Financial Instruments – recent developments

Deferral of Mandatory Effective Date for Non-Publicly Accountable Enterprises

In March 2006, the AcSB decided that non-publicly accountable enterprises may defer application of Financial Instruments — Recognition and Measurement, Section 3855, Hedges, Section 3865, Comprehensive Income, Section 1530 and related consequential amendments by one year.  These new requirements will have mandatory effect for non-publicly accountable enterprises in interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007. The AcSB agreed to the deferral pending consideration of research into the financial reporting needs of non-publicly accountable enterprises in accordance with the AcSB’s new strategic plan. This deferral applies to non-publicly accountable enterprises as defined in Differential Reporting, paragraph 1300.02. The deferral does not apply to not-for-profit organizations.

CICA Handbook—Accounting, XFI

The deferred effective date for non-publicly accountable enterprises means that there is a further period of time during which Handbook users may need to refer to the CICA Handbook – Accounting XFI.  That edition of the Handbook contains all applicable standards except for those introduced by the issue of standards dealing with the recognition, measurement and disclosure of financial instruments, hedges and comprehensive income, consequential amendments, and other revisions as explained in Handbook Revision Release No. 33. In all other respects the XFI edition is identical to the CICA Handbook – Accounting.

The XFI edition is available in the current electronic versions of the Handbook. On issuing the updated paper version of the Handbook in March 2006, users were provided with a complete new set of Handbook Sections and Accounting Guidelines, and advised to retain the previous set until such time as they adopt the new financial instruments standards. That retained paper set will not, however, be updated to reflect any pronouncements issued after April 2005.

Implementation Guidance

On March 30, 2006, the AcSB’s Financial Instruments Working Group (FIWG) issued the first in a series of implementation guidance materials for applying the CICA Handbook ¯ Accounting standards on financial instruments.  This guidance is available from the AcSB web site at www.acsbcanada.org, via the project page, Financial Instruments — Implementation Guidance.

This guidance is structured as a series of documents with optional links. Both narrative and graphic representations of the material are included. The FIWG has focused its initial efforts on producing guidance to help entities develop a process for determining the extent to which the standards will affect them and for systematically implementing the standards.  More specific guidance will follow based on queries that have been received by the FIWG.

The guidance is being published in stages, beginning with more generic issues. Each set of documents is being exposed for comment for a thirty-day period.

Financial Instruments — Assessment of Emerging Issues Committee Abstracts of Issues Discussed

The EIC is reviewing certain EIC Abstracts that are impacted by the new financial instruments standards. Over the next few months these Abstracts will either be withdrawn or amended based on this review. As these decisions are made the Abstracts will be withdrawn from, or amendments will be made to, the CICA Handbook – Accounting. Certain issues in Abstracts that are withdrawn will be dealt with in the implementation guidance by the FIWG.

Entities that are not applying the new financial instruments standards will need to refer to the CICA Handbook – Accounting XFI, which will contain the Abstracts, without the changes noted above, as they continue to be applicable under the former financial instruments standards.

Financial Instruments — Disclosures

In late April 2006, the AcSB expects to publish an Exposure Draft to enhance the disclosures in Financial Instruments — Disclosure and Presentation, Section 3861, and carry forward, unchanged, its presentation requirements. New Handbook material is expected to be issued in the fourth quarter of 2006. The proposals are based on the International Accounting Standards Board’s (IASB) International Financial Reporting Standard 7, “Financial Instruments: Disclosures” (IFRS 7).

The AcSB shares the view of the many users of International Financial Reporting Standards (IFRSs) who believe that IFRS 7 provides a higher quality and more focused package of disclosure requirements than that formerly in IAS 32, on which Section 3861 is based. However, the AcSB recognizes that adopting the new disclosure requirements at the same time as the recognition and measurement standards in Sections 3855 and 3865 would create implementation difficulties for some entities. Therefore, the AcSB proposes to make the adoption of new Sections 3862 and 3863 optional, rather than mandatory, until interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007. Those able to accommodate the publication schedule for the new disclosure requirements and who wish to adopt them in place of those in Section 3861 for interim and annual financial statements in years beginning on or after October 1, 2006 may do so at their own discretion. All others will continue to follow current requirements until the effective date of the new Sections.