bob young kpmg enterprise march 4, 2011 kpmg enterprise implications of implementing accounting...

Bob Young

KPMG Enterprise March 4, 2011

KPMG ENTERPRISE

Implications of Implementing Accounting Standards for Private Enterprises

© 2011 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.

Transition relief

Transition issues / views

Financial statement disclosures

The future

Audit, Review and Compilation Engagement Issues

Accounting Standards for Private Enterprises “Implementation Issues”Accounting Standards for Private Enterprises “Implementation Issues”

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Defined Benefit Pension Plans – New Transition ReliefDefined Benefit Pension Plans – New Transition Relief

Transition relief for sponsors of defined benefit pension plans that do not adopt the immediate recognition model

Sponsor can carry forward unamortized actuarial gains or losses as calculated under a previous GAAP

Eliminates need to recalculate unamortized gains from inception of plan

Any remaining transition adjustment must be written off on adoption of ASPE

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Implementing the Simplified Hedging Model Implementing the Simplified Hedging Model

Concerns heard:Accounting for exchange gains (losses) between transaction date and settlement date

Requirement for equivalent prepayment options for interest rate swaps and related debt instrument

Commodity forward contracts – location differentials and other hedging approaches

Interest rate swaps – hedging of future borrowings

Anticipated exposure draft in spring 2011

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Transition Issues Transition Issues

Fair value election – PP&E / Intangible assetsFair value election available on an item by item basis

No fair value transition option for intangible assets such as quotas

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Transition Issues –ViewsTransition Issues –Views

Property, plant and equipment, fair value electionConsiderations:

At the transition date

Valuation / appraisal costs

Management required to provide appropriate evidence of fair value

Future amortization costs

Potential future impairment charges

Income taxes:

Impact on access to small business deduction, SR&D credits, thin capitalization rules

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Government assistance for acquisition of capital assets received prior to transition date

Unamortized balance of government assistance: need it be deducted from fair value of item of property, plant and equipment or set up as a deferred credit?

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Transaction costs:Investee is controlled

Investor accounts for investment using the equity or cost method

Transaction costs should be expensed following the guidance in HB 1582

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Contingent consideration:Investee is controlled

Investor accounts for investment using the equity or cost method

Contingent consideration should be recorded as a liability at fair value at the acquisition date.

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Transition Issues Transition Issues

Transition Date:

When the end of an entity's annual reporting period does not coincide with the end of a

month, the entity should apply new or amended standards in the annual reporting period beginning on or after the 21st of the

month immediately preceding the month of the effective date specified in the standard.

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Transition IssuesTransition Issues

Requirement for balance sheet as at transition datePresentation options:

3rd column on balance sheet, or

Note presentation (equivalent detail to current period’s balance sheet)

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Transition IssuesTransition Issues

Communication with users:Accounting policy choices

Transition elections / options

One year / Two year reporting

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Accounting Policy ChoicesAccounting Policy Choices

Defined benefit pension plansDeferral and amortization

Immediate recognition

Income taxesFuture (deferral) method

Taxes payable

Subsidiaries / significantly influenced investeesCost/equity methods (except for investees whose equity instruments are quoted in an active market)

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Accounting Policy ChoicesAccounting Policy Choices

Development costs:Capitalize / expense

Financial instruments other than publicly traded equitiesAmortized cost or fair value

Item by item basis

Irrevocable election on initial recognition

Compound financial instrumentsBifurcation of debt/equity components is optional

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Transition OpportunitiesTransition Opportunities

Fair value items of property, plant and equipment

Clear balance sheet deferrals to retained earnings:Unrecognized actuarial gains and losses

Past service costs

Cumulative translation account

Business combinationsOptions regarding retrospective application of HB 1582

Related party transactionsProspective or retrospective application

Stock-based compensationProspective or retrospective application

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Enhanced Financial Statement Disclosure:Balance Sheet - InvestmentsEnhanced Financial Statement Disclosure:Balance Sheet - Investments

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Balance Sheet – Current LiabilitiesBalance Sheet – Current Liabilities

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Balance Sheet – Tax Basis Preferred SharesBalance Sheet – Tax Basis Preferred Shares

Preferred shares issued under a tax planning arrangement under Sections 51, 85, 85.1, 86, 87 or 88 of the Income Tax Act:

- present at stated value in the equity section of the balance sheet

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Income Statement – RevenueIncome Statement – Revenue

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Income Statement Investment IncomeIncome Statement Investment Income

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Note Disclosures – Intercorporate InvestmentsNote Disclosures – Intercorporate Investments

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Note DisclosuresNote Disclosures

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ASPE – Assurance IssuesSubsequent EventsASPE – Assurance IssuesSubsequent Events

Management and the public accountant are responsible for identifying / responding to events between year end and the date of the completion of the assurance engagement

Audit / Review Engagement is complete only when:Financial statements are complete and ready for release (includes notes)

Audit / review engagement is complete

Those charged with governance have assumed responsibility for the financial statements

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ASPE – Assurance IssuesASPE – Assurance Issues

Comparative financial statements in transition financial statements:Audited or unaudited?

Reviewed or not reviewed?

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Audit Reports in the Transition YearAudit Reports in the Transition Year

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Prepared/ audited under C GAAP

Current year prepared under ASPE

Prior year comparatives

restated under ASPE

Prior

Year

Transition Year



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Current year prepared / audited under ASPE

Prior year comparatives

restated under ASPE marked as unaudited

Prior

Year

Transition Year

One year auditor’s report – prior year

marked as unaudited




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Current year prepared / reported under ASPE

Prior year comparatives restated / audited

under ASPE

Prior

Year

Transition Year

Two year auditor’s report


ASPE – The FutureASPE – The Future

“Betterment” criteria for considering future IFRS for incorporation into ASPE

- Relevance to private enterprises- Existing ASPE adaptation- Need for change (clear yes or no?)- Benefits- Costs of compliance- Education and training

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Employee future benefits

Subsequent events

Consolidation (VIEs)

Discontinued operations

Agriculture

Fair Value

Conceptual Framework

Leases

Revenue

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Employee future benefits

Joint IASB / FASB project

Recognize funded position on B/S (“immediate recognition”)» Record unamortized gains / losses as component of OCI

» Recycle through income (FASB), or» No recognition through income (IASB)

ASPE considerations

No OCI

Current immediate recognition model – income statement recognition

Funding vs. accounting measurement of accrued benefit obligation

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Subsequent events

Conform accounting and assurance models (audit and review)» Match management’s responsibility with that of

the public accountant

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Leases:

- recognize all leases (other than short-term) on balance sheet

- Issues include- Lease term- Contingent rentals

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Revenue:

- proposed model by IASB

- potentially earlier recognition of revenue by R&D type entities

- discontinue use of percentage of completion model

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IAASB Review Engagements EDIAASB Review Engagements ED

Review engagements ED:

General purposes / special purpose financial reporting frameworks

Fair presentation / compliance frameworks

Acceptability of framework

Determination of materiality » Use in designing procedures and evaluating results

Reporting» Sufficient appropriate evidence» Emphasis of matters / Other matters paragraphs» Dating convention

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IAASB Compilation Engagement ProjectIAASB Compilation Engagement Project

Compilation engagements ED:

Not associated unless engaged to report

Work effort» Financial reporting framework

» Suitability for intended use / distribution» Knowledge of business» Basis for significant judgments

» Estimates / going concern

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GAAP for NPOsGAAP for NPOs

Key distinction:Government controlled (GNPOs)

Based on PS Accounting Handbook

Other NPOs Based on ASPE (Part II of HB) with 4400 section for issues specific to NPOs or IFRS

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DISCLAIMER

The information contained herein is of a general nature and is not intended toaddress the circumstances of any particular individual or entity. Although weendeavor to provide accurate and timely information, there can be no guaranteethat such information is accurate as of the date it is received or that it willcontinue to be accurate in the future. No one should act on such informationwithout appropriate professional advice after a thorough examination of theparticular situation.

KPMG and the KPMG logo are registered trademarks of KPMG International, aSwiss cooperative.

© 2011 KPMG LLP, a Canadian limited liability partnership and a member firm ofthe KPMG network of independent member firms affiliated with KPMGInternational, a Swiss cooperative. All rights reserved.

bob young kpmg enterprise march 4, 2011 kpmg enterprise implications of implementing accounting...

Documents

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kpmg enterprise implications

bob young kpmg enterprise

swiss entity

fair value transition

private enterprises

future audit

future borrowings