Standards Digest ACCOUNTING AND AUDITING STANDARD-SETTING IN CANADA HOT TOPIC
Equity or Liability? Accounting for Shares Issued in a Tax Planning Arrangement
ARE YOU AN ACCOUNTANT who has anything to do with private enterprises? If so, you’ve likely been closely watching the Accounting Standards Board’s (AcSB) project on retractable or mandatorily redeemable shares issued in a tax planning arrangement.
Background
In October 2014, the AcSB issued an Exposure Draſt, “Redeemable Preferred Shares Issued in a Tax Planning Arrangement.” The AcSB proposed to remove an exception to classify retractable or mandatorily redeemable shares issued in a tax planning arrangement as equity instead of financial liabilities. These proposals were designed to address practice issues with the scope, measurement and reclassification of these shares.
Do you have an opinion?
The AcSB wants to hear from you!
The AcSB welcomes comments from stakeholders on its Exposure Draft “Retractable or Mandatorily Redeemable Shares Issued in a Tax Planning Arrangement” until January 15, 2018. To read the Exposure Draft and comment, visit
www.frascanada.ca/ redeemablesharesED
Consultation after the Exposure Draft During the comment period, the AcSB heard from financial statement users, preparers and practitioners through 73 comment letters. The board also heard from 90 stakeholders in a series of nine roundtables across Canada. Aſter considering the feedback
received, in November 2015 the AcSB decided to consider alternatives; for example, could some of these shares be classified as equity instead of a financial liability? To explore alternatives for whether some of these shares could be classified as equity instead of a financial liability, the AcSB and its staff carried out:
• additional outreach with assurance, tax and advisory professionals from firms across Canada to discuss characteristics of tax planning arrangements; • field testing with a group of tax and assurance professionals from firms of varying sizes to assess changes in control in commonly executed tax planning arrangements; • additional consultations with lenders from national financial institutions to further understand the risks they encounter when dealing with tax planning arrangements; and • further consultation with the AcSB’s Private Enterprise Advisory Committee.
Second Exposure Draft On September 29, the AcSB issued an Exposure Draſt, “Retractable or Mandatorily Redeemable Shares Issued in a Tax Planning Arrangement,” which
DOCUMENTS FOR COMMENT
Get your voice heard! ● Respond to this open document for comment today
Assurance & Related Services Standards (other than CASs) — AASB Exposure Draſt — Reporting on Compliance with Specified Authorities for Transactions Coming to the Auditor’s Notice during the Audit of Financial Statements — due November 28
is currently open for public comment. It includes the following proposals: • an amended classification exception that focuses on whether control of the enterprise is retained and certain other conditions, rather than on specific sections of the Income Tax Act; • guidance on when to reassess the classification of the retractable or mandatorily redeemable shares issued in a tax planning arrangement, which are classified as equity; and • guidance on how to transition from the current standard to the newly proposed standard. The proposed effective date of the amendments is for fiscal years beginning on or aſter January 1, 2020. Retrospective application would be required with an option to not restate comparative information. Keep up to date on the developments and activities of this project by visiting
www.frascanada.ca/redeemables.
NOVEMBER 2017 | CPA MAGAZINE | 9
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