Transcript KPMG On-Screen Enhanced

Implications of Implementing
Accounting Standards for Private
Enterprises
KPMG ENTERPRISE
Bob Young
KPMG Enterprise
March 4, 2011
Accounting Standards for Private Enterprises
“Implementation Issues”
Transition relief
Transition issues / views
Financial statement disclosures
The future
Audit, Review and Compilation Engagement Issues
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Defined 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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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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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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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Transition Issues
Fair value election – PP&E / Intangible assets
Fair value election available on an item by item basis
No fair value transition option for intangible assets such as quotas
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Transition Issues –Views
Property, plant and equipment, fair value election
Considerations:
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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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Transition Issues –Views
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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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Transition Issues –Views
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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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Transition Issues –Views
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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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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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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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Transition Issues
Requirement for balance sheet as at transition date
Presentation options:
3rd column on balance sheet, or
Note presentation (equivalent detail to current period’s balance sheet)
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Transition Issues
Communication with users:
Accounting policy choices
Transition elections / options
One year / Two year reporting
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Accounting Policy Choices
Defined benefit pension plans
Deferral and amortization
Immediate recognition
Income taxes
Future (deferral) method
Taxes payable
Subsidiaries / significantly influenced investees
Cost/equity methods (except for investees whose equity instruments are quoted in
an active market)
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Accounting Policy Choices
Development costs:
Capitalize / expense
Financial instruments other than publicly traded equities
Amortized cost or fair value
Item by item basis
Irrevocable election on initial recognition
Compound financial instruments
Bifurcation of debt/equity components is optional
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Transition 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 combinations
Options regarding retrospective application of HB 1582
Related party transactions
Prospective or retrospective application
Stock-based compensation
Prospective or retrospective application
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Enhanced Financial Statement Disclosure:
Balance Sheet - Investments
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Balance Sheet – Current Liabilities
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Balance 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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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Income Statement – Revenue
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Income Statement
Investment Income
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Note Disclosures – Intercorporate Investments
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Note Disclosures
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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ASPE – Assurance Issues
Subsequent 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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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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ASPE – Assurance Issues
Comparative financial statements in transition financial statements:
Audited or unaudited?
Reviewed or not reviewed?
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Audit Reports in the Transition Year
Prior
Year
Prepared/ audited
under C GAAP
Transition
Year
Current year prepared
under ASPE
Prior year
comparatives
restated under ASPE
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Audit Reports in the Transition Year
Transition
Year
Prior
Year
Current year prepared
/ audited under ASPE
Prepared/ audited
under C GAAP
One year auditor’s
report – prior year
marked as unaudited
Prior year
comparatives
restated under ASPE
marked as unaudited
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Audit Reports in the Transition Year
Transition
Year
Prior
Year
Current year prepared
/ reported under ASPE
Prepared/ audited
under C GAAP
Two year auditor’s
report
Prior year
comparatives
restated / audited
under ASPE
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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ASPE – 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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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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ASPE – The Future
Employee future benefits
Subsequent events
Consolidation (VIEs)
Discontinued operations
Agriculture
Fair Value
Conceptual Framework
Leases
Revenue
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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ASPE – The Future
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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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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ASPE – The Future
Subsequent events
Conform accounting and assurance models (audit
and review)
» Match management’s responsibility with that of
the public accountant
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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ASPE – The Future
Leases:
- recognize all leases (other than short-term) on
balance sheet
-
Issues include
- Lease term
- Contingent rentals
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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ASPE – The Future
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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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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IAASB 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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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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IAASB 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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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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GAAP 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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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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DISCLAIMER
The information contained herein is of a general nature and is not intended to
address the circumstances of any particular individual or entity. Although we
endeavor to provide accurate and timely information, there can be no guarantee
that such information is accurate as of the date it is received or that it will
continue to be accurate in the future. No one should act on such information
without appropriate professional advice after a thorough examination of the
particular situation.
KPMG and the KPMG logo are registered trademarks of KPMG International, a
Swiss cooperative.
© 2011 KPMG LLP, a Canadian limited liability partnership and a member firm of
the KPMG network of independent member firms affiliated with KPMG
International, a Swiss cooperative. All rights reserved.
© 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.
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