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Changes to Independence Standards to be Considered in Two Phases As reported in the April/May 2009 issue of Folio, the profession’s Public Trust Committee formed an Independence Task Force (ITF) to review the independence provisions included in the Rules of Professional Conduct and determine whether or not any changes are needed. The review was precipitated because of changes that were made to the independence standards included in the Code of Ethics (the Code) of the International Federation of Accountants (IFAC) last year. The changes to the Code were released in July 2009. The CA profession is a member of IFAC and, as such, monitors IFAC developments to facilitate convergence of national and international standards. As a member of IFAC, the CA profession’s Rules of Professional Conduct “shall be no less stringent” than the requirements included in the Code. The ITF has considered a detailed comparison of the independence provisions in the revised Code and those contained in the Rules of Professional Conduct. It is of the view that it is appropriate to adopt the Code into the Rules, amended only as appropriate for Canadian specific circumstances. This approach reflects the CA profession’s obligation as a member of IFAC and also reflects the approach taken with the adoption of international accounting and auditing standards in Canada. The ITF has determined that changes should be considered in two phases. In the first phase, the ITF will issue an Exposure Draft for public comment recommending the early adoption of the partner rotation provisions contained in �� the Code, which would change the Canadian requirements for rotation after five years and a five year “time-out” period to seven and two years respectively. The Exposure Draft will be released sometime in late March or early April with a response date still to be determined. The ITF will consider the views expressed in response to the Exposure Draft with the intention of making recommendations of any changes to the Rules of Professional Conduct to the Provincial Institute/Ordre Councils/Boards later this year to be effective as soon as possible. In most provinces, any changes to the Rules of Professional Conduct need to be approved ultimately by a vote of the membership. The second phase sees the ITF issuing a Consultation Paper soliciting views on a number of other changes that may be made to the Rules of Professional Conduct. Feedback will be requested on the appropriateness of the proposed Canadian modifications and the implications of moving to the Code requirements. �� 09-265_EN-CAS FOLIO 10 third-pg ad.indd 1 2/9/2010 2:09:23 PM by Gary Hannaford, FCA The ITF will consider the views expressed in response to the Consultation Paper in determining the approach to recommend. The proposed changes to the Rules of Professional Conduct will then be exposed for public comment with a view to having any new requirements approved by the Provincial Institute/Ordre Councils/Boards by the end of 2011 and subsequently voted on by members as appropriate. It is expected that the Consultation Paper will be released concurrently with the Exposure Draft on partner rotation, with a similar response date. Please keep an eye out for both the Exposure Draft and the Consultation Paper as your views will be important in determining the final changes that will be made to the existing Rules of Professional Conduct pertaining to independence. Gary Hannaford, FCA, is the Chair of the profession’s Independence Task Force. New Fee Structure Approved Council approved a new fee structure for resident members at its January meeting. The newly approved structure was put forward for member comment in November of 2009 with a comment deadline of January 8, 2010. For the most part, comments received were favourable. Details of the changes and the rationale behind them are available on the website at www.icam.mb.ca. Full details will also be provided with the annual fee notice which will be mailed to members in mid March. THE IFA ALLIANCE SETTING THE STANDARD FOR INVESTIGATIVE AND FORENSIC ACCOUNTING Visit www.cica.ca/ifa for details on how to become a CA-designated specialist (CA•IFA) through the Graduate Diploma in Investigative and Forensic Accounting (DIFA) or for general information regarding the IFA Alliance and its products or services: 1. Annual Investigative and Forensic Accounting Conference 2. Standard Practices for investigative and forensic accounting engagements 3. Media Directory
New accounting standards for private enterprises available Private enterprises now have accounting standards that have been developed specifically for them. They can benefit by early adoption or waiting until 2011. Alternatively, private enterprises can choose to adopt International Financial Reporting Standards (IFRSs). This article provides information about the key changes in the new standards for private enterprises and how to make the transition to these new standards easy. For more information, visit www.cica.ca/transition. The overview In December 2009, the Accounting Standards Board (AcSB) issued a new set of accounting standards developed specifically for Canadian private enterprises. These new standards will seem very familiar to most, as they are closely based on the existing CICA Handbook - Accounting. Rather than starting from scratch, the Accounting Board modified existing standards that had caused significant difficulties to private enterprises in the past. The new standards better meet the needs of private enterprises without requiring accountants and others to learn a completely new set of standards. Private enterprises now have a choice. They can adopt either IFRSs or the new private enterprise standards that were developed by focusing on what is most appropriate for private enterprises. The new standards take into account the fact that the primary users of private enterprise financial statements are lenders, rather than equity investors. They also address the fact that private enterprises have a generally more limited ability to apply complex accounting standards. Both of these factors affect the costbenefit trade-off that is one of the important considerations in developing accounting standards. Timing Private enterprises can continue to use the existing Handbook until years beginning on or after January 1, 2011. At that time they must adopt either the new private enterprise standards or IFRSs. With a 2011 deadline, private enterprises will have sufficient time to become familiar with the new standards and learn how to apply them. There is the option, however, to adopt either IFRSs or accounting standards for private enterprise earlier. In particular, a private enterprise may choose to adopt the new standards for its 2010 reporting or even for its 2009 reporting. The new private enterprise standards include a number of simplifications, as well as significant reductions in disclosures. Some companies may wish to obtain these benefits as soon as possible and therefore consider adopting them before 2011. Companies should also consider the time and effort required to understand the new standards and to make the process and other changes (including systems) required. Companies with relatively simple accounting that is not significantly affected by the accounting changes in the new standards may wish to adopt early to benefit from the reduced disclosure requirements. Other companies may need to take more time to understand the new standards, including available alternatives, before making the change. Making the choice As Canadian private enterprises consider the pros and cons of adopting new accounting standards for private enterprises or IFRSs, they need to look at costs and benefits. While it is expected that most enterprises will adopt the new private enterprise accounting standards, some private companies will likely adopt IFRSs in spite of their increased complexity and more extensive disclosure requirements. A key factor for many companies is likely to be the requirements or preferences of current and future users of the financial statements. For example, a company considering an Initial Public Offering (IPO) in the near future may prefer to use IFRSs so it will not have to change its reporting when the IPO occurs. Other private companies may have a parent company or subsidiaries that report using IFRSs and using the same accounting standards would simplify the accounting for the group of companies as a whole. Like other accounting policy choices, management determines whether the new private enterprise standards or IFRSs will be used. This is different from Differential Reporting where unanimous shareholder consent is required. If the private enterprise standards are chosen, then all of those standards must be applied and similarly if IFRSs are chosen — a company cannot take a “mix and match” approach of picking some standards from IFRSs and some from private enterprise standards. Key changes in the new private enterprise standards The most significant area of simplification is financial instruments where a new standard has been developed to replace several existing standards. This standard requires most financial instruments to be valued at cost (or amortized cost). Only quoted equity securities and freestanding derivatives must be measured at fair value, although there is an option to measure other financial instruments at fair value if the company wishes. Other areas where accounting simplifications have been made include development costs, employee future benefits, goodwill, stock-based compensation and asset retirement obligations. Existing choices available to private enterprises on consolidation and income tax accounting have been retained — these have been used extensively in practice. In addition, the disclosure requirements of each standard were carefully reviewed from the perspective of private enterprises. Disclosures have grown significantly in recent years, with private enterprises often complaining that many required disclosures do not provide useful information to the users of their financial statements. As a result, disclosure requirements in the new standards have been reduced significantly. Adopting the new standards will often affect earnings, the balance sheet and various financial ratios. Companies will need to understand these impacts and may need to discuss them with lenders, particularly if such things as debt covenants are affected. Making adoption of the new standards easy A key consideration in adopting the new standards are the transitional provisions provided in Section 1500, First-time Adoption. The overall approach is that the new standards are to be applied retrospectively which means opening balance sheet amounts have to be restated in accordance with the new standards. continued on the following page FOLIO 11
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