The Canadian Accounting Standards B...

The Canadian Accounting Standards Board (AcSB) issued fresh accounting standards for financial instruments onward January 27, 2005, that will impact virtually each entity in Canada, small and large. Despite the lengthiness of these just discovered standards, their impact on many entities will be unobtrusive In some cases, however, the strange standards will require entities to make significant accounting changes. All entities are therefore encouraged to promptly assess the compass to which these standards will affect them.

The recent standards are a culmination of many years of consultation with Canadian constituents and international standard setter Having explored several approaches to accounting for financial instruments, the AcSB has produc standards that will enhance the understandability of financial statements, are practical, and are harmonized with those of international partners.

The AcSB immediately has standards in place for disclosures about an entity's use of financial instruments and for the presentation of financial instruments when included in the balance sheet. Until now, however, no AcSB standards have comprehensively addressed when an entity should recognize a financial instrument forward its balance sheet, or to what degree it should measure this financial instrument one time recognized. The new standards will fill this "gap in GAAP."

New CICA Handbook sections

The just discovered standards comprise three new Handbook sections:

* Section 3855: Financial Instruments - Recognition and Measurement

This section will probably affect all entities to a degree, as it prescribes when a financial instrument is to be recognized forward the balance sheet and at what amount-sometimes using fair value; other times using cost-based measures. It also specifies for what reason financial instrument gains and losse are to be presented

* Section 3865: Hedges

Application of this section is optional. section 3865 provides alternative treatments to section 3855 for entities that select to designate qualifying transactions as hedges for accounting drifts It builds on existing Accounting Guideline AcG-13 (Hedging Relationships) and section 1650 (Foreign circulation Translation) by specifying how hedge accounting is applied and what corresponding disclosures are necessary.

* Section 1530: Comprehensive Income

This section introduces a of recent origin requirement to temporarily present certain gains and losse outside snare income.

A number of significant consequential amendments have been made to other Handbook sections.

Impact forward accounting

Financial instruments include accounts receivable and payable: loans; investments in debit and equity securities (including denomination deposits, guaranteed investment certificates, investments in used by all shares, etc.); and derivative contracts like as forwards, swaps, and options. In many cases, there will be little change from popular accounting. For example, an entity with no financial instruments other than cash, accounts receivable, accounts payable, and arms'-length debit will find little, if any, difference in accounting for these instruments. at contrast, however, an entity with investments in usual shares or derivatives, or that trades other signs of financial instruments will probably be significantly affected.

Implementation guidance

Recognizing that any entities may find the strange sections daunting, the AcSB has established a Financial Instruments Working assign places to which is charged with assisting in the disentanglement of implementation guidance. AcSB staff members also await to issue materials that will facilitate understanding the just discovered requirements-for example, articles in the November and December 2004 issues of

CAmagazine (www.camagazine. com/index.cfm) explain by what mode one might go about preparing to adopt the recent standards.

The mandatory effective date is for annual and interim periods in fiscal years beginning in succession or after October 1, 2006 (in many cases this will mean application to calendar years beginning forward January 1, 2007). However, early adoption is permitted. While the mandatory effective date might look some way off and comparative figures will not be affected, significant implementation planning may be necessary for larger entities that make extensive use of financial instruments. These entities are encouraged to not delay in reviewing the fresh standards and considering the inferences for their organizations.

Further information about the of the present day standards and the related implementation guidance is available onward the Financial Instruments project page of the AcSB website at: www.acsbcanada.org.

Please contact AcSB staff members Ian Hague (416-204-3270/email: ian.hague@cica. ca) or Kate Ward (416-204-3437/email: kate.ward@cica.ca) if you require any additional information.

Ian PN Hague is a principal responsible for the Accounting Standards Board contrive on financial instruments.

Copyright Institute of Chartered Accountants of British Columbia Feb/Mar 2005

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