Accounting Frameworks in British Columbia Update FINAL.pdf · Welcome Remarks & Presenter Introductions Jeff Shickele, Events Committee Chair, FEI

Accounting Frameworks

in British Columbia

January 17, 2013

Welcome Remarks &

Presenter Introductions

Jeff Shickele, Events Committee Chair, FEI

© 2013 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. 2

Agenda

Introductions & Objectives

Background to changing accounting landscape

International Financial Reporting Standards (IFRS)

Accounting for Private Sector Enterprises (ASPE)

Public Sector Accounting Standards (PSAS)

So what – what are the impacts of framework

differences?

Changes to come



Introductions & Objectives

Introductions

Peter Greenwood - KPMG Accounting Advisory Partner in Vancouver

Sukesh Kumar - KPMG Enterprise Partner in Burnaby

Objective

Provide education about different accounting frameworks evolving in Canada.

Session being presented will not contain company-specific information

Background to changing accounting landscape

The Move away from

Canadian GAAP:

The Canadian Context

Peter Greenwood



Canadian Context:

Who Presides Over Canadian Accounting Principles

General Purpose Financial Statements -- GAAP

Accounting Standards Board (AcSB) Public Sector Accounting Standards

Board (PSAB)

Commercial Sector Enterprises –

Private or Public Public Sector Enterprises



Canadian Context:

Who Presides Over Canadian Accounting Principles

General Purpose Financial Statements -- GAAP

Accounting Standards Board (AcSB) Public Sector Accounting Standards

Board (PSAB)

Commercial Sector Enterprises –

Private or Public Public Sector Enterprises

Publicly Accountable: IFRS

Private: ASPE

Government Bus Enterprises: IFRS

Others: Choice of PSAB or IFRS

Government NFP: (Choice of PSAB

+/- PS4200)



Move away from one set of accounting rules in Canada…What and

Why?

What happened:

Adoption of International Financial Reporting Standards became a key strategy for the

Canadian Accounting Standards Board in 2007

Why did Canada adopt IFRS:

Single set of high-quality global standards for general purpose financial statements (i.e.,

generally accepted accounting principles)

Increase access to global capital markets

Increase understandability for financial statement readers (e.g., investors, analysts, ratings

agencies, etc.) – across globe

Increase efficiency of standard-setting



The Move to IFRS…Global

Pre-2001: International Accounting Standards existed

for many years

2001: Formation of IASC Foundation / IASB

2002: EU passes regulation to adopt IFRS for listed

businesses in 2005

IASB and FASB announce initiative to achieve high

quality global standards

2003: IASB issues first new standard – IFRS 1

Australia, HK and NZ commit to adopt IFRS

2005: 7,000 European listed businesses in 25

countries switch to IFRS

2006: IASB /FASB to converge over time through high

quality new standards

China adopts substantially adopts IFRS

2007: Brazil, Canada, Chile, India, Japan and Korea

establish plans to converge to IFRS

US SEC accepts IFRS for foreign companies

reporting under IFRS

2008: IASB/FASB agree on 2011 for completion of

major projects

SEC establishes roadmap for potential adoption of

IFRS 2014-2016 (earlier in limited cases)

Canada goes live under IFRS for2011 year ends



Move away from one set of accounting rules in Canada

What and Why?

What happened to the Canadian Handbook?

Once Canada commercial sector moved to IFRS (Part I of HB) - one size did not fit all

Private sector – IFRS too complex and a burden – ASPE (Part II of HB)

Not for profit sector – IFRS too complex and a burden – NFP standards (Part III of HB)

Public Sector – reviewed whether IFRS was appropriate

• Government Business Enterprise classification - go to IFRS (Part I of HB)

• Other Government Organizations do not make profits - choice of PSAS or IFRS

• Government not for profits - PSAS with or without PS4200 series

No choice in BC – BC Treasury Board wanted only PSAS (no PS4200 allowed)

Note Part IV of HB are pension standards and Part V are IFRS pre-changeover standards



What’s Happening to Canadian GAAP…

Canadian Standards in Transition

FASB

US GAAP

http://rmx.cica.ca/ifrs/index.aspx


http://rmx.cica.ca/privateenterprises/index.aspx

http://rmx.cica.ca/notforprofit/index.aspx

http://rmx.cica.ca/publicsector/index.aspx

http://rmx.cica.ca/isa/index.aspx

http://rmx.cica.ca/transition/index.aspx

http://rmx.cica.ca/transition/index.aspx


http://rmx.cica.ca/privateenterprises/index.aspx

http://rmx.cica.ca/notforprofit/index.aspx

http://rmx.cica.ca/publicsector/index.aspx

http://rmx.cica.ca/isa/index.aspx

International Financial

Reporting Standards (IFRS)



Canada’s transition to IFRS

Who was affected?

All “publicly accountable enterprises”

All “profit-oriented” enterprises that have

– securities issued to the public, or

– hold assets in fiduciary capacity for broad group of outsiders

Government business enterprises

When was IFRS adopted?

Generally, (exceptions to come) mandatory to adopt for fiscal years beginning on or after

January 1, 2011

First major IFRS filings were Q1, 2011

Annual reports for December 31, 2011



Who has not yet adopted IFRS?

Certain entities granted a temporary deferral on adoption of IFRS

Annual year deferral for entities with rate regulated activities – Jan 1, 2014

Three year deferral for investment companies and segregated accounts of life insurance

companies applying AcG-18 – Jan 1, 2014

Certain entities allowed to adopt US GAAP, rather than IFRS

AcSB permits US GAAP filings for Canadian domestic rate regulatory companies

Certain SEC registrants chose to adopt US GAAP, rather than IFRS

Will only be required to adopt IFRS when, and if, the SEC permits or requires IFRS filings for

US domestic public companies



How IFRS has affected financial reporting

Key impacts on financial reporting

More accounting policy choices

More professional judgment required in applying standards and making estimates

More fair value measures and approaches –

either fair value through P&L or through equity or disclosure

More earnings volatility

Generally has resulted in more debt being reported – fewer (none) securitizations allowed

Comparability only achieved because IFRS requires voluminous and more transparent

disclosures

Communication of IFRS impacts was key!



IFRS versus Canadian GAAP – Similarities

Comprehensive sets of principles-based standards

Similar basic concepts and recognition / measurement principles

Similar structure and content of financial statements

Many standards in IFRS provide similar approach as previous Canadian GAAP

More recent Canadian standards were aligned with IFRS, not US GAAP



IFRS versus Canadian GAAP – Differences

Fewer bright lines and rules

Some standards in IFRS differ considerably from Canadian GAAP – e.g. impairments,

provisions, securitizations

More accounting policy choices and less interpretative guidance

Applying IFRS requires more professional judgement and results in greater volume of

disclosures

Many differences in application/interpretation

BE CAREFUL – The devil is in the detail!



IFRS versus Canadian GAAP

Examples of areas with more significant differences

Standard

Property, plant and equipment

Impairment

Investment property

Securitizations

Industries affected

Capital intensive industries, utilities, telcos,

airlines

All entities with significant capital

assets/goodwill

Real estate

Banks, leasing entities



Post Transition Observations

First interim financial statements were 3 to 4 times longer, given extensive disclosures for first

IFRS filings

Extent of disclosures in first interim statements varied widely

Annual IFRS statements generally 10-20% longer

Work effort required to quantify some transitional adjustments may not be reflected in the

magnitude of the IFRS adjustments

Most smaller entities took 30 day extension for filing Q1 statements




The impact of IFRS on total assets, equity, net earnings, key metrics varied by industry

and within any industry, varied from entity to entity based on their unique facts and

circumstances

In some areas, now more diversity in practice than previously

Securities regulators have noted some deficiencies in initial IFRS filings

Little, if any, reaction by the markets and rating agencies




For some organizations and industries, adopting the second wave of changes to IFRSs,

expected to be effective 2013 – 2015, will have far more impact on their processes,

systems and financial results

New standards for consolidation and financial instruments expected to impact financial

services sector

New standards for joint arrangements expected to impact mining, oil & gas and real estate

sectors

New standards for leases and revenue will affect most companies

New standards for insurance will impact both life and property/casualty insurers

Accounting

Standards for

Private Enterprise

(ASPE)

Sukesh Kumar



AcSB’s “Made in Canada” Solution

Based on existing Canadian GAAP

Cost/Benefit assessment of contentious areas

Reduced volume of disclosures

Available to all Private Enterprises (no size test)

Developed with support from an Advisory Committee

– Lenders

– Preparers

– Practitioners



ASPE – An Overview

Principles-based set of standards derived from existing C-GAAP

Simplified recognition,

measurement and

presentation

requirements

Reduced disclosure

requirements

Elimination of EIC Abstracts



Underlying Framework

All materials related to reporting issuers have been deleted (e.g. EPS)

Existing differential reporting options become accounting policy choices – no requirement for

shareholder approval

Additional accounting policy choices (e.g. consolidation is optional for ASPE)

Reduced note disclosures on premise that users have access to requisite information -

disclosure principle – all information required for a fair presentation in accordance with

generally accepted accounting principles

EICs have been eliminated; guidance incorporated into the relevant standards where

necessary

Selected AcGs have been retained – e.g. Variable Interest Entities

Standard is comprehensive – no need (or ability) to look to IFRS or US GAAP unless comply

with GAAP hierarchy

Contentious areas addressed in context of cost/benefit



Key Areas of Differences

Business combinations

Consolidation and accounting for investments

Goodwill and intangible assets

Asset retirement obligations

Income taxes

Financial instruments



Major Improvements to ASPE

Other major improvements projects underway

Agriculture – Inventories

Joint Arrangements

Consolidation

Leases



Future of ASPE

Canada's Accounting Standards Board is committed to the following:

maintaining and improving accounting standards for Canada's private enterprises (ASPE)

monitoring global standards developments including IFRS and IFRS for SMEs for

opportunities to improve ASPE, and

conducting a post-implementation review of ASPE to confirm it meets users' needs and

identify opportunities for improvement.

There is no expectation of adopting either IFRS or IFRS for SMEs as a replacement for ASPE

in the foreseeable future

Public Sector Accounting

Standards (PSAS)



Classification of the GBE, OGO and GNFP

No

Not-For-Profit

Yes

Yes

Yes

Yes

Yes

Business

Other Government Organization

Controlled by

Government

Government

Reporting Entity

Public Sector

Accounting

Government Organizations

Is the organization operating a business?

Does the organization sell goods/services

outside of government reporting entity as its

principal activity?

Can the organization in the normal course,

maintain its operations and meet its liabilities

from revenues received from sources

outside government reporting entity?

Government Business

Enterprise

IFRS

Other Government

Organization

Choice of IFRS

or Public Sector Accounting

Government Not-For-Profit

Choice of PSAB or PSAB with

4200 series (Except in BC)

Does the organization have counterparts

outside of the public sector?

Does the organization meet the definition of

an NPO in the CICA Handbook?

No

No

No



PSAS

Similarities

Comprehensive sets of principles-based

standards

Similar basic concepts such as recognition

(but not perhaps measurement)

Many standards in PSAS provide similar

approach as IFRS

More recent PSAS standards are aligning

with IFRS e.g. PP&E, Financial instruments,

ARO exposure draft

Differences

Financial statements - less profit focus more

performance (against budget) and use of

resources

Lack of equity owners - only one

stakeholder, government

Framework set by legislation

Government Transfers and appropriations

Impairment – service element

Consolidations – e.g. modified equity pick up

of GBEs

The impacts of framework

differences



Canada’s transition to Accounting Frameworks

What are the impacts of fractured GAAP?

Employers – who is qualified to work in your accounting group?

Employees and accountants – how do accountants transfer between companies with different

accounting rules? Is this a barrier to entry?

Audit Committees – are they aware of the differences between GAAPs?

Boards – how aware are Boards of the reporting differences involved?

Investors & bankers – how will credit and funds move between entities?

Faculty – what GAAP do you teach in colleges and for UFE?

Standard setters – in Canada are we more efficient now post-IFRS?

Internationally – how might Canada influence standard setting process?

Changes to come



What’s next?

Standards change – regardless of framework

Constant moving target of accounting rules

Significant accounting projects to come (e.g. revenue and leases)

Ever increasing disclosure

Possible alignment of standards across frameworks (e.g. revenue across IFRS and US GAAP)

Possible alignment of frameworks (e.g. public sector and IPSAS)

Conceptual Framework development

How will US GAAP develop – convergence or conversion?



KPMG Details

Presenter’s contact details

Peter Greenwood

604 691 3187

[email protected]

Sukesh Kumar

604 527 3768

[email protected]

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Questions?

This presentation is intended solely to assist you in gaining an awareness of the general impacts of accounting frameworks on the Canadian reporting entities. It is

not intended to cover all aspects of the applicable standards that may affect any individual company’s financial reporting, nor does it reflect. Any comments and

interpretations noted in this presentation do not necessarily represent KPMG LLP policy with respect to the matters raised. Views expressed should not be taken

as definitive responses to questions on interpretation of these accounting standards, as responses would be dependent upon the specific facts and circumstances.

The views expressed cannot be relied upon as accounting advice with respect to particular transactions and we accept no responsibility for loss or damages, if any,

as a result of providing this presentation.

Thank You

Documents

Accounting Frameworks in British Columbia Update FINAL.pdf · Welcome Remarks & Presenter Introductions Jeff Shickele, Events Committee Chair, FEI