2009-04-30 Canadian Accounting Standards Board Proposes Changing GAAP for Impairments in Debt Securities

On April 30, 2009, the Accounting Standards Board (AcSB) announced its decision to develop proposals to revise standards on impairment of debt instruments to converge with international standards.

The Accounting Standards Board announced on April 30, 2009 that it will be issuing an exposure draft to change the Section 3855 accounting requirements for investments in debt securities, such as investments in government debt, corporate bonds, convertible debt, commercial paper, and securitized debt instruments. The changes do not affect the rules relating to the recognition of impairments in investments in equity instruments. Entities most significantly affected will be banks and other financial institutions.

The proposals affect investments in debt securities that have been classified as either available for sale (“AFS”) or held to maturity (“HTM”). Under existing Section 3855, entities holding such an investment must recognize any decline in the fair value of the investment below its cost basis as a loss in net income when certain impairment triggers are hit. Under the proposals, entities would be able to recognize and measure impairment losses on certain debt securities using the incurred credit loss model.

The incurred credit loss model results in the recognition of an impairment loss on an interest-bearing asset only if the present value of the expected cash flows, discounted at the original effective rate in the arrangement, has declined below the cost basis of the asset. Because expected cash flows are discounted at the original interest rate, rather than the current market rate, impairment losses recognized under this model often are substantially lower than the losses that would be recognized using the fair value approach. The incurred credit loss model currently is used to account for financial instruments classified as Loans and Receivables under existing GAAP (see Section 3025, Impaired Loans).

Details of the Board’s decisions on this topic are included in the April 29, 2009 Decision Summary attached below.

	Canadian Accounting Standards Board Proposes Changing GAAP for Impairments in Debt Securities — April 2009 (123 KB) Download the full PDF.