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FROM: MAY-JUN 2009 ISSUE | BY STEPHEN SPECTOR
Over the past year, we have dealt with many changes that will affect reporting by Canadian profit-oriented enterprises. We have seen changes to the CICA Handbook related to business combinations and consolidated financial statements, along with amendments dealing with intangible assets. The past two columns have covered the changes to financial reporting for non-publicly accountable enterprises, hereafter referred to as private enterprises.
Earlier this year, the Accounting Standards Board (AcSB) and the Public Sector Accounting Board (PSAB) jointly issued an Invitation to Comment (ITC) entitled Financial Reporting by Not-for-Profit Organizations. The ITC was driven in part by the move to IFRS standards for publicly accountable enterprises. Why? The 4400 sections in the Handbook define the reporting standards for NPOs. The problem is, section 4400 also references the profit-oriented sections of the Handbook and specifies how, if at all, those sections apply to NPOs. For example, paragraph 4400.46 stipulates that NPO cash flow statements must be prepared in accordance with section 1540.
On the other hand, the financial reporting standards of the International Accounting Standards Board are meant to apply only to profit-oriented enterprises. As Canadian GAAP implements IFRS, it is not obvious that we can make a one-for-one conversion. For example, IAS 7 will replace section 1540, and the requirements of the two are virtually identical. So making that “exchange” is not a problem; however, other “exchanges” are not as obvious.
So how should NPOs report? Several alternatives exist: IFRS, private enterprise standards being developed by the AcSB, and public sector standards. Before a choice is made, user needs must be considered. NPOs are expected to report clearly and comprehensively on their financial position and performance.
Therefore, the two Boards took the opportunity to revisit the manner in which NPOs ought to report. Why the joint project? The AcSB is responsible for the standards for private sector NPOs. The PSAB has authority for standards for NPOs controlled by a government. The PSAB currently directs government NPOs to adhere to standards in existence for private sector NPOs.
The ITC put forward a number of options, seeking feedback. Underlying these options is a request to address a fundamental question: should all NPOs apply the same primary source of GAAP? That is, should all financial reports, irrespective of the nature of the reporting entity, be based on one primary source of GAAP? Or should the reporting entity have the flexibility to choose from an acceptable set of alternative primary sources of GAAP based on their circumstances?
In order to help respondents to the ITC, the PSAB tentatively concluded that for public sector NPOs, public sector standards alone, or public sector standards supplemented by the 4400 series of sections in the Handbook, are the alternatives. In the case of NPOs that are not part of the public sector, the AcSB has determined that the alternatives are either IFRS, or the private enterprise standards currently under development, supplemented by the 4400 series. It was agreed that supplementing IFRS with the 4400 series is not an option.
The deadline for comments on the ITC is June 30, 2009. (See www.acsbcanada.org) Interested parties should not ignore this opportunity to shape reporting standards. It has been more than fourteen years since the 4400 sections of the Handbook were proposed - they came into effect in 1996. Once the issues addressed by the ITC are settled, it is hard to say when such a sea change will present itself again.
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