April 3, 2013

(These notes are a summary of the discussions in the Committee meeting. They have been prepared by AcSB staff and have not been approved by the Committee or the Accounting Standards Board.)

Investments

The Committee discussed how, in practice, entities have been applying the basis of accounting guidance in Section 3051,Investments. Paragraph 3051.05 requires all investments within the scope of Section 3051 to be accounted for in the same manner (i.e., using cost or equity method). This paragraph could be read to include not only investments subject to significant influence but also subsidiaries and joint ventures accounted for using the cost or equity methods.

The Committee agreed that investments within each category (i.e., non-consolidated subsidiaries, investments subject to significant influence and joint ventures) are being accounted for in the same way. However, different categories of investments are not necessarily accounted for in the same way. The Committee agreed to recommend that the AcSB amend Section 3051 to clarify that different categories of investments do not have to be accounted for in the same way.

Redeemable Preferred Shares Issued in a Tax Planning Arrangement

The Committee commenced a re-examination of the accounting for redeemable preferred shares issued in a tax planning arrangement, as set out in Financial Instruments, paragraph 3856.23.

The Committee had a preliminary discussion in respect of the cost/benefit arguments that justify equity treatment of these preferred shares. The Committee will continue its discussions on this topic at a subsequent meeting.

Issues Raised by Stakeholders

Roll-up Transactions

The Committee discussed a request received on whether Section 3840, Related Party Transactions, should be applied to business combinations effected through certain roll-up transactions or whether these transactions should be accounted for solely under Section 1582, Business Combinations. Roll-up transactions occur when all of the combining entities transfer their net assets or the owners of those entities transfer their equity interests to a newly formed entity.

The Committee noted that there appears to be some confusion as to which standard should be applied first when accounting for these types of transactions and that this can result in different accounting results. Section 3840 requires that a related party transaction is measured at the carrying amount except where the transaction has commercial substance. Section 1582 requires one of the combining entities to be identified as the acquirer and the acquirer is required to measure the assets acquired at their acquisition-date fair values. The Committee requested the staff to consider whether there is a contradiction between Section 3840 and Section 1582 when accounting for roll-up transactions. This issue will be discussed further at a future meeting.

Cash Flow Statement

Section 1540, Cash Flow Statement, includes non-controlling interests as a non-cash item that should be added back to net income or loss to derive cash flow from operations under the indirect method.

The Committee agreed that this is incorrect, as non-controlling interests are not deducted in determining net income, and recommended that the AcSB correct the standard.