2013-09-26 AcSB issues exposure draft - Consolidations (Part II)

The AcSB proposes to replace Section 1590 Subsidiaries in Part II of the CICA Handbook with new Section 1591.

The main features of the proposals are summarized as follows:

  • Withdrawal of Accounting Guideline AcG-15 Consolidation of Variable Interest Entities, replacing it with guidance in new Section 1591, Subsidiaries, that requires the use of judgment to determine when control is obtained through means other than equity interests.
  • When the rights of equity interests are not the dominant factor in determining who controls an enterprise, control would be assessed by giving consideration to:
    • involvement in the inception of the other enterprise and decisions made at that time in determining its purpose and design;
    • how decisions are made about the strategic policies that could affect the right and ability to obtain future economic benefits and related risks; and
    • the risks to which the other enterprise was designed to be exposed.
  • When an enterprise chooses to prepare non-consolidated financial statements, the enterprise would continue to be permitted to account for subsidiaries controlled through voting interests and/or potential voting interests through equity or cost method. Subsidiaries controlled through contractual arrangements alone or in combination with equity interests would be accounted for according to the nature of the contractual arrangements in accordance with the applicable Section.
  • When preparing non-consolidated financial statements, the requirements of Section 3840 Related Party Transactions, would not apply to intercompany transactions between the parent and subsidiaries controlled through means other than voting interest (provided control is the only basis of the relationship).
  • The AcG-15 requirement to disclose significant restrictions on access to assets of a subsidiary would be carried forward.
  • Retrospective application of Section 1591 would be required, except as permitted by certain transition exemptions.

The effective date of the standard will be no earlier than fiscal years beginning on January 1, 2016.

Exposure Draft

Comments on the exposure draft are requested by November 11, 2013. A copy of the exposure draft can be found at the following link: Exposure Draft Consolidations.