Intermediate Accounting Canadian Financial Reporting Standards - Overview

CPA (Certified Professional Accountant) Website: www.frascanada.ca

Effective January 1, 2011 Canada adopted two sets of financial reporting standards...

International Financial Reporting Standards (IFRS) will apply to Publically Accountable

Enterprises (PAE); profit oriented entities (about 5,500 entities).

Private Enterprise Standards will apply to about 2.5 million Canadian entities and are those
profit oriented enterprises essentially not in the PAE definition.

The format of the CICA Handbook has been revised to reflect the following:

Conceptual Framework

Part I International Financial Reporting Standards (IFRS)

Part II Accounting Standards for Private Enterprises; former Canadian standards pre-IFRS
Part III Accounting Standards for Not-For-Profit organizations
Part IV Accounting Standards for Pensions
Part V Pre-changeover accounting standards

Introduction Parker January, 2017

 Intermediate Accounting Canadian Financial Reporting Standards - Overview

Preface to CICA Handbook Accounting

1 The Accounting Standards Board determines the contents of the CICA Handbook Accounting (Handbook). This
Preface explains the applicability of the Handbook to entities that prepare financial statements in accordance with
Canadian generally accepted accounting principles (GAAP).
2 Entities within the scope of the CICA Public Sector Accounting Handbook refer to that Handbook to determine the
basis of accounting for purposes of their financial reporting.
DEFINITIONS
3 The following definitions have been adopted for the purposes of determining which Part of the Handbook applies to a
reporting entity:
(a) A publicly accountable enterprise is an entity, other than a not-for-profit organization, that:
(i) has issued, or is in the process of issuing, debt or equity instruments that are, or will be, outstanding
and traded in a public market (a domestic or foreign stock exchange or an over-the-counter market,
including local and regional markets); or
(ii) holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses.
Banks, credit unions, insurance companies, securities brokers / dealers, mutual funds and investment banks
typically meet the second criterion above. Other entities may also hold assets in a fiduciary capacity for a
broad group of outsiders because they hold and manage financial resources entrusted to them by clients,
customers or members not involved in the management of the entity. However, if they do so for reasons
incidental to a primary business (as, for example, may be the case for travel or real estate agents, co-
operative enterprises requiring a nominal membership deposit, or sellers that receive payment in advance of
delivery of the goods or services, such as utility companies), that does not make them publicly accountable.
(b) A private enterprise is a profit-oriented entity that is not a publicly accountable enterprise.
(c) A not-for-profit organization is an entity, normally without transferable ownership interests, organized
and operated exclusively for social, educational, professional, religious, health, charitable or any other not-
for-profit purpose. A not-for-profit organization's members, contributors and other resource providers do
not, in such capacity, receive any financial return directly from the organization.
(d) A pension plan is any arrangement (contractual or otherwise) whereby a program is established to provide
retirement income to employees.
(e) A benefit plan is any arrangement whereby an entity undertakes to provide employees with benefits during
and/or after active service in exchange for their services.

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 Intermediate Accounting Canadian Financial Reporting Standards - Overview

The scope of accounting standards under each of IFRS and Private Enterprises can best be
summarized by a comparative topical index, 2014:
Accounting - Part I International Financial Reporting Standards Accounting - Part II Accounting Standards for Private Enterprises
Introduction to Part I Part II Accounting Standards for Private Enterprises
The conceptual framework for financial reporting Introduction to Part II
IFRSs in effect on January 1, 2014 General accounting [Sections 1000 1800]
IFRS 1 First time adopters 1000 Financial statement concepts
IFRS 2 Share-based payment 1100 Generally accepted accounting principles
IFRS 3 Business combinations 1400 General standards of financial statement presentation
IFRS 4 Insurance contracts 1500 First-time adoption
IFRS 5 Non-current assets held for sale and discontinued operations 1505 Disclosure of accounting policies
IFRS 6 Exploration for and evaluation of mineral resources 1506 Accounting changes
IFRS 7 Financial instruments: disclosures 1508 Measurement uncertainty
IFRS 8 Operating segments 1510 Current assets and current liabilities
IFRS 10 Consolidated financial statements 1520 Income statement
IFRS 11 Joint arrangements 1521 Balance sheet
IFRS 12 Disclosure of interests in other entities 1540 Cash flow statement
IFRS 13 Fair value measurement 1582 Business combinations
IAS 1 Presentation of financial statements 1590 Subsidiaries
IAS 2 Inventories 1601 Consolidated financial statements
IAS 7 Statement of cash flows 1602 Non-controlling interests
IAS 8 Accounting policies, changes in accounting estimates and errors 1625 Comprehensive revaluation of assets and liabilities
IAS 10 Events after the reporting period 1651 Foreign currency translation
IAS 11 Construction contracts 1800 Unincorporated businesses
IAS 12 Income taxes Specific items [Sections 3000 3870]
IAS 16 Property, plant and equipment 3055 Interests in joint ventures
IAS 17 Leases 3061 Property, plant and equipment
IAS 18 Revenue 3063 Impairment of long-lived assets
IAS 19 Employee benefits (amended in 2011) 3064 Goodwill and intangible assets
IAS 20 Accounting for government grants and disclosure of government 3065 Leases
assistance 3110 Asset retirement obligations
IAS 21 The effects of changes in foreign exchange rates 3240 Share capital
IAS 23 Borrowing costs 3251 Equity
IAS 24 Related party disclosures 3260 Reserves
IAS 26 Accounting and reporting by retirement benefit plans 3280 Contractual obligations
IAS 27 Separate financial statements (amended in 2011) 3290 Contingencies
IAS 28 Investments in associates and joint ventures (amended in 2011) 3400 Revenue
IAS 29 Financial reporting in hyperinflationary economies 3462 Employee future benefits
IAS 32 Financial instruments: presentation 3465 Income taxes
IAS 33 Earnings per share 3475 Disposal of long-lived assets and discontinued operations
IAS 34 Interim financial reporting 3610 Capital transactions
IAS 36 Impairment of assets 3800 Government assistance
IAS 37 Provisions, contingent liabilities and contingent assets 3805 Investment tax credits
IAS 38 Intangible assets 3820 Subsequent events

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 Intermediate Accounting Canadian Financial Reporting Standards - Overview

Accounting - Part I International Financial Reporting Standards Accounting - Part II Accounting Standards for Private Enterprises
IAS 39 Financial instruments: recognition and measurement 3831 Non-monetary transactions
IAS 40 Investment property 3840 Related party transactions
IAS 41 Agriculture 3841 Economic dependence
3850 Interest capitalized disclosure considerations
3856 Financial instruments
3870 Stock-based compensation and other stock-based payments

There are levels of technical and interpretative guidance for each set of standards,
although IFRS general position is to set the (fairly high-level) standards and leave it to the
exercise of professional judgement in application. This will manifest in an increasingly
important role of Notes to the Financial Statements as a vehicle through which
management will have to support those measurement decisions taken.
Accounting - Part I International Financial Reporting Standards Accounting - Part II Accounting Standards for Private Enterprises
Technical and Interpretative Guidance Technical and Interpretative Guidance
IFRIC International Financial Reporting Interpretations Committee AcG Accounting Guidelines
SIC Standards Interpretations Committee
AcG-2 Franchise fee revenue
IFRIC 1 Changes in existing decommissioning, restoration and similar liabilities AcG-14 Disclosure of guarantees
IFRIC 2 Members' shares in co-operative entities and similar instruments AcG-15 Consolidation of variable interest entities
IFRIC 4 Determining whether an arrangement contains a lease AcG-16 Oil and gas accounting full cost
IFRIC 5 Rights to interests arising from decommissioning, restoration and AcG-18 Investment companies
environmental rehabilitation funds AcG-19 Disclosures by entities subject to rate regulation
IFRIC 6 Liabilities arising from participating in a specific market waste
electrical and electronic equipment
IFRIC 7 Applying the restatement approach under IAS 29 Financial reporting
in hyperinflationary economies
IFRIC 9 Reassessment of embedded derivatives
IFRIC 10 Interim financial reporting and impairment
IFRIC 12 Service concession arrangements
IFRIC 13 Customer loyalty programmes
IFRIC 14 IAS 19 The limit on a defined benefit asset, minimum funding
requirements and their interaction
IFRIC 15 Agreements for the construction of real estate
IFRIC 16 Hedges of a net investment in a foreign operation
IFRIC 17 Distributions of non-cash assets to owners

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 Intermediate Accounting Canadian Financial Reporting Standards - Overview

IFRIC 18 Transfers of assets from customers

IFRIC 19 Extinguishing financial liabilities with equity instruments
IFRIC 20 Stripping costs in the production phase of a surface mine
SIC 7 Introduction of the euro
SIC 10 Government assistance no specific relation to operating activities
SIC 15 Operating leases incentives
SIC 25 Income taxes changes in the tax status of an entity or its
shareholders
SIC 27 Evaluating the substance of transactions involving the legal form of a
lease
SIC 29 Service concession arrangements: disclosures
SIC 31 Revenue barter transactions involving advertising services
SIC 32 Intangible assets web site costs

As the name suggests, there is a hierarchy of authoritative sources for guidance in applying
accounting standards and in Canada and it is necessary to delineate between Publically
Accountable and Private Enterprises.

An authoritative hierarchy is required as no body of knowledge can contemplate all and

every economic event that presents itself to be measured or reported as it relates to the
financial position of a company.

The GAAP Hierarchy inhibits those (powerful) industry groups from taking the position,
Well, if there is no guidance on this area in the Handbook, we can report this new event as
we wish; leading to inconsistent practices and possibly earnings manipulation (rogue
reporting!).

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 Intermediate Accounting Canadian Financial Reporting Standards - Overview
GAAP Hierarchies
Publically Accountable Enterprises
IFRS compliant
IFRS Standards
IAS Standards (IFRS predecessor)
Interpretations IFRIC & SIC
Where no guidance from above
Other standard setting bodies
Other accounting literature
Accepted industry practices
Introduction Parker January, 2017
Private Enterprises, Pension Plans & Not-for-
Profit Entities
Distinct Primary and Other sources
Handbook, Part II (1400-3870) including
appendices
Accounting Guidelines, including
appendices
Other sources:
Background information and basis for
conclusion documents issued by the AcSB
AcSB implementation guidance
Pronouncements by accounting standard-
setting bodies in other jurisdictions (FASB
in the US)
Approved drafts in progress of primary
sources
Research studies current academia
Accounting textbooks, journals, studies
articles (beware of editorial comments!)
Other sources, including industry practice
(although likely biased)
 Intermediate Accounting Canadian Financial Reporting Standards - Overview

The financial year end and events subsequent thereto:

Understanding the financial reporting systems/processes at the financial year end...

Say the financial year end is December 31, 2015...say the financial statements for 2015 are
approved for release (after the audit), on February 25, 2016.

January December, 2015 January December, 2016

Feb. 25

Subsequent Events Period

Transactions can be posted into
either the 2015 or 2016
financial year end.
The 2015 and 2016
accounting/financial reporting
systems run in parallel...

You will hear in accounting speak...

The 2015 books are still open.

Have the 2015 books been closed yet?

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 Intermediate Accounting Canadian Financial Reporting Standards - Overview

Closer

BC Co., a December 31 year end company with a 30% tax rate is completing its December 31,
2015 year end. A preliminary net income (after-tax) has been reported and included therein BC
Co. provided for a potential lawsuit settlement (litigation still in progress at December 31,
2015) for $2,000,000. The entry was
Dr. Loss on pending litigation..$2,000,000
Cr. Estimated liability on litigation$2,000,000
On February 2, 2016, before the audit was complete and the accounts for 2014 were still open
(not yet closed) the court awarded the plaintiff $1,500,000 which BC Co. paid in February,
2016.

How, if at all, would this affect the financial statements for the year ended December 31, 2015?

Since the year end 2015 has not been finalized the following entry can be posted into the
2015 accounts to adjust preliminary estimate in light of better information
Dr. Estimated liability on litigation..$500,000
Cr. Loss on pending litigation..$500,000
This increases the reported pre-tax income by $500,000 so the recorded tax expense must be
adjusted accordingly
Dr. Income tax expense..$150,000 ($500,000 x 30%)
Cr. Income taxes payable..$150,000

Introduction Parker January, 2017