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For the ProfessionLong AwaitedPrivate EnterpriseGAAP Is Here!By Amy Lam, CASenior Director of MemberServicesAs detailed in CAmagazine’s May 2009cover story, the Accounting StandardsBoard (AcSB) recently issued an ExposureDraft on generally accepted accountingprinciples for private enterprises. In the ExposureDraft, the AcSB proposes a set of stand-alonestandards that would be available for use by allprivate enterprises. Private enterprises would alsohave the choice of using international financialreporting standards.The proposed standards for private enterpriseswould be effective for annual financial statementsrelating to fiscal years beginning on or afterJanuary 1, 2011, but early adoption would bepermitted. The AcSB expects that the finalstandards will be issued in time to permit their usefor 2009 calendar-year end financial statements.In the meantime, parties interested in providingfeedback on the Exposure Draft are invited tosend written comments to the AcSB by July 31,2009.Basic approachThis exposure draft is the culmination of approximatelythree years of research, consultationwith stakeholders, and deliberation by the AcSB.During the consultation process, stakeholders toldthe AcSB that standards for private enterprisesneed to be developed in a timely manner. Inorder to do this, the AcSB used the existingCICA Handbook as a starting point as it set aboutdeveloping a set of principles-based standards.The AcSB retained a significant number ofrecognition and measurement requirements—those it determined would not cause substantiveconcern for private enterprises—and removedcertain sections and guidelines deemed irrelevantfor this sector. The AcSB also reconsideredthose issues in the Handbook identified assignificantly problematic for private enterprises,and the proposed alternatives are highlighted inthe Exposure Draft.In addition, the AcSB re-examined existingdisclosure requirements to focus on the needsof private company financial statement users,recognizing that users in this sector generallyhave the ability to obtain additional informationfrom the enterprises in question.Proposals – recognition andmeasurementThe Exposure Draft includes proposed changesto the existing recognition and measurementrequirements. These proposed changes can becategorized into three general categories: significantchanges, moderate changes, and no changes.Significant changes:The Exposure Draft proposes significant changesto the existing recognition and measurementrequirements in the following areas:• Financial instruments;• Employee future benefits;• Asset retirement obligations;• Internally developed intangible assets;• Impairment testing for goodwill and otherintangible assets; and• Stock-based compensation.The most significant of these changes for themajority of private enterprises is the proposedfinancial instruments standard, which wouldprovide for a much simpler approach than thatset out in section 3855 of the Handbook.Moderate changes:The Exposure Draft proposes moderate changesto the following:• Future income taxes; and• Investments (subsidiaries, significantly influencedinvestees, and joint ventures).Differential reporting options are being incorporatedin these two sections. Because thesedifferential reporting options already exist in thecurrent Handbook, the changes are expected tohave only a moderate impact.No changes:The Exposure Draft proposes that no changes bemade to the following:• Leases; and• Callable debt (EIC 122).Private enterprises planning to adopt thisproposed set of standards need to review theproposals first and assess the impact of thesechanges on their operations and financial reporting.Disclosure requirementsOne of the goals in developing the proposedstandards for private enterprises is to reduce thenumber of specific disclosure requirementswhile, at the same time, providing sufficientinformation to give a fair presentation of anenterprise’s financial position and operatingresults, and to help users gauge when to askfor further information on specific issues ortransactions.Users of private enterprise financial statementshave stated that disclosures on accountingpolicies, risks and uncertainties, and unusualevents are vital when it comes to understandingand analysing financial statements. In focusingon these users and their needs, the AcSB haseffectively reduced the number of disclosurerequirements by about half.In the Exposure Draft, the AcSB added twonew disclosure requirements viewed as importantby users in the private enterprise sector: thedisclosure of the amount payable at the end ofthe period in respect of government remittances(and whether any such remittances are in arrears)and the compensation of key management personnelas a group.EIC abstractsIn creating a principles-based financial reportingsystem, the AcSB concluded that it would notbe appropriate to include the type of detailedguidance contained in the EIC Abstracts;therefore, abstracts have been excluded from theproposed standards. However, some abstracts docontain guidance that is important to this sector;accordingly, this guidance was incorporated intothe appropriate sections of the proposed standards.Share your feedbackIf or when finalized as standards, the proposalscontained in the Exposure Draft will have ahuge impact on financial reporting by privateenterprises. This being the case, it is vitallyimportant that stakeholders in this sector weighin with comments, suggestions, and/or concerns.A copy of the Exposure Draft is now available atwww.acsbcanada.org/edpegaap.Access the Exposure Draft onGAAP for private enterprisesat www.acsbcanada.org/edpegaap.June/Summer ’09 ica.bc.ca 5