Final accounting standards for private enterprises released |
On December 16, 2009, the Accounting Standards Board (“AcSB”) released the final Accounting Standards for private enterprises. The standards are effective for fiscal years beginning on or after January 1, 2011 with early adoption permitted – as early as for fiscal years ending on December 31, 2009. As announced by the AcSB, significant changes to the final standards from the Exposure Draft issued in the spring included:
Financial instruments
- A fair value option was added permitting an enterprise to elect fair value measurement for any instrument.
- Transaction costs will be required to be capitalized for financial instruments measured at amortized cost.
Employee future benefits
- The scope of the simplified approach has been widened to all defined benefit plans. If adopted, it must be applied to all defined benefit plans.
EIC abstracts
- Principles in several EIC abstracts relating to financial instruments, revenue, income taxes and related party transactions have been incorporated into the standards.
Disclosures
- Requirements to disclose management compensation and amounts of government remittances in arrears have been deleted. Some changes have been made to other disclosure requirements.
It is important to perform a thorough review of the standards in their entirety to fully understand the changes and implications. A calendar year-end entity adopting these standards in 2011 will be required to establish an opening balance sheet as of January 1, 2010. As part of the preparation of the required opening balance sheet at the beginning of the comparative year, there are some mandatory and optional elections in a new standard issued as part of GAAP for Private Enterprises – Section 1500 First Time Adoption (“Section 1500”) – which is a “must read” for everyone moving to these new standards.
Here are some “tips” to consider before January 1, 2010 (the date of transition for calendar year end entities adopting GAAP for Private Enterprises in 2011):
Fair Value – to determine the extent of work involved in determining fair value measurements consider doing an inventory of all items that will be measured at fair value. Keep in mind:
- Any or all items of property, plant and equipment can be re-measured to fair value on the date of transition using a one-time election in Section 1500; and
- Any financial instrument can be measured at fair value if that choice is made when the instrument is first recognized. All investments in equity securities quoted in an active market and freestanding derivative instruments are required to be measured at fair value.
Hedges – to ensure that existing hedging relationships continue to qualify for hedge accounting verify that hedge relationships have been designated using the same criteria as outlined in Section 3856. A hedging relationship can only qualify for hedge accounting if the critical terms match and the standard specifies which critical terms must be assessed. And remember, it is not permitted to retrospectively designate hedges.
Business combinations – to avoid restating a business combination consider early adopting Section 1582 for business combinations occurring after January 1, 2010. The Section 1500 exemption allowing a first-time adopter not to apply Section 1582 applies only to those business combinations occurring before January 1, 2010.
Defined benefit plans and simplified approach – to assist in determining the accrued benefit obligation and value of plan assets consider having an actuarial valuation performed as of January 1, 2010. By having an actuarial valuation performed as of the transition date, you can avoid having to use a roll-forward technique. The standards require that an actuarial valuation report be prepared at least every three years.
The above noted “tips” are examples of transitional considerations and are intended to highlight that NOW is the time for entities adopting GAAP for Private Enterprises to do a transitional health check and readiness assessment.
To learn more on the accounting standards, launch the firm’s December 8 webcast - New GAAP for Private Enterprises or IFRS – Which GAAP will you choose and will you be ready?
Stay tuned for more information on this topic in the New Year.