2007-11-12 High Level Overview of CICA Handbook Section 3862, Financial Instruments — Disclosures, and Section 1535, Capital Disclosures

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This newsletter provides a high level overview of CICA Handbook Sections 3862 and 1535.

New Financial Instruments and capital disclosure requirements

 FINANCIAL INSTRUMENTS – DISCLOSURES, Section 3862 and CAPITAL DISCLOSURES, Section 1535 are effective for interim and annual periods starting on or after October 1, 2007. These standards apply to all entities, including private companies and other non-publicly accountable enterprises and not for profit organizations
Objective of the new disclosures The objective of the new requirements is to harmonize disclosure requirements for financial instruments and equity with IFRS 7, Financial Instruments: Disclosure, and IAS 1, Presentation of Financial Statements.
Major differences from existing GAAP The new Sections emphasize making disclosures that are consistent with how management perceive and manages its financial risk exposures and capital. Significant new disclosure requirements include:
  • Details, including carrying amount, about financial instruments classified as held for trading, available for sale instruments, loans or receivables, held to maturity investments and other liabilities.
  • A reconciliation of the change in the period of the allowance for bad debts and other valuation accounts.
  • An analysis of past due accounts that have not been written down or for which no bad debt allowance has been provided.
  • Information as to the credit quality of financial assets not past due or recognized as impaired.
  • Details about the entity’s exposures to financial risks and how the entity manages and measures these risks.
  • Sensitivity analysis showing how net income and other comprehensive income are affected by reasonably possible changes in interest rates, exchange rates and other market prices affecting the entity’s financial instruments.
  • More details about assumptions and methods used to estimate fair values.
  • The entity’s objectives, policies and processes for managing capital, including what it manages as capital, and details about externally imposed capital requirements.

In some cases, entities must disclose internal information that key management personnel use in managing financial instruments and capital. Experience with IFRS 7 and IAS 1 has demonstrated that the compliance with the requirements can be challenging and disclosures voluminous.
Exceptions for non-publicly accountable enterprises The AcSB will be issuing an exposure draft proposing certain exemptions for non-publicly accountable enterprises. These entities will not to apply Section 1535, other than to provide details about externally imposed capital requirements, or provide a sensitivity analysis and summary quantitative data about the entity’s risk exposures under Section 3862.
Differential reporting options Enterprises that qualify for differential reporting can elect to disclose fair value information only for financial assets and liabilities whose fair value is readily obtainable.
Interim financial statements Refer to newsletter 2007-11-12 Impact on Interim Financial Statements of CICA Handbook Section 3862, Financial Instruments — Disclosures, and Section 1535, Capital Disclosures for discussion of whether compliance with these standards is necessary in interim financial statements and how this may affect a decision to adopt the Sections in 2007.
Stay tuned We will be releasing shortly a more detailed comparison between the existing disclosure requirements and 3862 and 1535, together with illustrative disclosures.
What companies should be doing now Companies should be assessing the requirements of the standards to determine whether information gathering systems and accounting controls are sufficient to permit the preparation of the data.