporting issuers make progress in their implementation efforts,

the impact should become more reasonably estimable and reporting issuers should be able to provide

progressively more detailed qualitative and quantitative information. Although other regulators have not

as yet specifically communicated their expectations, entities should be aware that their key stakeholders

may also expect incremental disclosures.

With respect to private enterprises, the Accounting Standards Board (AcSB) has seen a change in

the private world as domestic enterprises are now operating globally and entering into more complex

transactions. As part of the strategic plan for the period 2016–2021, the AcSB goals remain focused

on a high-quality set of standards which will produce decision-useful information for creditors and other

frequent users of the financial statements while responding to the changes seen in the domestic

enterprise environment.

The AcSB recently established the Not-for-Profit Advisory Committee to provide input on standard-setting

matters of interest to private sector not-for-profit organizations (NFPOs). The objectives for the next five

years include carrying out improvement initiatives after consideration of the advice of the Advisory

Committee and feedback from stakeholders, conducting research, including considerations, on recognizing

revenues from contributions, and developing and implementing a process to manage the maintenance of

Part III – Accounting Standards for Not-for-Profit Organizations.

This publication is intended to help boards of directors, audit committee members, corporate management

and other interested parties to identify and address international, Canadian, US regulatory and other

financial reporting developments that may affect their organizations. To facilitate ease of finding the

information most relevant to your organization, we have arranged this publication by organization type

and the applicable financial reporting framework.

The information in this edition is based on pronouncements released prior to November 15, 2016. For

pronouncements released after this date, please refer to the website of the standard setter or regulator

in question, or contact your KPMG adviser.

Focus on financial reporting is of a general nature, intended solely to increase awareness of financial

reporting developments. Readers should consult the original pronouncements and/or their financial

advisers for detailed guidance on the application of these standards.

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Ways KPMG can help KPMG professionals assist clients in understanding their financial reporting framework, be it International

Financial Reporting Standards (IFRS), Accounting Standards for Private Enterprises (ASPE), or standards

applicable to not-for-profit or public sector organizations or pension plans. Additionally, we have a range

of publications and resources addressing developments in these areas and the implications for

Canadian enterprises.

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Publicly accountable enterprises Financial Reporting Considerations Arising from Global Events In addition to changes in accounting standards, recent significant global events, such as Brexit, may

also impact financial reporting. While it will be some time before the longer-term effects of these results

become clear, the short-term effect may be elevated economic uncertainty. These short-term effects

may result in increased market volatility for asset prices and exchange rates; credit rating downgrades;

potential difficulty in obtaining or renewing credit in certain sectors; and a potential for curtailment in

investment and acquisition activity until the uncertainty subsides, which may contribute to lower

short-term economic growth forecasts and higher risk premiums.

As a consequence of recent events, management will need to assess the impact of the increased

economic uncertainty and market volatility on interim and annual financial statements. Management

will also need to monitor developments in future periods to assess what impact, if any, they have on

their business risk assessment, strategy and business plans, forecasts and financial reporting.

For reporting entities that are expected to be significantly impacted by these outcomes, the financial

statement implications are likely to be a need to:

– consider the potential effects of the events on asset valuations, onerous contracts, recognition of

deferred tax assets, recoverability of receivables, hedge effectiveness testing, going concern

assessments, and covenant compliance;

– provide appropriate/enhanced disclosure so the users are able to understand the effects of the events

on the entity's financial position, financial performance and cash flows – in particular, disclosure of

risks, significant judgments and key assumptions in the financial statements;

– consider the impact of increased uncertainty on significant judgments and the sensitivity of key

assumptions underlying valuations and forward-looking estimates, such as impairment tests; and

– consideration of subsequent events to conclude whether the market volatility implies that valuations

recognised at the period-end would be materially different had they been determined today and

whether this market volatility triggers the requirement for increased disclosure in the financial

statements. Additionally, careful consideration should be given to whether disclosure is appropriate

for material changes to assumptions that have been used for impairment testing, if those assumptions

have significantly changed subsequent to the year end.

Entities may also be subject to requirements for other supplementary disclosures in interim and annual

reports outside of financial statements, which focus on trends in operations and principal business risks

and uncertainties. The scope of these requirements may be broader and more forward-looking in nature.

Determining which disclosures are appropriate requires consideration of what is important in the context

of the entity and its operations. Accordingly, when relevant, it is important that management conducts a

robust evaluation of how these events may affect their operations, including the business risks and

uncertainties they may be exposed to.

For more information, refer to Brexit: Financial reporting implications.

Update on IFRS A number of amendments were issued in prior years and became effective for annual periods beginning

on or after January 1, 2016, as follows:

– Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11)

– Disclosure Initiative (Amendments to IAS 1)

– Clarification of Acceptable Methods of Depreciation and Amortization (Amendments to IAS 16

and IAS 38)

– Annual Improvements to IFRSs 2012-2014– IFRS 5, IFRS 7, IAS 19, IAS 34

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– Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12

and IAS 28)

– Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41)

– IFRS 14 Regulatory Deferral Accounts

– Equity Method in Separate Financial Statements (Amendments to IAS 27)

For a summary of these amendments, refer to 2015 edition of Focus on financial reporting 2015.

In addition, there have been a number of IFRS developments, including new and proposed standards,

amendments to existing guidance, interpretations and narrow-scope amendments, some of which could

raise significant implementation and reporting concerns for Canadian companies in the near future.

New guidance issued: New IFRSs

The following is a summary of new guidance issued by the IASB since the previous edition of Focus on

Financial Reporting was released. This edition covers IFRS developments up to November 15, 2016.

IFRS 16 Leases

In January 2016, the IASB issued IFRS 16, the much-anticipated standard on lease accounting. IFRS 16

eliminates the current dual accounting model for lessees, which distinguishes between on-balance sheet

finance leases and off-balance sheet operating leases. Instead, IFRS 16 introduces a single, on-balance

sheet accounting model that is similar to current finance lease accounting. Lessor accounting remains

similar to current practice (i.e., lessors continue to classify leases as finance and operating leases).

All companies that lease major assets for use in their business will see an increase in reported assets and

liabilities. In addition, companies will now recognize a front-loaded pattern of expense for most leases,

even when they pay constant annual rentals. This will affect a wide variety of sectors, from retailers that

lease stores to airlines that lease aircraft. The larger the lease portfolio, the greater the impact on key

reporting measures such as earnings before interest, taxes, depreciation, and amortization (EBITDA).

While removing the dividing line between the classification of operating and finance leases in current

guidance, the new standard makes the distinction between contracts that meet the definition of a lease

rather than a service contract even more critical, as leases will now be recognized on the balance sheet.

There are likely to be a number of arrangements that are currently accounted for as leases that fall outside

the new definition of a lease introduced in IFRS 16.

The new definition increases the focus on who controls the use of the underlying asset throughout the

term of the arrangement. On transition to IFRS 16, companies can choose whether to apply a practical

expedient to ‘grandfather’ their previous assessment of which existing contracts are, or contain, leases.

For each major lease, a lessee will recognize a liability for the present value of future lease payments.

The lease liability will be measured at amortized cost using the effective interest rate, which creates a

front-loaded interest expense. The lessee will also recognize a ‘right-of-use’ asset, which will be measured

at the amount of the lease liability plus initial direct costs, prepaid lease payments, and estimated costs to

dismantle, less any incentives received. Lessees will generally depreciate the right-of-use asset on a

straight-line basis.

IFRS 16 introduces a requirement to reassess key judgements, such as lease term, at each reporting date,

which is a significant change from current guidance. It is no longer possible to compute a lease

amortization schedule on lease commencement and roll that schedule forward at each reporting date.

Instead, companies will need to consider whether to re-measure the lease liability and right-of-use asset

at each reporting date. Significant judgement will likely be needed in determining whether there is a

change in relevant factors, or a change in the lessee’s economic incentive to exercise or not exercise

renewal or termination options.

The IASB has introduced two practical expedients which upon election permit the lessee to recognize

the lease payments for certain leases as expenses on a straight-line basis, rather than applying the

on-balance sheet accounting model. The two practical expedients relate to short-term leases – leases

with a lease term of 12 months or less – and low-value items – leases for which the underlying asset

is of low value when it is new (even if the effect is material in aggregate).

The new standard takes effect for annual reporting periods beginning on or after January 1, 2019. Early

adoption is permitted for companies that also adopt IFRS 15 Revenue from Contracts with Customers.

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Upon adoption, an entity will be able to choose either of the following transition approaches:

a) retrospective approach – an entity may choose to retrospectively adjust all prior periods presented; or

b) cumulative catch-up approach – an entity may choose not to restate comparatives and instead adjust

opening retained earnings at the date of initial application.

Before the effective date, companies will need to gather significant additional data about their leases,

and make new estimates and calculations. For some companies, a key challenge will be gathering the

required data. For others, more judgemental issues will dominate (e.g., identifying which transactions

contain leases).

For more details, refer to KPMG’s web article, KPMG’s SlideShare Presentation and First Impressions:

IFRS 16 Leases.

The FASB also issued its new lease accounting standard in 2016, Topic ASC 842 Leases, and while the

definition of a lease is converged between Topic 842 and IFRS 16, and both standards committed to the

on-balance sheet recognition of leases by lessees, the two standards are not fully converged. For a

summary of the FASB lease accounting standard refer to the US GAAP Update section.

New guidance issued – Amendments to existing standards

Disclosure on Changes in Financial Liabilities (Amendments to IAS 7)

For some time, investors have been calling for more disclosures on net debt, a term not defined in IFRS.

In February 2016, the IASB responded by issuing Amendments to IAS 7 Statement of Cash Flows. These

amendments require disclosures that enable users of financial statements to evaluate changes in liabilities

arising from financing activities, including both changes arising from cash flow and non-cash changes.

One way to meet this new disclosure requirement is to provide a reconciliation between the opening and

closing balances for liabilities arising from financing activities; however, the objective could also be

achieved in other ways, which might be a relief for financial institutions or other entities that already

present enhanced disclosures in this area.

Although disclosure of changes in other assets and liabilities is possible, changes in liabilities arising

from financing activities must be disclosed separately.

The amendments are effective for periods beginning on or after January 1, 2017, with earlier

application permitted.

For more details, refer to KPMG’s publication Disclosure on changes in financing liabilities.

Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to

IAS 12)

In January 2016, the IASB issued Amendments to IAS 12 Income Taxes to clarify the deferred tax

treatment for debt instruments and the determination of ‘future taxable profit’ for the recognition of

deferred tax assets.

The amendments clarify that the existence of a deductible temporary difference on debt instruments

measured at fair value is dependent solely on a comparison of the carrying amount of an asset and its tax

base at the end of the reporting period, and is not affected by possible future changes in the carrying

amount or expected manner of recovery of the asset.

The methodology to determine future taxable profits has been clarified to state that the future taxable

profit, for the purpose of the recognition of a deferred tax asset, is not the bottom line of the tax return,

but rather the bottom line of the tax return adjusted for the reversing taxable temporary differences and

deductible temporary differences to avoid double counting. Consequently, taxable profit used for

assessing the utilization of deductible temporary differences is different from taxable profit on which

income taxes are payable.

The amendments are effective for annual periods beginning on or after January 1, 2017, with earlier

application permitted. The amendments shall be applied retrospectively. The impact on your financial

statements will depend on your tax environment and how you currently account for deferred taxes.

For more details, refer to KPMG’s publication Deferred tax assets on unrealised losses.

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Classification and Measurement of Share-based Payment Transactions

(Amendments to IFRS 2)

In June 2016, the IASB published amendments to IFRS 2 Share-based Payment – Classification and

Measurement of Share-based Payment Transactions to resolve ambiguity about how to account for certain

types of arrangements in IFRS 2 Share-based Payment.

The amendments provide clarification on the following:

– Measurement of cash-settled share-based payments – the amendments provide clarification that a

cash-settled share-based payment is measured using the same approach as equity-settled share-based

payments (i.e., the modified grant date method). The new requirements do not change the cumulative

amount of expense that is ultimately recognized, because the total consideration for a cash-settled

share-based payment is still equal to the cash paid on settlement.

– Classification of share-based payments settled net of tax withholdings – some share-based payment

arrangements permit or require the entity to withhold a portion of the shares that would otherwise be

issued to the employee, and to pay the tax authorities on the employee’s behalf. Prior to the

amendments, a question existed as to whether the portion of the share-based payment that is

withheld in these instances should be accounted for as equity-settled or cash-settled. The

amendments clarify the conditions under which a share-based payment transaction with employees

settled net of tax withholdings is accounted for as equity-settled.

– Accounting for a modification of a share-based payment from cash-settled to equity-settled – the

amendments clarify that at the modification date, the liability for the original cash-settled share-based

payment is derecognized; the equity-settled share-based payment is measured at its fair value as at the

modification date and recognized to the extent that the services have been received up to that date,

with the difference recognized in profit or loss immediately.

The new requirements could affect the classification and/or measurement of these arrangements – and

potentially the timing and amount of expense recognized for new and outstanding awards.

The amendments apply for annual periods beginning on or after January 1, 2018. As a practical

simplification, the amendments can be applied prospectively. Retrospective, or early application is

permitted if information is available without the use of hindsight.

For more details, refer to KPMG’s publication Clarifying share-based payment accounting.

Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts

(Amendments to IFRS 4)

In November 2016 the IASB agreed that an entity would apply IFRS 17 (previously IFRS 4 Phase II) for

annual periods beginning on or after January 1, 2021, assuming that it is published in the first half of 2017

– well after the effective date of IFRS 9 Financial Instruments. IFRS 9 will cover a majority of an insurer’s

investments; therefore, the expected differing effective dates created concerns related to temporary

volatility and accounting mismatches in profit or loss. Some companies have also expressed concerns

about the need to implement two significant changes in accounting on different dates, which will increase

costs and complexity.

In September 2016, the IASB issued amendments to its existing insurance contracts standard, IFRS 4.

The amendments introduce two approaches that supplement existing options in the Standard that can

be used to address the temporary volatility as a result of the different effective dates of IFRS 9 and the

forthcoming insurance contracts standard.

The amendments:

– provide a reporting entity (whose predominant activity is to issue insurance contracts) a temporary

exemption from applying IFRS 9 until the earlier of:

a) the application of the forthcoming insurance contracts Standard; or

b) January 1, 2021 (to be applied at the reporting entity level) (referred to as the ‘temporary

exemption’); and

– give entities issuing insurance contracts the option to remove from profit or loss the incremental

volatility caused by changes in the measurement of specified financial assets upon application of

IFRS 9 (referred to as the ‘overlay approach’). This option will be in place until the new Insurance

Contracts standard comes into effect.

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Additionally, the Board decided to provide relief for investors in associates and joint ventures by permitting

a Company to not apply uniform accounting policies when the investee applies IAS 39 and the investor

applies IFRS 9, or vice versa, when applying the equity method of accounting.

In response to constituents’ concerns that the proposed disclosure requirements for the temporary

exemption from applying IFRS 9 Financial Instruments for insurance companies would result in excessive

costs and burdens on preparers, the Board has agreed to revise the disclosure requirements. The decision

will limit the need to perform solely payments of principal and interest assessments to those financial

assets that are not held for trading or managed on a fair value basis.

For more details, refer to KPMG’s publication Insurance – Fine-tuning the forthcoming standard. For more

details on the Insurance Contracts project refer to the Update on major projects section.

Clarifications to IFRS 15 Revenue from Contracts with Customers

In May 2014, the IASB and the FASB issued their new joint standard on revenue recognition –

IFRS 15/ASC Topic 606 Revenue from Contracts with Customers. The standards are effective for annual

periods beginning January 1, 2018 (for US public business entities: for fiscal year beginning after

December 15, 2017, and interim periods within those fiscal years).

Since the previous edition of Focus on financial reporting, the IASB and FASB have continued

redeliberations of the standards and have issued clarifications with respect to a number of topics. While

the IASB has issued a single set of amendments, the FASB has published a series of amendments. While

the new Revenue Standards are no longer completely converged, the IASB and FASB hope that the

wording differences will not result in significantly different outcomes in practice. For additional information

on the FASB amendments refer to the US GAAP Update section.

In April 2016, the IASB issued its final amendments to IFRS 15 – Clarifications to IFRS 15 Revenue from

Contracts with Customers. The amendments do not change the underlying principles of the Standard but

provide clarification on how those principles should be applied. The amendments include new examples

and clarification on the following guidance in IFRS 15:

– identifying performance obligations (the promise to transfer a good or a service to a customer) in a

contract (step 2 of the revenue model);

– determination of when revenue from granting a license of intellectual property should be recognized –

at a point in time or over time;

– determination of whether an entity is a principal (the provider of a good or service) or an agent

(responsible for arranging for the good or service to be provided); and

– the provision of transitional relief to reduce cost and complexity for an entity when it first applies the

new Standard.

Comments and industry feedback have indicated that the implementation efforts are more significant and

time-consuming than anticipated. Accordingly, entities are encouraged to begin the implementation

process, if not already done, and should strive to finalize their detailed assessments as quickly as possible

to allow sufficient time to design and implement new processes and controls, identify the technology

systems affected by the new data and accounting requirements, and evaluate the effect of the new

Standard on other functions and processes, such as financial planning and analysis, business operations,

and legal.

For additional information, refer to KPMG’s publications for IFRS and US GAAP, Revenue Issues In-Depth

and Revenue Transition Options: What is the best option for your business? For the latest news on the

Revenue Standard and additional publications, refer to IFRS – Revenue and Revenue: FASB Updates

Revenue Standard.

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Guidance currently under development – Update on major projects

The following is a summary of guidance currently under development by the IASB:

Update on Insurance Contracts Project

In June 2013, the IASB proposed a new accounting and reporting model for insurance contracts by issuing

a revised exposure draft. The proposals apply not only to entities that are generally considered insurance

entities, but to all entities that:

– issue insurance or reinsurance contracts;

– issue or hold reinsurance contracts;

– issue investment contracts with a discretionary participation feature (provided that they also issue

insurance contracts); or

– issue certain financial guarantees.

Since the previous edition of Focus on financial reporting, the Board completed its planned technical

redeliberations and instructed the Staff to begin the balloting processing for the forthcoming insurance

contracts standard. The new insurance contracts standard is expected in the first half of 2017 and,

assuming that target is met, will have an effective date of January 1, 2021.

In their technical redeliberations and discussions, the Board has addressed the following:

– the level of aggregation for recognition of onerous contracts and allocation of the contractual service

margin (CSM);

– principles-based allocation of insurance finance income or expenses to profit or loss;

– the provision of guidance on what changes in the fulfilment cash flows relate to future service and

thus, adjust the CSM, and what changes relate to current or past services and thus, do not adjust

the CSM; and

– that the variable fee approach should not apply to reinsurance contracts issued or held.

The impacts for insurers are significant and implementation will be complex. The challenges involved

reach beyond accounting and will require significant changes to measurement and reporting of

performance, asset-liability and capital management, broad business decisions, systems and processes,

and resources.

For more details, refer to KPMG’s publication IFRS Newsletter – Insurance and KPMG’s website

IFRS – Insurance.

Guidance currently under development – Narrow-scope amendments

Annual Improvements to IFRSs 2014-2016 Cycle

In November 2015, as part of its process to make non-urgent but necessary amendments to IFRSs,

the IASB issued an exposure draft proposing narrow-scope amendments to the following standards:

– IFRS 1 First-time Adoption of International Financial Reporting Standards

– Deletion of short-term exemptions for first-time adopters.

– IAS 28 Investments in Associates and Joint Ventures

– clarification that a venture capital organization or other qualifying entity may elect to measure its

investments in an associate or joint venture at fair value through profit or loss. This election can be

made on an investment-by-investment basis.

– IFRS 12 Disclosure of Interests in Other Entities

– clarification that the disclosure requirements for interests in other entities also apply to interests

that are classified as held for sale or distribution.

The IASB expects to publish the final amendments in December 2016. The expected effective date of

the amendments is for annual periods beginning on or after January 1, 2018.

For additional information, refer to IASB Work Plan.

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Transfers of Investment Property (Amendments to IAS 40)

In November 2015, the IASB published the Exposure Draft Transfers of Investment Property (Proposed

amendment to IAS 40).

The proposed amendments:

– state that an entity shall transfer a property to, or from, investment property when, and only when,

there is a change in use of a property supported by evidence that a change in use has occurred; and

– re-characterize the list of circumstances when there is a change in use as a non-exhaustive list of

examples of evidence that a change in use has occurred instead of an exhaustive list.

The Board expects to publish the final amendments in December 2016. The expected effective date of

the amendments is for annual periods beginning on or after January 1, 2018.

For additional information refer to IASB Work Plan.

Exposure Draft: Definition of a Business and Accounting for Previously Held

Interests (Proposed Amendments to IFRS 3 and IFRS 11)

In June 2016, the IASB issued the Exposure Draft: Definition of a Business and Accounting for Previously

Held Interests (Proposed Amendments to IFRS 3 and IFRS 11).

As part of the Post-implementation Review (PIR) of IFRS 3, it was identified that stakeholders find it

difficult to apply the definition of a business in IFRS 3. The proposed amendments are intended to provide

entities with clearer application guidance to help distinguish between a business and a group of assets

when applying IFRS 3.

The amendments propose that if substantially all the fair value of the gross assets acquired (i.e., the

identifiable assets and non-identifiable assets) is concentrated in a single identifiable asset or group of

similar identifiable assets, then the set of activities, together with the assets acquired, is not a business.

As IFRS 3 is the result of a joint project between the IASB and the FASB, the proposed amendments to

IFRS 3 and the Proposed Accounting Standards Update Clarifying the Definition of a Business, issued by

the FASB in November 2015, are based on substantially converged tentative conclusions.

To address diversity in practice regarding acquisitions of interests in businesses that are joint operations,

the IASB has also proposed amendments to IFRS 3 and IFRS 11. The proposed amendments are intended

to clarify the accounting for previously held interests in the assets and liabilities of a joint operation when

an entity obtains control or joint control of a business that is a joint operation.

The proposed amendments will clarify that on obtaining:

a) control, an entity should remeasure previously held interests in the assets and liabilities of the joint

operation in the manner described in paragraph 42 of IFRS 3; and

b) joint control, an entity should not remeasure previously-held interests in the assets and liabilities of

the joint operation.

The comment period ended October 31, 2016.

For more details, refer to KPMG’s publication Clarifying business acquisition accounting.

Proposed changes: IAS 16 Property, Plant and Equipment: Proceeds before

Intended Use

The IFRS Interpretations Committee (the Committee or IFRIC) received a request to clarify how net

proceeds from selling items produced while testing an item of property, plant and equipment (PPE)

under construction should be recognized.

Current guidance in IAS 16(b) explains that the cost of PPE includes ‘any costs directly attributable to

bringing the asset to the location and condition necessary for it to be capable of operating in the manner

intended by management.’ Additionally, paragraph 17(e) provides examples of directly attributable costs,

including the costs of testing whether the asset is functioning properly after deducting the net proceeds

from selling any items produced while bringing the asset to that location and condition.

The Committee issued a tentative agenda decision in July 2014, and due to concerns raised in comment

letters received, the Committee then explored additional options to provide clarification with respect to

the accounting for the costs of PPE.

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In 2016, the Committee recommended narrow-scope amendments to IAS 16 to prohibit the deduction of

proceeds from the sale of items produced while making an item of PPE available for use from the cost of

that PPE. Consequently, an entity would recognize the proceeds from selling such items, and the costs of

producing those items, in profit or loss applying the applicable Standards.

In October 2016, the IASB has tentatively decided to propose the amendments to IAS 16 and an exposure

draft is expected in 2017.

For additional information refer to IASB Work Plan.

Guidance currently under development – Proposed interpretations of

standards (draft IFRICs)

Draft IFRIC: Foreign Currency Transactions and Advance Consideration

Under current IFRS, foreign currency transactions are recorded in the entity’s functional currency by

applying the spot exchange rate on the date of the transaction (i.e., on the date when the transaction

first qualifies for recognition).

However, when foreign currency consideration is paid or received in advance of the item it relates to –

which may be an asset, an expense or income – IAS 21 The Effects of Changes in Foreign Exchange

Rates is not clear on how to determine the date of the transaction. This has resulted in diversity in practice

when translating the related item. To address this, the Committee has issued a Draft Interpretation.

The Interpretation would apply when an entity:

– pays or receives consideration denominated or priced in a foreign currency; and

– recognizes a non-monetary prepayment asset or deferred income liability (e.g., non-refundable advance

consideration) before recognizing the related item at a later date.

The date of the transaction – which is required to determine the spot exchange rate for translation – would

be the earlier of:

– date of initial recognition of the non-monetary prepayment asset or deferred income liability; and

– date that the related item is recognized in the financial statements.

The Committee has tentatively decided that the effective date of the interpretation should be January 1,

2018, with earlier application permitted. The interpretation is expected to be released in December 2016.

For additional information, refer to KPMG’s publication IFRS Breaking News – Foreign currency

transactions – Advance consideration.

Draft IFRIC: Uncertainty over Income Tax Treatments

The Committee issued a draft interpretation that seeks to clarify the accounting for income tax treatments

that have yet to be accepted by tax authorities, while also aiming to enhance transparency. More

specifically, the draft interpretation aims to address the issue: how do you reflect uncertainty in accounting

for income tax?

The Committee completed its discussions of matters raised in the comment letters and in

September 2016, tentatively decided to retain the following proposals included in the draft interpretation:

– the scope – the Interpretation would apply to income taxes within the scope of IAS 12 Income Taxes,

and would not explicitly address interest and penalties;

– the requirement for an entity to assume that a taxation authority with the right to do so will

(re)-examine amounts reported to it, and have full knowledge of all relevant information;

– using a ‘probable’ threshold for the recognition of the effect of uncertainty, and the measurement

methods to reflect uncertainty;

– the reference to relevant disclosure requirements in IAS 1 Presentation of Financial Statements

and IAS 12, and to include that reference in the Application Guidance; and

– the transition requirements.

For more details, refer to KPMG’s publication IFRS Breaking News – Accounting for uncertain tax

treatments. For additional updates refer to the IASB Work Plan.

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IFRS Interpretations Committee Agenda Decisions

IAS 12 Income Taxes – Expected Manner of Recovery of Indefinite Life

Intangible Assets when Measuring Deferred Tax

The Committee discussed a request for clarification on how to determine the expected manner of

recovery of an indefinite life intangible asset for the purposes of measuring deferred tax. The Committee

noted that an entity applies the principle and requirements in paragraph 51 and 51A of IAS 12 Income

Taxes when measuring deferred tax on an indefinite life intangible asset, and as a result, an entity

determines the expected manner of recovery of the carrying amount of the indefinite life intangible asset,

and reflects the tax consequences that follow from that expected manner of recovery.

In November 2016, the Committee issued an agenda decision that prohibits applying the requirements in

paragraph 51B of IAS 12 for non-depreciable property, plant and equipment by analogy to intangible assets

with indefinite useful life when measuring deferred tax. Application of the principle in paragraph 51B

would result in deferred tax assets or liabilities being measured using the tax rate applicable to the sale

of an indefinite life intangible assets, which is the rate currently used by a number of entities. Depending

on individual facts and circumstances, entities may need to reconsider the tax rate applied in calculating

deferred taxes arising from indefinite life intangible assets.

In light of the existing requirements in IFRS Standards, the Committee determined that neither an

interpretation nor an amendment to the Standard is considered necessary and consequently, this issue

was not added to its agenda. Entities should consider the potential implications on financial reporting, and

if impacted by these clarifications, should account for the resulting changes in deferred taxes as a change

in accounting policy which is effective immediately.

For additional information refer to the IFRIC Updates.

Canadian Regulatory Developments Applicable to all Issuers The following is a summary of recent Canadian securities regulatory rules, instruments, policies, and

documents that are applicable to a broad range of issuers. The summary discusses a number of proposed

and final amendments, as well as staff notices issued since the previous edition of Focus on financial

reporting. As a result of the harmonization efforts of the Canadian Securities Administrators (CSA),

securities markets are governed by a number of largely harmonized national or multilateral instruments,

which are on CSA member websites. Many of the links in this document refer to the Ontario Securities

Commission (OSC) website; however, readers should refer to the member site in their own jurisdiction.

Ongoing Requirements for Issuers and Insiders

Non-GAAP Financial Measures

In January 2016, CSA Staff Notice 52-306 (Revised) Non-GAAP Financial Measures, was issued. This

notice reflects the clarifying amendments to IAS 1 Presentation of Financial Statements regarding

additional sub-totals presented in financial statements. Since guidance is provided in IAS 1 on additional

sub-totals, the CSA has removed that guidance from the notice. The notice now focuses primarily on the

disclosures required when non-GAAP measures are disclosed. These disclosures are consistent with the

prior notice.

Guidance is also provided on disclosing additional subtotals before filing financial statements and the

presentation of additional subtotals in the statement of cash flows.

For additional details, refer to CSA Staff Notice 52-306 (Revised).

Amendments to Early Warning System and Take-Over Bids

In February 2016, the CSA announced Notice of Amendments to Early Warning System comprising

amendments to MI 62-104 Take-Over Bids and Issuer Bids and NI 62-103 Early Warning System and

Related Take-Over Bids and Insider Reporting Issues, and changes to NP 62-203 Take-Over Bids and

Issuer Bids. The amendments, which came into effect in May 2016, harmonize the take-over bid and

issuer bid regime for all Canadian jurisdictions.

The three key elements of the take-over bid and issuer bid regime are:

i. an extension of the minimum bid period to 105 days;

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ii. an irrevocable minimum tender condition of more than 50% of the outstanding securities; and

iii. a requirement to extend the bid period by at least 10 days once the minimum tender condition has

been met and all other terms and conditions of the bid have been complied with or waived.

The amendments enhance the quality and integrity of the take-over bid regime and increase the ability of

the security holders to make educated and coordinated tender decisions while providing boards with more

time and discretion in forming a response to a take-over bid.

The changes to Canada’s early warning system, although not as extensive as initially proposed, require

disclosure of any decreases in ownership, control or direction of 2% or more or when a security holder’s

ownership, control or direction falls below the early warning threshold of 10%. The amendments provide

greater transparency about significant holdings of reporting issuers' securities under the early warning

system. They are intended to enhance the quality and integrity of the early warning system in a manner

that is suitable for the Canadian public capital markets.

For more information, refer to NI 62-103, Early Warning System and Related Take-Over Bids and Insider

Reporting Issues and NP 62-203, Take-Over Bids and Issuer Bids.

Insider Reporting

In February 2016, OSC Staff Notice 51-726 Report on Staff’s Review of Insider Reporting and User Guides

for Insiders and Issuers was released, announcing the findings from an issue-oriented review of the

continuous disclosure records and insider filings of 100 reporting issuers whose principal regulator is

Ontario. The OSC found insider reporting deficiencies in 70% of the issuers (requiring at least one insider

to file a remedial filing), and issued comments to approximately 20% of the reporting issuers reviewed,

requesting that that they implement, on a going-forward basis, an internal process to reconcile insiders’

reporting holdings to filings. Overall, approximately 15% of the 1500 reporting insiders required new

insider reports to be filed. There was minimal correlation between the size of the reporting issuer and

the occurrence of material insider reporting deficiencies.

The report also highlighted various non-material deficiencies and other common findings and made

recommendations to improve the quality of insider reporting and to improve insider trading policies.

Appendices to the report provide checklists highlighting some of the key points reporting insiders and

reporting issuers should consider, and also example scenarios in a question and answer format.

For more information, refer to NI 51-726, Report on Staff’s Review of Insider Reporting and User Guides

for Insiders and Issuers.

Summary Findings from CSA Continuous Disclosure Reviews

In July 2016, the CSA issued Staff Notice 51-346 Continuous Disclosure Review Program Activities for the

Fiscal Year Ended March 31, 2016, which summarized the results of their continuous disclosure reviews.

The goal of the program is to improve the completeness, quality and timeliness of continuous disclosure

provided by reporting issuers in Canada. This program was established to assess the compliance of

continuous disclosure documents and to help issuers understand and comply with their obligations under

the continuous disclosure rules so that investors receive high quality disclosure.

The fiscal 2016 results were comparable to those of 2015, with 62% of review outcomes requiring issuers

to take action to improve and/or amend their disclosure. In some cases, issuers were referred to

enforcement, cease traded or placed on the default list.

For details, refer to CSA Staff Notice 51-346.

OSC Whistleblower Program

In July 2016, the OSC released OSC Policy 15-601 Whistleblower Program, which became effective

July 14, 2016.

The policy provides guidance on the Whistleblower Program (WP), including the practices generally

followed by the OSC and by staff in administering the WP in accordance with the requirements of

Ontario securities law, the nature of the information and criteria that would make an individual eligible

for a whistleblower award, and the factors considered in determining eligibility for, and the amount of,

a whistleblower award.

For more information, refer to OSC Policy 15-601.

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Proposed Changes to TSX Disclosure Requirements for Compensation

Arrangements

In May 2016, the Toronto Stock Exchange (TSX) proposed amendments to disclosure requirements for

security based compensation arrangements, such as stock option plans or similar plans that would result

in the issuance of securities from treasury. A new disclosure form, Form 15, requires disclosures in a

tabular format.

TSX-listed companies will be required to include in their proxy circulars:

– if an outstanding award includes a multiplier, the multiplier must be explained and the maximum

payout must be used when disclosing the number of listed securities issuable;

– annual burn rate for the past fiscal year would be required in all proxy circulars. The annual burn rate for

the past three years would be required when a compensation plan is being approved by shareholders;

and

– default vesting provisions would have to be summarized for all arrangements, including whether

vesting is time-based and/or performance based.

The TSX no longer requires listed entities to disclose in their proxy circulars information about the

maximum number of securities available to insiders, the method for determining exercise prices and

formula for calculating market appreciation of Stock/Share Appreciation Rights (SARs), the ability to

transform stock options into SARs, terms for stock options, causes of cessation of entitlements,

previously approved amendments, assignability, financial assistance, and entitlements subject to

shareholder ratification.

The comment period for the proposal ended June 27, 2016.

For details, refer to TSX Request for Comments – Amendments to TSX Company Manual.

TSX Proposes Issuer Website Disclosures

In May 2016, the TSX proposed amendments that would introduce a requirement that listed issuers

maintain a publicly accessible website posting current copies of: constating documents; corporate

policies that impact meetings of security holders and voting; security holder rights plans; security based

compensation arrangements such as stock option plans; and certain corporate governance documents,

including charters of board committees, code of ethical business conduct, position descriptions, board

mandate, whistle-blower policies, anti-corruption polices and other environmental and social policies.

Some of the above documents duplicate documents required under Canadian securities laws to be filed

on the System for Electronic Document Analysis and Retrieval (SEDAR).

The comment period for the proposal ended June 27, 2016.

For details, refer to TSX Request for Comments – Amendments to TSX Company Manual.

Proposed changes to the Canada Business Corporations Act

On September 28, 2016, after a 3-year consultation process, the Canadian federal government introduced

Bill C-25: An Act to amend the Canada Business Corporations Act et al., the first substantive review of the

Canada Business Corporations Act (the CBCA) in 15 years. The proposed amendments apply to CBCA

corporations with publicly traded securities or which are otherwise considered to be distributing

corporations. The amendments are intended to, among other things: reform some aspects of the process

for electing directors by implementing a majority vote standard for director elections, requiring annual

director elections and prohibiting slate elections; modernize communications with shareholders; clarify

the prohibition of bearer shares; and require certain corporations to provide shareholders with disclosure

related to diversity among directors and senior management.

The proposed amendments could bring about significant changes to the corporate governance of CBCA

corporations. CBCA corporations and their boards of directors are encouraged to carefully review Bill C-25

and consider its potential impact.

For more information, refer to the Parliament of Canada website.

Reporting under the Extractive Sector Transparency Measures Act

On June 1, 2015, the Extractive Sector Transparency Measures Act (ESTMA) came into effect. ESTMA

requires companies that are engaged in the commercial development of oil, gas and minerals to report

annually on their payments to governments in all jurisdictions globally.

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Reports are due no later than 150 days after the end of the respective financial year. Therefore, the first

ESTMA Annual Report will be due no later than May 30, 2017 and will cover payments made from

January 1, 2016 – December 31, 2016.

For details, visit KPMG in Canada's ESTMA site.

Updates Related to Prospectus Rules

Simplified Rights Offering

In December 2015, the CSA repealed NI 45-101 Rights Offering, and amended NI 45-106 Prospectus

Exemptions, to bring into force new rules relating to prospectus-exempt rights offering.

A rights offering is an offering by an issuer to its existing security holders, who receive rights entitling

them to purchase additional securities, typically at a discounted price. This type of financing would

require a prospectus unless the issuer can rely on a prospectus exemption as contained in the amended

NI 45-106.

The new rules eliminate any requirement for the securities regulator’s approval. This change is expected

to significantly reduce the time to complete a rights offering. TSX approval of the proposed offering is

required before the offering can proceed.

The new rules also permit an increase in the number of securities that can be issued by way of a rights

offering from 25% to 100% of the issuer’s already outstanding securities in any 12-month period. The

new rules came into effect December 8, 2015.

For more information, refer to NI 45-101 Rights Offering.

Exempt Market Initiatives

In January 2016, the CSA and OSC both issued notices summarizing various initiatives completed

to modernize the exempt market regulatory regime in Canada; CSA notice 45-314 Updated List of

Current Exempt Market Initiatives and Summary of Key Capital Raising Prospectus Exemptions in

Ontario, respectively.

Additional information is available on the OSC website.

Exempt Market Filings

NI 45-106 Prospectus Exemptions has been amended to introduce a new harmonized report of exempt

distributions, Form 45-106F1 Report Exempt Distribution, which became effective June 30, 2016.

Investment fund issuers and non-investment fund issuers that distribute securities under certain

prospectus exemptions are required to file Form 45-106F1.

In April 2016, the CSA released Staff Notice (SN) 45-308 Guidance for Preparing and Filing Reports of

Exempt Distribution under NI 45-106 Prospectus Exemptions to assist issuers, underwriters and their

advisors to prepare for the transition to the new report. The SN was revised in September 2016.

Also in April 2016, members of the CSA, except for the British Columbia Securities Commission and the

Ontario Securities Commission, published Multilateral CSA Staff Notice 13-323 Frequently Asked

Questions About Making Exempt Market Offering and Disclosure Filings on SEDAR. This SN provides

clarity regarding which exempt market filings will be required to be filed on SEDAR along with their

respective SEDAR access level and required filing format.

Refer to NI 45-106, Prospectus Exemptions, SN 45-308, Guidance for Preparing and Filing Reports on

Exempt Distribution under NI 45-106 Prospectus Exemptions and SN 13-323, Frequently Asked Questions

About Making Exempt Market Offering and Disclosure Filings on SEDAR.

Proposed OSC Rule to Modernize Framework for Distribution of Securities

Outside of Ontario

In June 2016, the OSC proposed OSC Rule 72-503 Distributions Outside of Canada and Companion Policy

which would replace existing guidance found in a note entitled “Interpretation Note 1 Distributions of

Securities outside Ontario.” The interpretation note provided guidance that, where an issuer and

intermediaries take “reasonable precautions” to ensure that securities distributed outside of Ontario

“come to rest” with investors outside of Ontario, and there are no other circumstances that would call

into question the integrity of Ontario capital markets, the OSC would take the view that a prospectus was

not required, nor was an exemption from the prospectus requirements necessary.

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The proposed rule would also provide an exemption from the dealer and underwriter registration

requirement in respect of a distribution of securities to individuals or companies outside of Canada,

subject to certain conditions.

Issuers relying on most of the exemptions will be required to file the Proposed Form 72-503F Report of

Distributions Outside of Canada electronically in Ontario, pursuant to OSC Rule 11-501 Electronic Delivery

of Documents to the Ontario Securities Commission.

Comments on the proposed rule were due September 28, 2016.

Industry Specific Guidance

Annual Summary Report for Dealers, Advisers and Investment Fund Managers

In July 2016, the OSC published SN 33-747 Annual Summary Report for Dealers, Advisers and Investment

Fund Managers for registered firms and individuals (collectively, registrants) that are directly regulated by

the OSC. The annual report provides an update on the OSC Registrant Outreach program, summarizes

current trends in registration and in deficiencies identified through compliance reviews, highlights the

types of regulatory action taken regarding serious non-compliance and misconduct, summarizes new and

proposed rules and policy initiatives, and provides details of where registrants can get more information

about their regulatory obligations.

For additional details, see SN 33-747, Annual Summary Report for Dealers, Advisers and Investment Fund

Managers.

Other industry specific guidance that has been released:

Summary Report for investment fund and structured product issuers

Proposed Changes to NI 81-102 Investment Funds

Conflicts of Interest Issues for Captive Dealers

Cost Disclosure, Performance Reporting and Client Statements

Proposals to Enhance the Obligations of Advisers, Dealers and Representatives toward their Clients

Amendments to Registration Requirements

Proposed Modernization of Investment Fund Product Regulation

US GAAP Update & US Regulatory Developments For Canadian SEC registrants that have chosen to adopt US GAAP as their reporting framework, the

challenge to keep abreast of developments in US GAAP remains. KPMG US’s website provides the

resources needed to help stay current with US GAAP and regulatory developments.

The Current Developments: US publications, available on the Audit Committees Institutes section on

kpmg.ca, summarize major developments including upcoming financial reporting matters and ongoing

standard setting and other activities, including FASB, EITF, SEC and PCAOB activities. They also discuss

the status of IASB and FASB projects, including revenue recognition, leases and financial instruments.

Highlighted below is a summary of some of the significant financial reporting issues in 2016 that may

affect companies reporting under US GAAP. For more detailed information, please refer to the links

following the summary and the Current Developments: US publications.

A number of standards were issued in prior years and became effective for annual periods beginning on

or after January 1, 2016, as follows:

– Consolidation Guidance

– Customer’s Accounting for Fees in a Cloud Computing Arrangement

– Presentation of Debt Issuance Costs

– Accounting for Share-based Payments with Certain Performance Targets

– Going Concern

– Eliminating the Concept of Extraordinary Items

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For a summary of these amendments and a complete listing of the standards effective in 2016 refer to

Focus on financial reporting 2015 and Current Developments: US.

New guidance issued and effective in 2017

The following are new accounting standards affecting public business entities for the first time in 2017,

more precisely for fiscal years, including interim periods within those years, beginning after December 15,

2016.

Effect of Derivative Contract Novations on Existing Hedge Accounting

Relationships

The FASB issued ASU 2016-05 which clarifies that a change in one of the parties to a derivative contract

(through novation) that is part of a hedge accounting relationship does not, by itself, require de-designation

of that relationship, as long as all other hedge accounting criteria continue to be met.

For more information, refer to FASB ASU 2016-05 and Defining Issues 15-53.

Contingent Put and Call Options in Debt Instruments

In March 2016, the FASB issued ASU 2016-06 which clarifies that determining whether the economic

characteristics of a put or call are clearly and closely related to its debt host requires only an assessment

of the four-step decision sequence outlined in FASB ASC paragraph 815-15-25-42. Additionally, entities are

not required to separately assess whether the contingency itself is clearly and closely related.

For more information, refer to FASB ASU 2016-06 and Defining Issues 15-53.

Balance Sheet Classification of Deferred Taxes

As part of the initiative to reduce complexity in accounting standards, the FASB issued ASU 2015-17 to

simplify the presentation of deferred income taxes. The amendments in this Update require that deferred

tax liabilities and assets be classified as non-current in a classified statement of financial position. The

amendments in this Update apply to all entities that present a classified statement of financial position.

Share-based Payment Accounting

In March 2016, the FASB issued a standard that simplifies the accounting for share-based payment

transactions.

Under the new standard, all companies:

– will record all excess tax benefits and tax deficiencies as an income tax benefit or expense in the

income statement (i.e., the standard eliminates the additional paid-in capital (APIC) pool), and classify

excess tax benefits as an operating activity in the statement of cash flows;

– may elect an accounting policy to either (a) estimate the number of forfeitures (current US GAAP),

or (b) account for forfeitures when they occur;

– can withhold up to the maximum individual statutory tax rate without classifying the awards as a

liability; and

– will classify the cash paid to satisfy the statutory income tax withholding obligation as a financing

activity in the statement of cash flows.

For more information, refer to Current Developments: US.

New guidance issued – effective in future years

Leases (ASC Topic 842)

In February 2016, the FASB issued its new lease accounting standard, which requires lessees to recognize

most leases, including operating leases, on-balance sheet via a right of use asset and lease liability.

Lessees are allowed to account for short-term leases (i.e., leases with a term of 12 months or less)

off-balance sheet, consistent with current operating lease accounting. The critical accounting

determination will be whether a contract is or contains a lease. The lease classification distinction,

which remains broadly consistent with current US GAAP, will affect how lessees measure and present

lease expense and cash flows. After a lease is identified, a lessee will classify a lease as an operating

or finance lease. Under this model, many property leases would have straight-line recognition of lease

expense (operating lease), whereas many leases of other assets would have front-loaded recognition

of lease expense (finance lease).

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In contrast to lessee accounting, the new standard does not make extensive changes to lessor

accounting. However, the FASB changed certain aspects of the lessor accounting guidance that lessors

should be mindful of (e.g., changes to the definition of initial direct costs and accounting for collectability

uncertainties in a lease). Those changes were made principally to align with changes made to the lessee

accounting guidance (e.g., the definition of a lease and the definition of lease payments) and to align key

aspects of the lessor accounting guidance with the new revenue standard (e.g., to align the guidance

about allocating consideration in a multi-element arrangement). In addition, the new standard prospectively

eliminates leveraged lease accounting.

The standard is effective for public companies for interim and annual periods in fiscal years beginning

after December 15, 2018. For all other entities, the standard is effective for fiscal years beginning after

December 15, 2019, and interim periods in fiscal years beginning one year later. All entities may adopt

the standard immediately.

The new standard requires a modified retrospective transition, which means that both lessees and lessors

will apply the new guidance at the beginning of the earliest period presented in the financial statements.

However, lessees and lessors may elect to apply certain practical expedients on transition. An entity that

elects to apply all of the practical expedients generally will continue to account for leases that commence

before the effective date based on current US GAAP, unless the lease is modified (or re-measured) on or

after the effective date. However, lessees will recognize operating leases on-balance sheet each reporting

period (including retrospectively) at the present value of the remaining minimum rental payments (as that

term is applied in current US GAAP). The new standard provides specific transition guidance for sale-

leaseback transactions, build-to-suit leases, leveraged leases, and amounts previously recognized for

leases in business combinations.

For additional information, refer to FASB ASU 2016-09, KPMG’s Current Developments: US and Leases:

Issues in Depth.

Revenue (ASC Topic 606)

The FASB issued three additional amendments to the recently issued revenue standard. These

amendments are expected to be the last amendments to the new revenue recognition model before it

becomes effective January 1, 2018 for US public companies with a calendar year-end. The additional

amendments address:

– licenses of intellectual property, including whether the performance obligations are satisfied over time

or at a point in time, how to apply the sales and usage based royalties exception, and evaluating

restrictions when assessing how many licenses are granted;

– determination of which goods and services are distinct in the context of the contract, and therefore

constitute separate performance obligations;

– how to apply the control principle to conclude whether the company is the principal or the agent in the

transaction; and

– other practical expedients and clarifications, including (1) the measurement date for non-cash

consideration, (2) a practical expedient for reporting sales taxes, (3) additional practical expedients for

transition, and (4) additional guidance about recognizing non-refundable payments when collectability of

the entire arrangement consideration is not probable and the arrangement therefore does not qualify as

a contract with a customer.

In May 2016, the FASB also proposed minor technical corrections related to the revenue standard. The

proposed guidance would:

– supersede the preproduction cost guidance related to long-term supply arrangements;

– clarify the requirements for impairment testing of contract costs;

– clarify the onerous contract test for construction- and production-type contracts;

– clarify the scope of the revenue standard with respect to insurance contracts and fixed odds wagering

contracts; and

– provide additional relief from the disclosure requirements for remaining performance obligations

for specific situations in which an entity need not estimate variable consideration in order to

recognize revenue.

In September 2016, the FASB issued four additional technical corrections and improvements on narrow

aspects of the new revenue recognition guidance.

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The corrections proposed will:

– clarify that guarantee fees (other than product or service warranties) are not in the scope of the new

revenue guidance;

– more closely align an example in the standard with the new guidance on presentation of receivables;

– eliminate a reference to a contract liability in an example on refund liabilities; and

– retain today’s guidance on the accrual of advertising costs.

The proposed amendments would address narrow issues and would not change any of the principles in

ASC Topic 606 or the consequential amendments.

The Transition Resource Group for Revenue Recognition (TRG) was formed to discuss issues arising from

implementation of the new standard and inform the FASB about those implementation issues. In the past

couple of years the TRG has met 8 times and discussed more than 50 implementation issues. The TRG

has generally agreed on the following implementation issues:

– companies should not write off contract assets that exist at the time of certain contract modifications;

– companies should not recognize work-in-process assets for performance obligations satisfied over time

because control transfers to the customer continuously as the company performs;

– offers for discounted goods or services that accumulate from prior purchases typically provide the

customer with a right. Companies will need to apply judgment in determining whether they have

provided a right when other customers who have made no prior purchases also receive discount

offers, and in determining whether the right, if any, is material. The FASB staff will perform additional

outreach to understand how the travel and entertainment industry would apply the guidance to loyalty

status programs; and

– loan servicing fees and financial guarantee fees earned by financial institutions fall outside the scope of

the new revenue standard, while deposit-related fees are within the scope.

At the most recent TRG meeting in November 2016, the TRG discussed:

– transfer of control when a performance obligation is satisfied over time;

– recognition and measurement of incremental costs of obtaining a contract as an asset and estimating

the period of amortization;

– accounting for a sales-based or usage-based royalty promised in exchange for a license of intellectual

property that includes a minimum guaranteed amount; and

– accounting for upfront payments made to customers.

The improvements that the FASB has made in response to the feedback should increase consistent

application of the standard, which benefits financial statement users, and should reduce cost and

complexity both at the implementation and on an ongoing basis.

For additional information, refer to KPMG’s Current Developments: US, publications Latest on Revenue

Recognition, Revenue: Issues In-Depth, KPMG’s Accounting Change Survey, and Revenue – Transition

Options, FASB ASU 2016-08, ASU 2016-10, ASU 2016-12, and FASB – Transition Resource Group

for Revenue.

New Accounting for Equity Investments and Financial Liabilities

The FASB issued the first of three standards related to accounting for financial instruments. The new

standard will significantly change the income statement effect of equity investments and the recognition

of changes in fair value of financial liabilities when the fair value option is elected. The changes include:

– measuring equity investments with readily determinable fair values at fair value and recognizing

changes in fair value in net income;

– choosing whether to measure equity investments without readily determinable fair values at (1) fair

value or (2) cost adjusted for changes in observable prices minus impairment. Changes in

measurement under either alternative must be recognized in net income;

– recognizing changes in fair value related to instrument-specific credit risk in other comprehensive

income if the fair value option for financial liabilities is elected; and

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– assessing valuation allowances for deferred tax assets related to available-for-sale debt securities in

combination with their other deferred tax assets.

The standard is effective for public business entities for fiscal years beginning after December 15, 2017,

including interim periods in those fiscal years (i.e., January 1, 2018, for public companies with a calendar

year-end). For all other entities, it is effective for fiscal years beginning after December 15, 2018, and

interim periods in fiscal years beginning after December 15, 2019. Entities may early adopt the provisions

related to the recognition of changes in fair value of financial liabilities.

For more information, refer to FASB ASU 2016-01 and Defining Issues 16-1.

Financial Instruments – Credit Losses

In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments – Credit

Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard will

significantly change how companies measure and recognize credit impairment for many financial

instruments.

The new current expected credit loss model will require companies to immediately recognize an estimate

of credit losses expected to occur over the remaining life of the financial assets that are in the scope of

the standard. Companies may need to collect more data and significantly change their systems,

processes, and internal controls to comply with the requirements of the new standard.

The FASB also made targeted amendments to the current impairment model for available-for sale debt

securities.

The changes are effective for public business entities that are SEC filers, for annual and interim periods in

fiscal years beginning after December 15, 2019, and for non-SEC filers for annual and interim periods in

fiscal years beginning after December 15, 2020.

For more information, refer to FASB ASU 2016-13 and Defining Issues 16-23, Latest on Financial

Instruments, Q&As on Recognition and Measurement.

Cash Flow Classification Guidance

With an expectation to reduce diversity in practice in areas for which authoritative guidance did not

previously exist, the FASB has issued a standard that provides cash flow classification guidance on

eight issues:

– debt prepayment or extinguishment costs;

– settlement of zero-coupon bonds or bonds issued at a discount with insignificant cash coupon;

– contingent consideration payments made after a business combination;

– proceeds from the settlement of insurance claims;

– proceeds from the settlement of corporate-owned life insurance policies;

– distributions received from equity method investees;

– beneficial interests in securitization transactions; and

– separately identifiable cash flows and applying the predominance principle.

The standard is effective for public business entities for fiscal years beginning after December 15, 2017,

including interim periods in those fiscal years (i.e., January 1, 2018, for public companies with a calendar

year-end). For all other entities the standard is effective for fiscal years beginning after December 15,

2018, and interim periods in fiscal years beginning after December 15, 2019. Companies may early adopt

the guidance only if they adopt all issues at the same time.

For more information, refer to FASB ASU 2016-15 and Defining Issues 16-22.

Recognition of Breakage for Certain Prepaid Stored-value Products

The FASB issued a narrow scope exception to the financial liability guidance that allows entities to

recognize breakage on prepaid stored-value products consistent with how breakage is recognized

under the new revenue standard. The exception applies to prepaid stored-value products in physical or

digital form, with stored monetary values that are redeemable for goods and services, including those

that can be redeemed for cash. Examples include prepaid gift cards issued on specific payment networks

and redeemable at network-accepting merchant locations, prepaid telecommunications cards, and

travellers’ cheques. The scope exception does not apply to products that can be redeemed only for cash

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(i.e., non-recourse debt, bearer bonds, or trade payables), are subject to escheatment laws, are attached

to a segregated bank account (e.g., debit cards), or are associated with customer loyalty points.

The new guidance is effective for public companies in fiscal years beginning after December 15, 2017,

and interim periods in those years. For all other entities, it is effective for fiscal years beginning after

December 15, 2018, and interim periods in fiscal years beginning after December 15, 2019. Early adoption

is permitted, including adoption in an interim period.

For more information, refer to FASB ASU 2016-04 and Defining Issues 15-53.

Other FASB Projects

Proposed Accounting Standards Update: Service Concession Arrangements

(Topic 835)

It has been observed that there is diversity in practice in how an operating entity determines the customer

of the operation services for transactions within the scope of Topic 835, Service Concession

Arrangements. The FASB has proposed an accounting standards update in November 2016 to address this

diversity.

For service concession arrangements within the scope of Topic 835, the operating entity should not

account for the infrastructure as a lease or as property, plant, and equipment, but should refer to other

Topics to account for various aspects of the service concession arrangement. When applying the revenue

guidance under Topic 605, Revenue Recognition, or Topic 606, Revenue from Contracts with Customers,

it has been observed that it is not clear who is the customer of the operation services (i.e., the grantor or

the third-party users) for certain arrangements. The proposed amendments would clarify the identity of the

customer and eliminate the diversity in practice, as well as reduce the complexity and enable more

consistent application of other aspects of the revenue guidance, which are affected by this customer

determination.

The comment period ends January 6, 2017.

For more information, refer to Proposed Accounting Standards Update: Service Concession

Arrangements.

Financial Services – Insurance (Topic 944)

In September 2016, the FASB issued an Exposure Draft Targeted Improvements to the Accounting for

Long-Duration Contracts which focuses on targeted improvements to the existing recognition,

measurement, presentation, and disclosure requirements for long-duration contracts issued by an

insurance entity. The proposed amendments address the following:

– improving the timeliness of recognizing changes in the liability for future policy benefits by requiring

updated assumptions be used to measure the liability for future policy benefits;

– simplifying and improving the accounting for certain options or guarantees embedded in variable

contracts;

– simplifying the amortization of deferred acquisition costs; and

– improving the effectiveness of the required disclosures.

The comment period ended December 15, 2016.

For more information, refer to Proposed Accounting Standards Update – Financial Services – Insurance

and Latest on Insurance.

Derivatives and Hedging (Topic 815)

In September 2016, the FASB issued the proposed updates for hedging activities with the objective of

improving the financial reporting of hedging relationships to better portray the economic results of an

entity’s risk management activities in its financial statements through changes to both the designation

and measurement guidance for qualifying hedging relationships and the presentation of hedge results.

The proposed amendments address the following issues:

– risk component hedging in hedging relationships involving non-financial risk and interest rate risk;

– refining the accounting for the hedged item in fair value hedges of interest rate risk;

– recognition and presentation of the effects of hedging instruments;

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– other simplifications of hedge accounting guidance; and

– amendments to disclosures.

The comment period ended November 22, 2016.

For more information, refer to Proposed Accounting Standards Update: Derivatives and Hedging.

Emerging Issues Task Force Activities

The following table presents a list of significant issues discussed by the FASB’s Emerging Issues Task

Force (EITF) in 2016 that remain open at the time of this publication.

Topics For more information, see

proposed ASU:

Restricted Cash Restricted Cash

Employee Benefit Plan Master Trust Reporting Employee Benefit Plan Master Trust

Reporting

Determining the Customer of the Operation Services in a Service

Concession Arrangement

Service Concession Arrangements

Regulatory Guidance and Other Activities

Guidance about Non-GAAP Financial Measures

The SEC staff, Center for Audit Quality (CAQ), and the International Organization of Securities

Commissions (IOSCO) published additional guidance to help financial statement preparers and audit

committees evaluate the usefulness and acceptability of non-GAAP financial information.

The SEC staff published additional Compliance & Disclosure Interpretations (C&DIs) that describe

prohibited practices, including:

– providing misleading financial measures, for example:

– excluding normal operating expenses;

– presenting the measures inconsistently between periods;

– including gains, but excluding charges; and

– individually tailoring accounting principles;

– presenting non-GAAP financial measures more prominently than GAAP measures; and

– disclosing per share non-GAAP liquidity measures.

The CAQ released a new tool to help audit committees assess whether management’s presentation

of non-GAAP metrics provides investors with meaningful financial information. Based on the SEC’s

non-GAAP rules, the CAQ tool emphasizes:

– transparency, including ways audit committees can consider the purpose, prominence, and labeling

of non-GAAP information;

– consistency, including questions audit committees can ask management to determine whether

non-GAAP measures are consistent and balanced; and

– comparability, including questions audit committees can ask management to assess the comparability

of non-GAAP measures presented.

The IOSCO Statement on Non-GAAP Financial Measurements provides a framework for preparing

disclosures that (1) contribute to the reliability and year-to-year comparability of non-GAAP financial

measures and (2) reduce the potential for misleading disclosure. The elements of the framework include

“using non-GAAP measures for unbiased purposes only” and “providing issuers with ready and easily

available access to information about non-GAAP disclosures.”

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For more information, refer to C&DIs, Defining Issues 16-20, CAQ Questions on Non-GAAP Measures

Press Release, and IOSCO Press Release.

SEC Staff Focus Areas

The SEC staff has frequently commented on certain matters in its recent filing reviews:

– internal control over financial reporting;

– segment identification and disclosure;

– income tax disclosure;

– fair value disclosure, including fair value disclosures by insurers;

– oil and gas price declines;

– Non-GAAP financial measures (see SEC Staff and Others Provide Guidance about Non-GAAP Financial

Measures);

– predecessor financial statements in initial registration statements; and

– international reporting matters, including Venezuelan operations (i.e., consistent use of appropriate

exchange rates and deconsolidation evaluations).

For more information, refer to Issues In-Depth.

Accounting for the Appropriations Act

The Consolidated Appropriations Act, 2016 was signed into law on December 18, 2015. The law made

permanent certain provisions in the IRS Code that recently expired or that were scheduled to expire,

including the research credit and the exception under Subpart F for active financing income. The law

also extended other expired provisions, including certain energy provisions.

While the current and deferred effects of tax law changes are recognized in the financial statements in

the period in which the change is enacted (i.e., the period containing December 18, 2015), the provisions

extending through at least December 31, 2016, have continuing relevance in fiscal 2016 when estimating

the 2016 annual effective tax rate.

For more information, refer to Legislative Update: President Obama Signs Year-end Tax Legislation.

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Private enterprises In keeping with the previously stated commitment to minimizing the frequency of changes to the

Accounting Standards for Private Enterprises, Canada’s Accounting Standards Board (AcSB) approved

the issuance of amendments to Section 1591 Subsidiaries and 3051 Investments and narrow scope

amendments to Sections 1591 Subsidiaries and 3056 Interest in Joint Arrangements. The AcSB also

revised the timing of the annual improvement process such that no annual improvement amendments

will be issued in 2016. As enumerated below, the AcSB has issued its exposure draft for the 2017

annual improvements.

Developments in Accounting Standards for Private Enterprises Updates to ASPE are done through:

– major improvements, and

– annual improvements for clarifications on guidance or wording, or to correct for relatively minor

unintended consequences, conflicts or oversights.

New guidance issued

Subsidiaries and Investments

The AcSB approved the issuance of amendments to Section 1591 Subsidiaries and Section 3051

Investments to address the accounting for a subsidiary and an investment subject to significant influence

when the cost method is used, recognizing that there has been diversity in practice in the application of

the cost method. The final handbook material is to be published in December 2016.

The underlying principle of the amendments is that:

– a consistent approach should be applied to investments and interests in subsidiaries that are

accounted for using the cost method; and

– the initial measurement of an interest in a subsidiary that is subsequently accounted for using the

cost method should be on a basis similar to other business combinations, specifically as it relates

to acquisition related costs, contingent consideration, pre-existing relationships and subsequent

accounting for contingent consideration.

The key aspects of the amendments to subsidiaries when the cost method is used are as follows:

– initial cost would be measured at the acquisition-date fair value of the consideration transferred,

including contingent consideration. Contingent consideration is re-measured when the contingency

is resolved;

– acquisition-related costs are expensed as incurred;

– pre-existing relationships would be required to be separately identified and settlement of such

relationships is considered a separate transaction;

– no recognition of bargain purchase gains (i.e., “negative goodwill”);

– for a step acquisition, there is no re-measurement of the previously held interest. This includes where

acquisition related costs have been capitalized in accordance with Section 3856 Financial Instruments.

Entities would, however, be required to consider whether the cost of the additional interest acquired

indicates an impairment; and

– at a reporting date, where the initial accounting is incomplete as a result of working capital adjustment

clauses or other reasons, the carrying amount of the interest in the subsidiary is based on provisional

amounts. Such provisional amounts are adjusted in the period they are finalized, with the

measurement period not to exceed one year from the acquisition date. Adjustments to provisional

amounts are not retrospectively recognized in the prior period.

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The key aspects of the amendments to investments subject to significant influence when the cost

method is used are as follows:

– initial cost would be measured at the acquisition-date fair value of the consideration transferred;

– acquisition-related costs are expensed as incurred; and

– for acquisitions of additional interests there is no re-measurement of the previously-held interest.

This includes where acquisition-related costs have been capitalized in accordance with Section 3856

Financial Instruments. Entities would, however, be required to consider whether the cost of the

additional interest acquired indicates an impairment.

The AcSB chose not to add a similar requirement to expense acquisition-related costs for investments

subject to significant influence when the equity method is applied, as such a change was considered

to be outside of the scope of the project.

The amendments will be effective for fiscal years beginning on or after January 1, 2018, with earlier

application permitted.

Joint Arrangements and Subsidiaries

The AcSB approved the issuance of narrow-scope amendments to Section 1591 Subsidiaries, and

Section 3056 Interests in Joint Arrangements, with the final handbook material to be published in

December 2016. The amendments provided the following clarifications, which are effective for fiscal years

beginning on or after January 1, 2017, with earlier application permitted:

– transitional provisions under Section 1591 and 3056 can only be applied on the initial application of the

standard and may not be applied if an enterprise changes its accounting policy at any time after the

initial application; and

– an enterprise preparing non-consolidated financial statements is not required to assess whether

contractual arrangements give rise to control.

In addition, Section 1591 was amended to clarify the accounting where control exists as a result of the

combination of voting interests and contractual arrangements and the subsidiary is not consolidated.

Specifically, the amendments clarify that the voting interest is accounted for using either the cost or equity

method and the contractual arrangement is accounted for in accordance with the nature of the contractual

arrangement. This amendment is effective for fiscal years beginning on or after January 1, 2018.

Exposure Drafts

Annual Improvements

In September 2016, the AcSB issued Exposure Draft 2017 Annual Improvements to Accounting Standards

for Private Enterprises, which proposes the following narrow scope amendments:

– modify Section 1505 Disclosure of Accounting Policies to require the disclosure of accounting policies

be provided in one of the first notes rather than the current, more prescriptive requirement, as the first

note to the financial statements;

– change the disclosure requirements under Section 1506 Accounting Changes for a change in

accounting policy to require disclosure of the amount of the adjustment required in the prior periods

presented rather than for the adjustment required for the current period presented;

– clarification of the presentation and disclosure requirements under Section 1521 Balance Sheet

including that assets under capital lease should be presented separately on the face of the balance

sheet or disclosed in the notes to the financial statements;

– clarification on the reversal of previous write downs as a result of foreign currency translation of assets

valued at lower of cost and market; and

– clarification that under Section 3065 Leases, only the amount of the allowance for impairment, not the

carrying amount of impaired operating lease receivables, is required to be disclosed, consistent with

the requirements under Section 3856 Financial Instruments, for current trade receivables.

The AcSB expects to issue these final amendments in the third quarter of 2017, with the amendments to

be effective for years beginning on or after January 1, 2018, with retrospective application and the ability

to early adopt.

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Other projects

Redeemable Preferred Shares Issued in a Tax Planning Arrangement –

a Liability

Under the AcSB’s Exposure Draft Redeemable Preferred Shares Issued in a Tax Planning Arrangement,

which was issued in October 2014, the AcSB had originally agreed that redeemable preferred shares in

a tax planning arrangement meet the definition of a liability and had proposed eliminating ASPE’s equity

treatment. In response to comment letters and roundtable discussions on the exposure draft, the AcSB

subsequently had further analysis performed to facilitate the development of alternatives to the existing

classification exception and to gather an understanding of the characteristics of tax planning arrangements

where redeemable preferred shares are issued. As a result of this analysis, the AcSB is discussing the

viability of a classification exception on the basis of retention of control of the entity. Further testing of

the characteristics of tax planning arrangements and where such arrangements would or would not meet

a classification exception based on the retention of control is ongoing.

The AcSB has agreed that any change as a result of this project will be effective no earlier than

January 1, 2018.

Agriculture

Recognizing that there is diversity in practice, the AcSB issued a discussion paper in December 2015

which examines the accounting for living animals or plants and the harvested product from these assets.

The discussion paper addresses the recognition and measurement of biological assets, including

unharvested crops, agricultural produce and animals held for sale, and bearer plants and animals. The

AcSB’s preliminary views provided in the discussion paper include:

– biological assets should be recognized when the asset definition and recognition criteria are met as set

out in Section 1000 Financial Statement Concepts;

– unharvested crops, including both annual crops and long-term crops, such as timber, should be

measured at cost;

– agricultural produce and animals held for sale should be measured at current value when certain

conditions are met and at cost when those conditions are not met; and

– bearer plants and animals should be measured at amortized cost. The AcSB acknowledged that any

preliminary view for the measurement of bearer animals will be controversial as this area has the

greatest diversity in practice.

The discussion paper also considers impairment models that could be applied and presentation and

disclosure requirements.

Following the initial comment period, the AcSB held a series of in-person roundtable discussions across

the country and has approved the creation of an agricultural advisory committee to assist the AcSB in the

development of accounting standards for private enterprises in the agricultural sector.

Post-implementation Review of Section 3856 Financial Instruments

The AcSB, in its first ever post-implementation review, solicited comments on experience in applying

Section 3856 Financial Instruments. The financial instruments standard was one of the most significant

changes in developing ASPE and as a result was considered a good candidate for post implementation

review. Such a review allows the AcSB to assess whether the standard provides useful information, and

how it can be improved, whether there are any unexpected costs or challenges in its application and

whether there are areas that represent interpretation challenges.

While the feedback provided suggested overall support for the principles and requirements of the

standard, there were several areas of concern identified, including challenges with the initial

measurement of some types of financial instruments, confusion regarding the scope and measurement

of financial instruments with related parties, and questions regarding the usefulness of some risk and

uncertainty disclosures which tend to be boilerplate and non-enterprise specific. The AcSB continues to

analyze the feedback received to determine what, if any, aspects of Section 3856 should be considered

for amendment.

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Not-for-profit organizations Accounting Standards for Not-for-Profit Organizations

(Part III of the CPA Canada Handbook – Accounting) This section discusses developments in accounting standards for Not-for-Profit Organizations (NPOs)

since the 2015 edition of Focus on financial reporting.

Joint Not-for-Profit Review

The AcSB included not-for-profit organizations in its issued-for-comment draft strategic plan for 2016–

2021. The proposed core strategy includes maintaining a separate set of accounting standards for areas

unique to not-for-profit organizations while continuing to direct them to Part II of the CPA Canada

Handbook – Accounting for non-unique areas (such as employee future benefits and financial instruments).

The AcSB formed a not-for-profit advisory committee to provide input into this process and approved three

projects. These three projects are outlined below:

i. Accounting Standards Improvement – Phase 1

– Tangible capital assets

– Intangible assets

– Works of art, historical treasures, collections and similar items

– Related party transactions

– Allocated expenses

ii. Accounting Standards Improvement – Phase 2

– Controlled and related entities

– Expense reporting by function and object

– Economic interests

iii. Contributions – Revenue Recognition and Related Matters

– Contributions

– Size exemption ($500,000) for tangible capital assets and intangibles

– Financial statement presentation

The AcSB has indicated that it anticipates the release of an exposure draft related to Accounting Standards

Improvement – Phase 1 in the first quarter of 2017. The AcSB decision summaries document indicated

that the exposure draft will propose that NPOs adopt the following:

– apply accounting standards for private enterprises in Part II of the Handbook to report the capitalization,

amortization and disposal of tangible assets and continue to apply the existing Part III standards for

intangible assets;

– recognize write-downs to reflect a partial loss of service potential of tangible and intangible assets still

in use. The net carrying value of the tangible and intangible assets would be written down to their

replacement cost or fair value;

– continue to apply the existing standards in Part III for works of art, historical treasures and similar items

that are not part of a collection;

– recognize collections held by NPOs on the statement of financial position at either cost or nominal

value;

– recognize write-downs to reflect a partial loss of service potential of a collection (i.e., the cost of the

collection would be written down to its replacement cost or fair value);

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– choose whether to apply the proposals relating to collections retrospectively and use transition relief to

measure the cost of collections in a practical manner; and

– apply the proposals for write-downs of tangible and intangible assets prospectively.

The AcSB has also indicated that the exposure draft will propose an effective date of January 1, 2019,

with an option to defer to April 1, 2020, for March year-ends.

Post-implementation Review

As noted in the previous section, the AcSB solicited comments on experience in applying Section 3856

Financial Instruments. This standard, located in Part II, also applies to not-for-profit organizations who

apply Part III.

Reminders of Certain Guidance Previously Issued

As a reminder, the following section was previously issued and is effective in 2016:

Section Effective for fiscal years

Investment in Joint Ventures Beginning on or after January 1, 2016

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Public sector entities Developments in Public Sector Accounting Standards This section discusses developments in public sector accounting standards since the 2015 edition of

Focus on financial reporting.

New guidance issued

There was no new guidance issued in 2016.

Post-implementation review

The Public Sector Accounting Board (PSAB) has completed its first post-implementation review. This

review related to PS3410 Government Transfers. PSAB subsequently issued a Feedback Statement – Post

Implementation Review and a PSAB Matters Article – Staying the Course on Government Transfers.

The review identified two main issues and considerable commentary was received related to both. These

issues related to the authority to pay and recipient accounting for capital transfers. PSAB concluded that

PS3410 Government Transfers is a principles-based standard that meets the original public interest

objectives. PSAB further concluded that issuing an accounting guideline could be perceived as overriding

due process.

Reminders of certain guidance previously issued

As a reminder, PSAB previously issued the following sections that are effective in 2016 or future years:

Sections Effective for fiscal years

Introduction to Public Sector Accounting Standards Beginning on or after January 1, 2017

Related Party Disclosures, Section 2200 Beginning on or after April 1, 2017

Inter-entity Transactions, Section 3420 Beginning on or after April 1, 2017

Assets, Section 3210 Beginning on or after April 1, 2017

Contingent Assets, Section 3320 Beginning on or after April 1, 2017

Contractual Rights, Section 3380 Beginning on or after April 1, 2017

Restructuring Transactions, Section 3430 Beginning on or after April 1, 2018

Financial Instruments, Section PS3450 Beginning on or after April 1, 2019, with early

implementation for government organizations

transitioning from Part V of the CPA Canada

Handbook – Accounting. Early adoption is

permitted.

Portfolio Investments, Section PS3041

Foreign Currency Translation, Section PS2601

Financial Statement Presentation, Section PS1201

PSAB projects underway

The following section discusses the major projects currently with the Public Sector Accounting Board:

Related party transactions for not-for-profit organizations

PSAB issued an exposure draft which proposed the removal of Section PS4260 Disclosure of related party

transactions by not-for-profit organizations and amendment of the transitional provision of Section PS2200

Related party disclosures. Sections PS4260 and PS2200 are very similar except that PS2200 does not

include the concept of significant influence or economic interest. However, disclosures for significant

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influence and economic interest are required by Section PS4250, Reporting controlled and related entities

by not-for-profit organizations. The change would be effective for fiscal years beginning on or after

January 1, 2018. The Handbook section is anticipated to be approved in December 2016.

Revenue

A Statement of Principles entitled Revenue was issued in August 2013 with the objective of providing

recognition, measurement and presentation guidance for revenues common to government and

government organizations other than tax revenue and government transfers. The statement focused on

two main areas of revenue – exchange transactions and unilateral (non-exchange) transactions. During

2016, PSAB received updates on the project, including consideration of the recognition of revenue arising

from licences and permits and multiple performance obligations. An exposure draft is anticipated in the

first quarter of 2017.

Retirement Obligations

A Statement of Principles entitled Retirement Obligations was issued in August 2014 that proposed

principles for the recognition, measurement, presentation and disclosure of legal obligations associated

with the retirement of tangible capital assets currently in productive use. The proposal included retirement

obligations based on an agreement, contract, legislation or a constructive or equitable obligation and

where the acquisition, construction, development, change in circumstance or subsequent use of the

tangible capital asset creates a liability. Comments were received and reviewed. PSAB is also considering

the inclusion of solid waste closure and post-closure costs in this project. An exposure draft is expected in

the first quarter of 2017.

Employment Benefits

PSAB has approved a project to review Sections PS3250 Retirement benefits and PS3255 Post-retirement

benefits as a result of significant changes in types of pension plans and related accounting concepts. The

project has been divided into two phases. The first phase will review measurement issues such as

deferral of experience gains and losses and discount rate. The second phase will involve the accounting

for new types of plans, including shared risk plans. Phase two will also include consideration on

accounting for multiemployer defined benefit plans and vested sick leave benefits. An invitation to

comment related to the first phase is expected in the first quarter of 2017.

Concepts Underlying Financial Performance

The objective of this project is to review and amend, if necessary, the conceptual framework in

Sections PS1000 Financial Statement Concepts and PS1100 Financial Statement Objectives. This project

will consider the concepts underlying the measure of financial performance and could also affect Section

PS1021 Financial Statement Presentation. PSAB issued a third consultation paper in March 2015. During

2016, PSAB continued to discuss these issues.

PSAB Strategic Initiative

An invitation to comment was issued on May 30, 2016, related to the vision, mission and strategic

objectives to guide the standard-setting activities of PSAB. Comments were received and the strategic

plan is anticipated to be released in the second quarter of 2017.

Public Private Partnerships

The public private partnerships task force was established to assist PSAB in developing authoritative

guidance specific to public private partnerships. The project will include two phases. The first phase

will relate to specific issues, including project scope, recognition and measurement of public private

partnerships and disclosure requirements. The second phase will focus on the accounting for public

private partnerships.

A statement of principles related to the first phase of the project is expected in the first quarter of 2017.

Financial Instruments – Subsequent Issues

PSAB held consultations across the country in 2016 to obtain a better understanding of issues with

implementation of Sections PS2601 Foreign currency translation and PS3450 Financial instruments. PSAB

will discuss the technical issues identified in the consultation, including the accounting for hedges, at their

December 2016 meeting.

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Appendix Acronyms

ASC Accounting Standards Codification (US GAAP) MI Multilateral Instrument

ASU Accounting Standards Update (US GAAP) NI National Instrument

AcSB Accounting Standards Board NP National Policy

APIC Additional Paid-In Capital NPO Not-for-profit Organization

ASPE Accounting Standards for Private Enterprises OCI Other Comprehensive Income

CAQ Center for Audit Quality OSC Ontario Securities Commission

CBCA Canada Business Corporations Act PCAOB Public Company Accounting Oversight Board

CPA Chartered Professional Accountant PIR Post Implementation Review

CPAB Canadian Public Accountability Board PPE Property, Plant, and Equipment

CSA Canadian Securities Administrators PS Public Sector

CSM Contractual Service Margin PSA Public Sector Accounting

EBITDA Earnings before interest, taxes, depreciation,

and amortization

PSAB Public Sector Accounting Board

ESTMA Extractive Sector Transparency Measures Act SARs Stock/Share Appreciation Rights

FASB Financial Accounting Standards Board (US) SEC Securities Exchange Commission

GAAP Generally Accepted Accounting Principles SEDAR System for Electronic Document

Analysis and Retrieval

IAS International Accounting Standard SN Staff Notice

IASB International Accounting Standards Board TRG Transition Resource Group (US GAAP)

IFRIC International Financial Reporting

Interpretations Committee, now known as the

IFRS Interpretations Committee

TSX/TSE Toronto Stock Exchange

IFRS International Financial Reporting Standards US United States

MD&A Management’s Discussion and Analysis WP Whistleblower Program

WebsitesAICPA www.aicpa.org KPMG www.kpmg.ca

ASC www.albertasecurities.com OSC www.osc.gov.on.ca

FASB www.fasb.org SEC www.sec.gov

IASB www.iasb.org PSAB www.frascanada.ca

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Contact us Robert G. Young, FCPA, FCA

Editor, Focus on financial reporting

T: 416-777-8338

E: rgyoung@kpmg.ca