le 15 janvier 2015. Instruments financiers

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Formulaire de réponse
Pour être pris en considération,
les commentaires doivent être reçus au plus tard
le 15 janvier 2015.
Instruments financiers : Transition
Exposé-sondage
Le CCSP invite les intéressés à formuler des commentaires sur tous les aspects des principes proposés dans l'exposé-sondage.
Ce formulaire ne vise pas à restreindre votre réponse. Chaque boîte de texte acceptera l’intégralité
de vos commentaires. Vous pouvez sauvegarder le formulaire et l’envoyer, pour examen,
à d’autres personnes de votre organisation avant de le soumettre.
Nom :
Michel Samson, vérificateur général du Québec par intérim
Organisation :
Vérificateur général du Québec
Courriel :
[email protected]
Commentaires généraux :
Nous sommes en accord avec les principes et les propositions de l'exposé-sondage.
1.
Êtes-vous d'accord avec les modifications proposées pour le chapitre SP 3450 dans le présent exposé-sondage?
Oui, nous sommes d'accord avec les modifications proposées. Nous sommes aussi en accord avec la modification à l'égard
de retirer le paragraphe SP 3450.003 e) i) puisque la NOSP-2 ne traite pas de la question du bailleur.
De plus, nous sommes en accord avec les précisions apportées au paragraphe .003 a).
2.
Avez-vous d'autres commentaires sur les propositions?
S/O, aucun commentaire
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Tel: 416 865 0111
Fax: 416 367 3912
Toll-free: 888 505 7993
www.bdo.ca
BDO Canada LLP
36 Toronto Street
Suite 600
Toronto Ontario M5C 2C5
Tim Beauchamp, CPA, CMA
Director, Public Sector Accounting
Public Sector Accounting Board
277 Wellington Street West
Toronto, Ontario M5V 3H2
January 8, 2015
Re: PSAB Exposure Draft Financial Instruments: Transition
Dear Mr. Beauchamp,
We have read the above-mentioned Exposure Draft that was issued October 2014 and are pleased
to have the opportunity to provide responses to your specific questions as outlined below.
1. Do you agree with amending Section PS 3450 in the manner outlined in this Exposure Draft?
Yes, we agree with these amendments to Section PS 3450.
2. Do you have any other comments on the proposals?
While we agree with the proposals in this Exposure Draft we feel that there is an
additional transitional issue that the Board has not addressed. This issue is explained as
follows.
A government organization that reported under Part V of the CPA Canada Handbook –
Accounting prior to its transition to the PSA Handbook and categorized its investments as
held for trading under Part V, was required to adopt a new deemed cost for the
investments on transition to PS 3450. This new cost was the fair value of the investments
at the date of transition to PS 3450. Any unrealized gains and losses on these
investments prior to transition will never be included in the Statement of Remeasurement
Gains and Losses. Future realized gains and losses will be the difference between the
proceeds received on disposition and the new cost (the fair value at the date the
government organization transitioned to PS 3450).
When the controlling government transitions to PS 3450 we do not believe the transitional
provisions in Section PS 3450 are clear as to the carrying value the controlling
government is supposed to apply in accounting for the financial assets and financial
liabilities held by the government organization. This matter was recently clarified by the
article titled “A Matter of Transition – Financial Instruments” in the November 2014
edition of PSAB Matters. The article explained that once the government has adopted
Sections PS 3450 and PS 3041 it should use the carrying values in the records of the
government organization when accounting for financial assets and financial liabilities
held by a government organization that it is consolidating as set out in paragraph PS
2500.07(b). However, based on the existing transitional provisions in Section PS 3450, we
believe it is possible that a reader of this Section may interpret the transitional provisions
BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the
international BDO network of independent member firms.
to mean that when the controlling government adopts Section PS 3450, and elects to
record its investments at fair value it should record the full difference between the
original cost of the investments held by the government organization it is consolidating
and the new deemed cost of these investments (the fair value on the controlling
government’s date of transition to PS 3450) through the opening balance in the
Statement of Remeasurement Gains and losses.
To address this issue we would recommend that the transitional provisions of Section PS
3450 be amended to make it clear that when a controlling government adopts Section PS
3450, it looks to the guidance in paragraph PS 2500.07(b) and uses the carrying value of
the financial assets and financial liabilities in the records of the government organization
when consolidating a government organization.
We also believe it would be beneficial for the transitional provisions to explain that when
Section PS 3450 is initially adopted by the controlling government, any adjustment
required to account for the difference between the historical cost of the government
organization’s portfolio investments (as reported in the pre-transition consolidated
accounts) and the carrying value of the portfolio investments as recorded in the accounts
of the government organization, should be recorded through opening accumulated
operating surplus or deficit in the government’s summary financial statements as is
clearly outlined in the November 2014 PSAB Matters article. Without this clarification we
believe that a controlling government may believe it is to record this difference through
opening accumulated remeasurement gains and losses in accordance with paragraph PS
3450.099(b)(iii)
In addition, we believe that it would be useful for the transitional provisions of PS 3450
to clearly explain that when the controlling government adopts PS 3450 and the
government organization being consolidated has accounted for portfolio investments at
fair value, any difference between the new deemed cost of the portfolio investments at
the date the government organization transitioned to PS 3450 and the fair value of the
portfolio investments at the date the controlling government adopts PS 3450 should be
recognized in opening accumulated remeasurement gains and losses in accordance with
the requirements of paragraph PS 3450.099(b)(iii) as clearly outlined in the November
2014 PSAB Matters article.
Thank you for your consideration of the above-noted responses. If you have any further
questions, please contact me at 416-369-6937.
Yours sincerely,
Armand Capisciolto, CPA, CA
CPA (Michigan)
National Accounting Standards Partner
BDO Canada LLP
Click here to submit
Response Questionnaire
To be considered, comments must be received by
January 15, 2015
Financial Instruments : Transition
Exposure Draft
PSAB welcomes comments on all aspects of the Exposure Draft.
This form is not intended to constrain your response. Each text box will accommodate your full comments.
You are able to save and forward this form to others in your organization for review prior to submission.
Name:
Stuart Barr
Organization:
Office of the Auditor General of Canada
E-mail:
[email protected]
General comments:
The Office of the Auditor General of Canada supports the new standard on financial instruments and we look forward to its
full adoption by the public sector as a whole, including senior governments, in 2016-17.
1.
Do you agree with amending Section PS 3450 in the manner outlined in this Exposure Draft?
Yes, we agree with the proposed amendments.
2.
Do you have any other comments on the proposals?
No, we have no other comments.
Click here to submit
5, Place Ville Marie, bureau 800, Montréal (Québec) H3B 2G2
T. 514 288.3256 1 800 363.4688 Téléc. 514 843.8375
www.cpaquebec.ca
Montréal, le 14 janvier 2015
Monsieur Tim Beauchamp, CPA, CMA
Directeur, Comptabilité du secteur public
Conseil sur la comptabilité dans le secteur public
277, rue Wellington Ouest
Toronto (Ontario) M5V 3H2
Monsieur,
Vous trouverez ci-joint les commentaires du Groupe de travail technique Secteur public –
Comptabilité dans le secteur public de l’Ordre des comptables professionnels agréés du Québec
concernant l’exposé-sondage « Instruments financiers – Transition ».
Nous vous serions reconnaissants de nous faire parvenir une copie de la traduction anglaise de
nos commentaires.
Veuillez prendre note que ni l’Ordre des comptables professionnels agréés du Québec, ni
quelque personne que ce soit ayant participé à la préparation des commentaires ne peuvent
être tenus responsables relativement à leur utilisation et ils ne sont tenus à aucune garantie de
quelque nature que ce soit découlant de ces commentaires, comme décrit dans le déni de
responsabilité joint à la présente.
Veuillez agréer, Monsieur Beauchamp, mes salutations distinguées.
Annie Smargiassi, CPA auditrice, CA
Représentante du Groupe de travail technique Secteur public – Comptabilité dans le secteur
public
p. j.
Déni de responsabilité et commentaires
DÉNI DE RESPONSABILITÉ
Les documents préparés par le Groupe de travail technique Secteur public – Comptabilité dans
le secteur public de l’Ordre des comptables professionnels agréés du Québec (Ordre) ci-après
appelés les « commentaires », sont fournis selon les conditions décrites dans la présente, pour
faire connaître leur opinion sur des énoncés de principes, des documents de consultation, des
exposés-sondages préliminaires ainsi que des exposés-sondages publiés par le Conseil des
normes comptables, le Conseil des normes d’audit et de certification, le Conseil sur la
comptabilité dans le secteur public, le Conseil sur la gestion des risques et la gouvernance et
d’autres organismes.
Les commentaires fournis par ce comité ne doivent pas être utilisés comme substitut à des
missions confiées à des professionnels spécialisés. Il est important de noter que les lois, les
normes et les règles sur lesquelles sont émis les commentaires peuvent changer en tout temps
et que, dans certains cas, les commentaires écrits peuvent être sujets à controverse.
Ni l’Ordre, ni quelque personne que ce soit ayant participé à la préparation des commentaires
ne peuvent être tenus responsables relativement à l’utilisation de ces commentaires et ils ne
sont tenus à aucune garantie de quelque nature que ce soit découlant de ces commentaires.
Les commentaires donnés ne lient pas, par ailleurs, les membres du Groupe de travail
technique Secteur public – Comptabilité dans le secteur public, l’Ordre ou, de façon plus
particulière, le Bureau du syndic de l’Ordre.
La personne qui se réfère ou utilise ces commentaires assume l’entière responsabilité de sa
démarche ainsi que tous les risques liés à l’utilisation de ceux-ci. Elle consent à exonérer l’Ordre
à l’égard de toute demande en dommages-intérêts qui pourrait être intentée par suite de toute
décision qu’elle aurait pu prendre en fonction de ces commentaires. Elle reconnaît également
avoir accepté de ne pas faire état de ces commentaires reçus via le Groupe de travail dans les
avis exprimés ou les positions prises.
COMMENTAIRES DU GROUPE DE TRAVAIL TECHNIQUE SECTEUR PUBLIC — COMPTABILITÉ DANS LE SECTEUR PUBLIC DE L’ORDRE
DES CPA DU QUÉBEC RELATIFS À L’EXPOSÉ-SONDAGE « INSTRUMENTS FINANCIERS – TRANSITION ».
2
MANDAT DU GROUPE DE TRAVAIL
Le Groupe de travail technique Secteur public – Comptabilité dans le secteur public de l'Ordre des
comptables professionnels agréés du Québec a comme mandat notamment de recueillir et de
canaliser le point de vue des praticiens exerçant en cabinet et de membres œuvrant dans les affaires,
dans les services gouvernementaux, dans l'industrie et dans l'enseignement ainsi que le point de vue
d’autres personnes concernées œuvrant dans des domaines d’expertise connexes.
Pour chaque exposé-sondage ou autre document étudié, les membres du Groupe de travail
technique mettent leurs analyses en commun. Les commentaires ci-dessous reflètent les points de
vue exprimés et, sauf indication contraire, ces commentaires ont fait l'objet d'un consensus parmi les
membres du Groupe de travail ayant participé à cette analyse.
Les commentaires formulés par le Groupe de travail ne font l'objet d'aucune sanction de l'Ordre. Ils
n'engagent pas la responsabilité de celui-ci.
RÉPONSES AUX QUESTIONS SPÉCIFIQUES DU CCSP
1) Êtes-vous d’accord avec les modifications proposées pour le chapitre SP 3450 dans le
présent exposé-sondage?
Les membres sont généralement en accord avec les propositions, mais ils ont apporté les
commentaires ci-dessous.
Ils se sont questionnés sur les raisons invoquées pour modifier le sous-alinéa e) i) du
paragraphe .003. Ils sont d’accord avec le changement, mais pas pour les raisons énoncées dans
l’exposé-sondage. En effet, le chapitre NOSP-2 porte selon eux sur les règles à appliquer par le
preneur et non par le bailleur. Ils ne comprennent pas pourquoi le CCSP conclut que le sous-alinéa
est redondant. Selon eux, il ne peut pas y avoir de redondance, car actuellement la position du
bailleur n’est pas traitée dans le chapitre NOSP-2 ou ailleurs dans le Manuel de comptabilité pour le
secteur public. C’est pourquoi généralement les utilisateurs se servent du chapitre du secteur privé
qui convient à leurs besoins, lequel prévoit l’utilisation de la valeur actualisée qui ne correspond pas
toujours à la juste valeur préconisée dans le chapitre SP 3450. Ils sont donc d’avis que les créances
résultant de contrats de location, dans les livres du bailleur, doivent être exclues de la portée des
dispositions du chapitre SP 3450 Instruments financiers, , de façon, entre autres, à assurer une
cohérence avec la portée des chapitres sur les instruments financiers applicables au secteur privé et
COMMENTAIRES DU GROUPE DE TRAVAIL TECHNIQUE SECTEUR PUBLIC — COMPTABILITÉ DANS LE SECTEUR PUBLIC DE L’ORDRE DES CPA
DU QUÉBEC RELATIFS À L’EXPOSÉ-SONDAGE « INSTRUMENTS FINANCIERS – TRANSITION ».
3
inclus dans les référentiels IFRS et NCECF. Ils ont affirmé appliquer actuellement les normes du
secteur privé pour la comptabilisation des contrats de location du point de vue du bailleur et ne
souhaitent pas que le CCSP amène des règles différentes à ce sujet.
Les membres sont d’avis que l’ajout de l’alinéa a) du paragraphe .101 nécessite une modification
corrélative additionnelle à l’alinéa a) du paragraphe .99 et souhaitent qu’une correction soit apportée
aux propositions.
Même si les membres sont en accord avec l’ajout du paragraphe A45A, ils jugent que l’ajout de celuici ne clarifie pas suffisamment les critères de décomptabilisation des actifs financiers et dans quel
contexte on peut les décomptabiliser. Ils ont donné notamment comme exemples les créances qui ont
fait l’objet d’une titrisation et les créances qui ont fait l’objet d’affacturage. Ils sont d’accord avec les
exemples donnés au paragraphe A45A, mais ils croient que les critères de décomptabilisation des
actifs financiers doivent être indiqués clairement dans la norme, en plus des exemples. Actuellement
il n’est pas clair sur quelle norme du secteur privé ils devraient se référer pour ces situations non
traitées par le paragraphe A45A, les positions de l’IASB et du FASB étant opposées, alors que la
proposition du CCSP basée sur le CPN 9 qui n’existe plus exclut le traitement des compensations.
Par ailleurs, certains membres sont d’avis que la décomptabilisation des titres d’emprunt détenus par
l’émetteur représente un enjeu important lorsque ces titres sont détenus par le biais d’un fonds
d’amortissement grevé d’une affectation d’origine externe, en raison du fait que les titres ne sont pas
éteints juridiquement. Il serait donc important que le CCSP tienne également compte de cette
situation lors de son examen des réponses reçues au présent exposé-sondage
2) Avez-vous d’autres commentaires sur les propositions?
Certains membres ont mentionné que la structure du chapitre SP 3450 est différente de la structure
des normes sur les instruments financiers applicables au secteur privé et que la comptabilisation
initiale n’y est pas traitée clairement. Ils ont souligné que les choix d’évaluation lors de la
comptabilisation initiale, qui découlent de cette imprécision, devraient être maintenus, mais également
clarifiés dans la norme et non uniquement dans les bases de conclusion.
COMMENTAIRES DU GROUPE DE TRAVAIL TECHNIQUE SECTEUR PUBLIC — COMPTABILITÉ DANS LE SECTEUR PUBLIC DE L’ORDRE DES CPA
DU QUÉBEC RELATIFS À L’EXPOSÉ-SONDAGE « INSTRUMENTS FINANCIERS – TRANSITION ».
4
Deloitte LLP
2 Queen Street East
Suite 1200
Toronto ON M5C 3G7
Canada
Tel: 416-601-6150
Fax: 416-601-6151
www.deloitte.ca
January 15, 2015
by email: [email protected]
Mr. Tim Beauchamp, Director
Public Sector Accounting
The Canadian Institute of Chartered Professional Accountants
277 Wellington Street West
Toronto, ON M5V 3H2
Dear Mr. Beauchamp:
Re: Invitation to Comment on Exposure Draft – Financial Instruments: Transition
We appreciate the opportunity to respond to the Public Sector Accounting Board Exposure Draft (ED) on Financial
Instruments: Transition issued in October, 2014.
1.
Do you agree with amending Section PS 3450 in the manner outlined in this Exposure Draft?
Purpose and Scope
We generally agree with the amendments being proposed that affect the ‘purpose and scope’ sections of the
Standard.
We are in agreement that this amendment should be made to clarify that receivables and payables that are
compulsorily paid or payable (to governments) but are not contractual in their origin are outside of the scope of PS
3450, Financial Instruments (PS 3450). However we highlight that there is a lack of clarity as to which such
Standard such receivables and payables would currently be scoped into under Public Sector Accounting Standards.
We also agree that the PS 3450.003 (e) (i) should be removed as PSG-2 is written from the perspective of the lessee
and as mentioned, there would be no receivable associated with such transactions, making the guidance in 3450.003
(e) (i) irrelevant. However, we note that given there is no Standard within PSAS on accounting for leases from the
perspective of the lessor, which could result in a receivable, it would be helpful to clarify that the amendment is not
eliminating lease receivables from the scope of PS 3450 regarding assessing such receivable for impairment.
Presentation
We agree with the proposed amendment regarding consideration transferred pursuant to a credit risk management
mechanism in a derivative contract.
Transitional Provisions
Although we generally agree with the proposed amendments, there are some areas we believe still require
clarification.
January 15, 2015
Page 2
•
•
•
•
It is clear in PS 3450, that the Standard is not applied retroactively for government organizations (PS
3450.100). However, there is no specific guidance on transition for governments re: prospective vs.
retroactive application, except that the transition guidance in PS 3450.99(a) and .99(b) imply that the
Standard should be applied prospectively.
Proposed paragraph PS 3450.101(a) requires an adjustment to opening accumulated surplus/deficit for
unamortized discounts or premiums attributable to derecognized debt instruments. Based on our review of
the balance of the Standard, and its transition guidance, we understand that none of the other transition
provisions allow for an adjustment to opening accumulated surplus/deficit and therefore, believe that this
guidance is conflicting.
In regards to proposed paragraph PS 3450.101(b), it is not clear regarding whether the requirement to
include the unamortized discount or premium associated with a financial asset or financial liability
measured at amortized cost (in the item’s carrying value), is a requirement to re-measure the amounts (i.e.
the premium or discount), or simply a change in presentation upon transition.
Although the proposed addition of PS 3450.101 (c), aims to provide some guidance on the treatment of
derivatives upon transition to PS 3450, we believe there is a general lack of guidance on how derivatives
should be addressed upon transition to PS 3450. The addition of this specific paragraph does not provide
the required clarity on this issue. For example, existing guidance in paragraph PS 3450.99(e) speaks to
embedded derivatives and notes that the accounting policy for the identification and treatment of embedded
derivatives can be done retroactively or prospectively depending on the policy choice. However, no similar
guidance is provided for derivatives upon transition.
Applying the Requirements
We are in agreement with the proposed amendment to Appendix A, to include guidance explaining that
derecognition of a financial asset does not occur if the transferor of a financial asset retains substantially all of the
risks and benefits of ownership.
2.
Do you have any other comments on the proposals?
No.
We would be pleased to discuss any questions or comments you many have with respect to this letter. To do so,
please contact Lynn Pratt (613-751-5344), Cindy Veinot (416-643-8752) or the undersigned.
Yours truly,
Julie Corden
National Professional Practice Director
Private Companies, Public Sector and Not-for-Profit Organizations
Deloitte LLP
Wayne Morgan
Office of the Auditor General of Alberta
Edmonton, Alberta
January 15, 2015
Tim Beauchamp, CPA, CMA
Director, Public Sector Accounting
Public Sector Accounting Board
277 Wellington Street West
Toronto, Ontario
Dear Mr. Beauchamp,
My response to PSAB Exposure Draft Financial Instruments: Transition is below.
General comments:
1. Do you agree with amending Section PS 3450 in the manner outlined in this Exposure
Draft?
I agree with the proposed amendments clarifying the application of PS 3450, with the
following comments:
• Paragraph .102 will look out of place in the final standard since it refers to amended
paragraphs and new paragraphs. The words “amended” and “new” probably should
be removed.
• Paragraph .056A should refer to gains as well as losses. While a public sector entity
may be required to provide collateral on a derivative liability, the public sector
entity may also be the recipient of collateral (i.e. the derivative is in an unrealized
gain position (financial asset) – with uncertainty whether the counterparty can make
good on its obligation). If the derivative is in a loss position (financial liability for
the public sector entity) the counterparty’s credit risk is irrelevant to the public
sector entity meeting expected settlement payments.
2. Do you have any other comments on the proposals?
Paragraph .056A should include more guidance on how the consideration received should
be accounted for instead of just saying it isn’t a realized gain or loss on the statement of
operations. Potential treatment for consideration received may include:
• Non-recognition, treating the consideration as trust funds under administration –
disclosing the amount in the discussion of counterparty credit risk
Page 1 of 2
•
Recognizing the collateral with a corresponding decrease in the carrying value of
the derivative asset (treatment like a payment of principal)
• Recognition of the collateral as an asset with a corresponding liability (a restricted
asset stipulated for use in settling the derivative).
The accounting for an entity providing collateral to mitigate credit risk may be different
than for the recipient. Guidance from PSAB on the appropriate treatment for the
collateral would be useful.
The amendment scoping out receivables and payables because they are non-contractual may
have unintended implications in the context of financial statements of government components.
As the recent change to the introduction to the Handbook states, government components cannot
contract in their own name. So it may now be unclear whether government components such as
ministries would record financial instruments, because these are contracts. Would derivatives be
recognized in government organizations, derecognized on consolidation of government
organizations into ministry financial statements, and then recognized again at the summary
government level?
A broader concern is that this exposure draft represents at least the third amendment to financial
instruments or related standards. The standard is very complex and there may be further
technical matters to be resolved. Before PSAB forces this standard to be adopted at the
government level, it should be more certain that the standard is technically correct, it doesn’t
contain further “drafting errors” and results in fair presentation for governments. Practically, this
probably means PSAS should defer adoption of the standard for governments for several years.
Thank you for the opportunity to comment.
Sincerely,
Wayne Morgan, PhD, CA, CISA
Page 2 of 2
PROVINCIAL AUDITOR
of Saskatt hewn
January 14, 2015
Mr. Tim Beauchamp, CPA, CMA
Director, Public Sector Accounting
Chartered Professional Accountants Canada
277 Wellington Street West
TORONTO, ON M5V 3H2
Dear Mr. Beauchamp:
RE:
Financial Instruments: Transition
-
Exposure Draft (October 2014)
Overall, we support the changes proposed in the Exposure Draft. Following are our responses to the
specific questions raised.
1.
We agree with amending Section PS 3450 in the manner outlined in the exposure draft.
2.
We have no further comments on the proposals.
Yours truly,
Judy Ferguson, FCPA, FCA
Acting Provincial Auditor
LS/cp
1500 Chateau Tower - 1920 Broad Street Regina, Saskatchewan S4P 3V2
t 306.787.6398 f 306.787.6383
)
www.auditor.sk.ca
e [email protected]
Click here to submit
Response Questionnaire
To be considered, comments must be received by
January 15, 2015
Financial Instruments : Transition
Exposure Draft
PSAB welcomes comments on all aspects of the Exposure Draft.
This form is not intended to constrain your response. Each text box will accommodate your full comments.
You are able to save and forward this form to others in your organization for review prior to submission.
Name:
Darwin Bozek
Organization:
Alberta Treasury Board and Finance - Controller's Office
E-mail:
[email protected]
General comments:
Thank you for the opportunity to comment.
We found most of the proposed amendments helpful in improving the clarity of Section PS 3450.
We are, however, concerned that PSAB has not addressed hedge accounting for public sector entities. We are supportive
of the December 12, 2014 letter written by Geoff Gatien, Controller of the Province of Nova Scotia. And, as you know, we
were supportive of the October 7, 2013 letter written by the Ontario Financing Authority.
1.
Do you agree with amending Section PS 3450 in the manner outlined in this Exposure Draft?
Yes. We have, however, the following comments:
PURPOSE AND SCOPE
a) ¶ .003(a) - Are receivables and payables arising out of government transfers which are pursuant to the terms of an
agreement within the scope of Section PS 3450?
b) ¶ .003(e) - Perhaps for added clarity, SALEL-LEASEBACK TRANSACTIONS, PSG-5 should also be added to this paragraph.
PRESENTATION
c) ¶ .101 - It is not clear if the government organizations (GNFPOs and OGOs) that have already implemented PS 3450
without complying with the proposed transitional provisions are required to make the necessary adjustments to their
financial statements. In this case the effective date applicable to OGOs and GNFPOs relating to the proposed amendments
should be stated.
d) ¶ .101(a) - The extinguishment of a debt instrument may not solely be due to application of PS 3450.044, as suggested by
this proposed paragraph. It may also be the result of an exchange of debt instruments with substantially different terms as indicated by ¶ PS 3450.048. It is suggested that the proposed wording be appropriately amended to address scenarios
other than "cash repurchase" of debt instruments.
e) ¶ A45A - In its current form, the proposed paragraph appears to be too generic. It does not provide any guidance on
measurement and recognition of resulting assets/liabilities from transfers that do not qualify for derecognition. Are users
expected to refer to other standards for guidance pending issue of further guidance?
2.
Do you have any other comments on the proposals?
The references to "lessor" in the exposure draft - 4th bullet on page 1 - should be amended to "lessee".
We look forward to future developments in this area.
Click here to submit
Click here to submit
Response Questionnaire
To be considered, comments must be received by
January 15, 2015
Financial Instruments : Transition
Exposure Draft
PSAB welcomes comments on all aspects of the Exposure Draft.
This form is not intended to constrain your response. Each text box will accommodate your full comments.
You are able to save and forward this form to others in your organization for review prior to submission.
Name:
Ann Marie Miller, CPA, CMA (Comptroller General of Finance)
Organization:
Government of Newfoundland and Labrador
E-mail:
[email protected]
General comments:
As concern continues to be expressed by senior governments as to the implications of adopting PS 3450 and amendments
continue to be required to clarify existing guidance, it is recommended that adoption by senior governments should be
deferred. Adoption should not be required until the standard is reexamined to: fully address issues and understand
implications that have been developed by senior governments; ensure that the provisions of the guidance reflect the
merits of providing accounting that fundamentally reflects the substance of transactions and provides financial reporting
that is most useful to the users of the financial statements and provides neutrality in decisions related to financial policies.
Further, the merits of hedge accounting should be reevaluated; it appears to be acceptable by other accounting standards
boards. It may be complex and subjective, requiring application of professional judgment in areas such as determining
effective hedging relationship; however, it may not be the most appropriate approach to simply not allow hedge
accounting. This guidance is understood to be significantly impactful for those that practice effective hedge accounting. It
may be more appropriate to recognize that hedging is an economic transaction and allow those requiring guidance to
apply another acceptable source of accounting guidance (i.e. CPA Canada Handbook-Accounting or IPSASB).
While there is no concern with the particular amendments of the ED, as indicated in the specific questions below, the
Government of Newfoundland and Labrador “Province” continues to have concern regarding the adoption of PS 3450 for
senior governments.
The application of fair value to the recognition of financial instruments is not expected to have significant impacts on the
Province’s current financial reporting. However, per the Province’s previous responses to PSAB, in relation to the due
process of the financial instrument standard, concern was expressed with both fundamental principles as well as specific
aspects of the guidance.
In relation to fundamental principles, the Province indicated that fair value measurement is not appropriate for senior
governments based on the following:
• It is the interpretation that the conceptual framework does not support fair value as a primary basis of measurement of
financial instruments. Per PS 1000.60, the reference to fair value and its limited use is a reference to recognizing a value at
the point in time that the transaction occurred to establish an historical cost;
• While fair value measurement can be assigned upon initial recognition of an item were appropriate, it does not indicate
that financial items should be subject to fair value remeasurement at each financial statement date;
• It creates artificial volatility, as such measures are inherently variable, often subject to interpretation and judgment, and
are not reflective of a final settlement value. Recognizing these measures in financial reporting can be confusing to users
and be misinterpreted by users in assessing the stewardship of a government;
• The recognition of unrealized fair value changes resulting from market influences is not considered to be useful or
relevant information in financial reporting of governments. It is usually policy, if not legislation, that places restrictions on
the use of derivatives for non-speculative purposes. If used, it is held to maturity and the requirement to recognize
unrealized changes from market influences is not relevant. Further, as governments generally borrow for long periods of
time, often with no realistic option to extinguish before maturity; fair value of corresponding derivatives is not relevant at
each financial statement date;
• The guidance requires immediate recognition of unrealized exchange gains/losses relating to a foreign currency
denominated monetary item, which creates erratic swings at each financial statement date. As it is generally the intention
of governments to hold such debt instruments for the long term, the immediate recognition of these gains and losses as
remeasurement gains and losses do not reflect the underlying economic substance of the transaction that would be
realized when the financial instrument is settled;
• Fair value impedes risk management strategies as it does not support the intention of government in managing its risk.
Management may not implement such strategies if it has to revalue derivatives every fiscal period for market factors, when
these arrangements are entered into to mitigate such factors. Further, this is an example of accounting policies driving
economic activities, rather than providing a method to appropriately account for the underlying intention of the
transaction;
• The fact that the guidance isolates these fair value measures in a separate statement creates the impression that the
information provided is not integral to government financial reporting; and
• It would be more useful to present fair value information in the notes to the financial statements. Such an approach
would preserve the integrity of historical cost basis of accounting. This approach is supported per PS 1000.53, as notes can
provide further details about items that are recognized or not recognized in the financial statements. In this regard, such
fair value information could be included in notes for derivative instruments that are not currently recognized as well as for
financial instruments that are recognition at cost in the financial statements. In this interpretation, notes are not perceived
as a substitute for proper accounting treatment but rather an integral part of the financial statements.
Regarding specific aspects of the guidance, the Province has concern with the implication of the guidance for offsetting of
a financial asset and liability, the requirement that a Province has to extinguish debt when it purchases a portion of its own
debt issue, and the implementation of the statement of remeasurement gains and losses.
In relation to offsetting of a financial asset and liability, PS 3450.066 (d) indicates that a sinking fund arrangement generally
does not satisfy the conditions set out in paragraph .59 and offsetting is usually inappropriate. Under PS 3230 Long Term
Debt, while the Province discloses both its borrowings and related sinking funds, the figures are reported on a net basis on
the statement of financial position. This presentation has been generally accepted under public sector accounting
standards; it is our position that the requirements of these proposed stand5rds should not result in a change in our
financial statement presentation. Sinking funds are usually required to pay down a related debt issue upon maturity and
are not available for use as part of general operations; a separate presentation of sinking funds from related debt does not
provide useful information to users. Unless it is further clarified as to whether the purpose of this requirement is to prevent
off-balance sheet reporting or the net reporting that has been described, it is our position that it is not appropriate to be
included in the guidance.
The guidance relating to derecognition of a financial liability, PS 3450.044 indicates that when a government repurchases
its own securities, irrespective of intent, the debt is extinguished.
Currently, when the Province purchases its own debt within a sinking fund, the face value (+/- unamortized premium/
discount) of the public debt issue remains outstanding to the market until maturity. The debt is recognized in the
statement of financial position net of the sinking fund assets; this is common practice across provincial debt management
strategies.
The accounting reflects the substance of the transactions as the repurchased securities are still a legally issued debt; on
maturity the Canadian Depository for Securities (CDS) continues to require the full face value to be paid by the Province (i.e.
an ongoing liability). The CDS will subsequently, distribute the appropriate funds back to the Province based on the
repurchase (i.e. the Province is not permitted to settle the net balance).
Upon adoption of PS 3450, it appears that repurchased debt is removed from the statement of financial position reflecting
the debenture at the net amount; a sinking fund asset would not be recognized. Any associated gains or losses would be
recognized in the statement of operations.
This presentation does not reflect the economic substance of the two separate transactions as it does not reflect the full
value of debt carried by the Province or funding set aside to settle the debt as it comes due. As well, impacts resulting from
gains and losses would be recognized in the annual surplus (deficit), accumulated deficit and net debt, when in substance,
the debt continues to be an obligation of the Province.
However, per specific guidance in paragraphs .042 and .043, it is questioned whether the requirements necessary to
extinguish a liability are met when a Province repurchases a portion of its own securities. In this scenario, it would not
appear to be extinguished as the liability has not been discharged (paid) nor has the Province been legally released from
primary responsibility of the liability (or part of it) by process of law or by the CDS. This aspect should be clarified to allow
for consistent interpretation and application of guidance in relation to a Province repurchasing its own debentures.
Regardless, the guidance does not appropriately account for such transactions by senior governments.
In regard to reporting remeasurement gains and losses on items in the fair value category, the Province does not support a
separate statement for remeasurement gains and losses. It is not agreed that financial reporting requirements be amended
to report unrealized exchange gains and losses in a statement of remeasurement gains and losses. While this separate
statement is not approved, it is not agreed that such remeasurement gains and losses should be included in the statement
of operations as previously proposed.
This presentation creates a “two component approach” to accumulated surplus/deficit that is potentially confusing to users
in assessing a government’s financial position. The addition of this statement still requires two figures to be considered in
reconciling the change in financial position. It also includes net remeasurement gains and losses for the year on the
statement of change in net debt as a part of assessing the results of the activities for the year. Therefore, regardless of the
financial presentation, the underlying recognition of fair value measurement is potentially confusing and adds no relevant
or useful information as noted in the general comments. This accounting policy change, which is unsupported,
undermines the credibility of reported financial measures, especially net debt. It also affects the presentation of
comparative figures, key ratios in the Province's Financial Analysis and Discussion Report (FSDA) which is confusing to
users. Financial measures such as net debt and related key performance ratios are paramount in reporting and assessing a
government's financial health. These measures, along with the annual surplus/ deficit and other key measures, are well
documented and communicated as the basis upon which a government's financial position is assessed by users. The
current standard of deferring and amortizing unrealized foreign exchange gains/losses per PS 2600.16 should be retained
as it reduces the amount of variability to be reflected in the statement of financial position.
1.
Do you agree with amending Section PS 3450 in the manner outlined in this Exposure Draft?
While the Province does not agree with the adoption of PS 3450 FINANCIAL INSTRUMENTS, there is no significant concern
with the proposed amendments of this Exposure Draft (ED). The amendments do not change the substance of the existing
guidance; it generally serves to clarify the scope and existing transitional provisions.
2.
Do you have any other comments on the proposals?
The Province does not have any other comments in relation to these particular proposals.
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Formulaire de réponse
Pour être pris en considération,
les commentaires doivent être reçus au plus tard
le 15 janvier 2015.
Instruments financiers : Transition
Exposé-sondage
Le CCSP invite les intéressés à formuler des commentaires sur tous les aspects des principes proposés dans l'exposé-sondage.
Ce formulaire ne vise pas à restreindre votre réponse. Chaque boîte de texte acceptera l’intégralité
de vos commentaires. Vous pouvez sauvegarder le formulaire et l’envoyer, pour examen,
à d’autres personnes de votre organisation avant de le soumettre.
Nom :
Simon-Pierre Falardeau CPA, CA, contrôleur des finances et André Miville FCPA, CA, directeur général de la
pratique professionnelle
Organisation :
Contrôleur des finances - Québec
Courriel :
[email protected] et [email protected]
Commentaires généraux :
De façon générale, nous sommes en accord avec les propositions de cet exposé-sondage qui visent à apporter des
précisions au chapitre SP 3450 INSTRUMENTS FINANCIERS, à l’exception de certains éléments.
1.
Êtes-vous d'accord avec les modifications proposées pour le chapitre SP 3450 dans le présent exposé-sondage?
TRANSFERTS D'ACTIFS FINANCIERS
Bien que nous sommes en accord avec l’ajout du paragraphe A45A concernant les transferts d’actifs financiers, nous
croyons que des indications plus détaillées permettraient davantage d’atténuer l’incertitude et d’améliorer l’uniformité
dans le traitement comptable à appliquer, comme c’est le cas des paragraphes 17 à 37 de la norme comptable
internationale pour le secteur public, Financial Instruments : Recognition and Measurement (IPSAS 29).
DISPOSITIONS TRANSITOIRES
Nous sommes en accord avec la précision du paragraphe 101 b) à l’effet qu’un escompte ou une prime non amorti associé
à un actif financier ou un passif financier classé dans la catégorie des instruments financiers évalués au coût ou au coût
après amortissement soit inclus dans la valeur comptable d’ouverture de l’élément. Toutefois, nous croyons que cette
précision devrait également s’appliquer aux coûts de transaction rattachés à cet élément. En effet, avant l’adoption du
chapitre SP 3450, ceux-ci peuvent avoir été reportés dans un poste comptable distinct de l’instrument à l’état de la
situation financière. Nous proposons donc la modification suivante (nos ajouts ont été mis en évidence) :
« .101b) l’escompte ou la prime non amorti AINSI QUE LES COÛTS DE TRANSACTION NON AMORTIS associés à un actif
financier ou à un passif financier évalué au coût après amortissement sont inclus dans la valeur comptable d’ouverture de
l’élément; »
Nous suggérons également que des précisions soient apportées au paragraphe .099 d) concernant le traitement comptable
des coûts de transaction applicables aux éléments classés dans la catégorie des instruments financiers évalués à la juste
valeur. En effet, avant l'adoption du chapitre SP 3450, des coûts de transaction peuvent avoir été reportés dans l'état de la
situation financière à l'égard de ces instruments. Lors de la transition, ces coûts devraient pouvoir être comptabilisés à titre
d'ajustement du solde d'ouverture de l'excédent ou du déficit accumulé lié aux activités, puisque cette approche
concorderait avec l'exigence du chapitre SP 3450 selon laquelle les coûts de transaction relatifs aux éléments classés dans
les instruments financiers évalués à la juste valeur sont passés en charge lors de la comptabilisation initiale de ces
instruments. D'autant plus que leur comptabilisation à l'état des résultats de l'exercice de la première application du
chapitre SP 3450 ne serait pas cohérente, puisque ces coûts ne sont pas attribuables à la première période qui suit la mise
en œuvre.
De plus, compte tenu de la proposition relative à la décomptabilisation d'un instrument d'emprunt découlant de
l’application du paragraphe SP 3450.044 (paragraphe 101 a)) qui permet une application rétroactive sans retraitement,
nous sommes d'avis que le paragraphe .099 a) devrait être modifié dans le même sens afin d’éviter toute incohérence. Nous
suggérons donc de le modifier de la façon suivante (nos ajouts ont été mis en évidence) :
« .099 Les dispositions transitoires suivantes s'appliquent relativement au présent chapitre :
a) Les méthodes suivies en matière de comptabilisation, de décomptabilisation et d'évaluation dans les états financiers des
exercices antérieurs à la date d'entrée en vigueur du présent chapitre ne sont pas modifiées rétroactivement AVEC
RETRAITEMENT DES EXERCICES ANTÉRIEURS. […] »
2.
Avez-vous d'autres commentaires sur les propositions?
DÉCOMPTABILISATION
Bien que cet exposé-sondage ne porte que sur des précisions aux exigences actuelles, nous souhaitons réitérer notre
désaccord relativement à la décomptabilisation des instruments d'emprunt émis par le gouvernement et acquis via un
fonds d'amortissement afférent à des emprunts grevé d'une affectation d'origine externe (paragraphe .044).
Pour les titres acquis par le biais d’un fonds d'amortissement grevé d'une affectation d'origine externe, nous sommes d'avis
qu'une exception devrait être ajoutée au chapitre SP 3450 afin de les exempter du principe de décomptabilisation. En effet,
en vertu de certains contrats d’emprunts spécifiques, le gouvernement du Québec s’est engagé légalement à constituer un
Fonds d’amortissement afférent à des emprunts destiné à leur remboursement. Ainsi, ce Fonds d’amortissement ne pourra
servir qu’à rembourser ces emprunts spécifiques et aucun autre faisant partie de la dette du gouvernement du Québec. Cet
engagement crée, pour le gouvernement, une obligation juridique envers les investisseurs ayant acquis les titres qui
contribuent au Fonds d’amortissement. Ces investisseurs s'attendent à ce que les sommes détenues dans le Fonds
d'amortissement respectent les obligations contractuelles du gouvernement face à ce Fonds d’amortissement.
Or, le fait de décomptabiliser les emprunts détenus par le Fonds d’amortissement fera varier sa valeur non plus seulement
en fonction des dépôts, des retraits et de ses revenus, mais également en fonction de l'émetteur des titres présents dans le
Fonds d’amortissement, ce qui nous semble inconcevable, en plus de nuire à la comparabilité d'un exercice à l'autre. Nous
considérons donc important de présenter l’intégralité de la valeur du Fonds d’amortissement dans les états financiers
consolidés du gouvernement.
Bien que le gouvernement ait acquis ses propres titres par le biais d’un fonds d'amortissement grevé d’une affectation
d’origine externe, la relation de créancier-débiteur demeure, puisque, du point de vue des marchés financiers, ces titres
acquis demeurent inscrits auprès de la Société de dépôt et de compensation CDS inc. (CDS) et demeurent disponibles pour
être transigés sur le marché secondaire. Le gouvernement ne s’est donc pas acquitté de son passif financier.
De plus, du point de vue légal, ces titres ne sont pas éteints et le gouvernement a toujours l’obligation d’assumer ses
engagements contractuels relatifs à ces emprunts (capital et intérêts). En effet, même si le Fonds d’amortissement détient
des titres du gouvernement, ce dernier n’a aucun droit de retenir les versements d’intérêts ou le remboursement du capital
à l’échéance de ces titres et il doit toujours en effectuer le versement intégral auprès de CDS. En plus, à l’échéance des
emprunts, la Banque du Canada exige des garanties en fonction de la totalité des montants émis, nonobstant la valeur des
titres détenus par le Fonds d’amortissement. Le gouvernement n’est donc pas juridiquement dégagé des obligations
inhérentes à ces titres.
À cela, il faut souligner l’aspect juridique relatif au fait que le Fonds d’amortissement est grevé d’une affectation d’origine
externe qui empêche le gouvernement d’utiliser les sommes du Fonds d’amortissement à d’autres fins que celles
auxquelles elles sont destinées, soit le remboursement à l’échéance des emprunts contributeurs. Ainsi, pour l'ensemble de
ces raisons, le passif n'est pas éteint lorsque des titres émis par le gouvernement sont détenus par un fonds
d'amortissement grevé d'une affectation d'origine externe.
De plus, au paragraphe .22 du chapitre SP 3230, le CCSP reconnaît explicitement que ce n’est pas l’ensemble des titres émis
et acquis par le gouvernement qui doit faire l’objet d’une décomptabilisation. À cet effet, puisque certains titres peuvent ne
pas être décomptabilisés, nous sommes d'avis qu’exceptionnellement lorsqu’ils sont détenus dans un fonds
d’amortissement afférent à des emprunts et que ce dernier est grevé d’une affectation d’origine externe, les titres ainsi
détenus ne doivent pas être décomptabilisés, mais plutôt présentés par voie de note. D’ailleurs, cette présentation est
actuellement utilisée par le gouvernement du Québec dans ses Comptes publics.
Pour toutes ces raisons, nous réitérons notre position à savoir que le principe de décomptabilisation ne devrait pas
s’appliquer aux titres émis par le gouvernement et détenus dans un fonds d’amortissement afférent à des emprunts
lorsque ce dernier est grevé d’une affectation d’origine externe. Selon nous, la valeur de ce type de fonds d’amortissement
devrait demeurer intégrale aux états financiers consolidés d’un gouvernement.
En conséquence, nous proposons l’ajout du paragraphe suivant afin d’apporter une précision sur le traitement de la
décomptabilisation. Ce paragraphe pourrait s’insérer à la suite du paragraphe .044 du chapitre SP 3450 Instruments
financiers. Le paragraphe .044A stipulerait que :
« Lorsque le gouvernement acquiert ses propres titres par le biais de son fonds d’amortissement afférent à des emprunts
grevé d’une affectation d’origine externe, le paragraphe .044 ne s’applique pas, car le fonds d’amortissement découle d’une
entente avec des tiers dans laquelle son utilisation est prescrite conformément au chapitre SP 3100 Actifs et revenus
affectés. »
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Treasury Board of Canada Secretariat du Conseil du Tr6sor
Secretariat du Canada
Ottawa. Canada
K1AOR5
Tim Beauchamp
Director
Public Sector Accounting
277 Wellington Street West
Toronto, Ontario
M5V3H2
Dear Mr. Beauchamp:
SUBJECT: Financial Instruments: Transition
Thank you for the opportunity to comment on the Exposure DraftFinancial Instruments: Transition issued in October 2014. Our comments on the
specific questions posed are included in the attached appendix.
Although we agree in principle with the changes to the transitional
provisions proposed, we believe that PSAB should address the root issue, which is the
lack of clarity in the transitional provisions. As we have previously noted in our
correspondence with PSAB, we believe that retroactive application without
restatementof all recognition and derecognition policies should be explicitly
permitted There is no specific requirement in the transitional provisions with respect
to the application of new recognition and derecognition policies, and it is not clear
whether an entity may look to PS 2120 for guidance. Alfhough fhe proposed
amendments permit retroactive application without restatement in tiie specific
situations raised, based on PSAB's discussions with stakeholders, other changes
required to recognition and derecognition policies are coming to light as the analysis
for the implementation of the standards continues. For furihCT details, please refer to
our responses in the attached appendix.
Also, as we are now well within the implementation phase for both PS
3450 and PS 2601, we would like to take the opportunity to reiterate earlier concerns
we had with respect to these standards and their impact on financial reporting for the
Government of Canada. These concerns are now much more significant in light of
recent information provided by PSAB on the possible direction of the conceptual
framework project and more specifically, the inclusion ofremeasurement gains and
losses within a single Statement of Comprehensive Financial Results, that we believe
will most likely be regarded as the Statement of Operations by the readers.
Of principal concern is the alignment of the Government's intent and
ability to hold its derivatives to maturity with the significant volatility that mark-tomarket accounting of derivatives will introduce in periods prior to maturity. We are
still of the opinion that accounting for these types of'hold-to-maturity" derivatives
using historical-cost principles is one that best recognizes the economic substance of
Aeir use by the Government of Canada. By introducing one "bottom-line" into the
financial statement model, this intervening volatility vrill be even more difficult to
explain to financial statement users in the context of annual results.
Canada
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Yours sincerely,
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Diaae Peressini
Executive Director,
Government Accounting Policy and
c.c.:
Bill Matthews, Comptroller General of Canada
APPENDIX
Responses to questions posed in the Statement of Principles
1. Do you agree with amending Section PS 3450 in the manner outlined in this
Exposure Draft?
We agree with the proposals amending the Purpose and Scope, and Presentation sections
of PS 3450.
We believe that the proposed changes to the transitional provisions do not address the
root cause of the issues, which is that there is no indication in the current timisitional
provisions as to whether retroactive application without restatement is pennitted for
recognition and derecognition policies. The proposed amendment is a rule that is only
applicable in the specific situations raised by stakeholders.
Please see our summary table attached below which indicates our understanding of the
transitional provisions for PS 3450 and PS 2601. As shown in this table, there are various
atuations for which there are no provisions in the standards. Usually PS 2120 Accounting
Changes would apply when a new standard is silent with respect to retroactive or
prospective recognition. However, certam previous non-authoritative commimications
from PSAB (e.g. "PSAB Matters" February 2012) have indicated that all recognition,
derecognition and measurement policies must be applied prospectively; this is not
specified in the standard except with respect to measurement.
During our implemmtation analysis for PS 3450, a new issue has been brought to Ught
with respect to certain previously derecognized financial liabilities that no longer meet
the cnteria for derecognition. Our current accounting policy allows derecognition after a
specified period of time when it is deemed unlikely that the holder will claun the funds.
Prospective application of PS 3450 would require a large adjustenent to the
annual/surplus deficit in the year of transition when amounts previously wrinen offbut
still outstanding on transition are reinstated. This is clearly a result of transactions of
prior years, and we believe &at this should be accounted for as an adjustment to the
opening balance of the accumulated surplus/deficit, i.e. retroactive application without
restatement.
As noted above, the proposed amendments to PS 3450 allow for retroactive application
without restatement with respect to derecognition of repurchased debt instruments. The
Issues Analysis states:
.14 To address these matters, additional fransition guidance is proposed. It is
proposed that at the beginning of the fiscal year in which Section PS 3450 is first
applied, any derecoenition of a debt instrument due to the atroUcation ofD^igrafih
PS 3450.044 is accounted for retroactively without restatement of prior i)eriods_Tlus
is consistent with most other aspects of the transition to the Section."
We are not clear that this is consistent with most other aspects of transition to PS 3450.
Does this statement infer that retroactive application without restatement is an accepted
method for ti-ansition to PS 3450, or acceptable only for debt repurchased by a
government? This is an example of the confusion surrounding the requirements for
transition to PS 3450, and is likely to be a source of differences in
opimon between preparers and auditors.
We believe that the transitional provisions should be amended to clearly state the
principles applicable for transition to this section. With the current proposals, we believe
that the transitional provisions for this standard have become rules-based rather than
principles-based guidance. Retroactive application without restatement should be
pennined for changes to recognition and derecognition policies which reflect an
adjustment relating to the transactions of prior years, not only those associated with
derecognition of repurchased debt instruments. This is necessary so that the effect of
adjustments to these policies is not recognized in the year of transition, given that they
clearly relate to previous years.
2. Do you have any other comments on the proposals?
The Government of Canada employs cross-currency swaps in support of the funding
requirements offhe Exchange Fund Account (EFA) of Canada. It does so within a
robust governance and risk management framework designed to achieve the
objectives of the EFA itself while ensuring foreign exchange and interest rate risk to
the Government of Canada is minimized.1
Currently, the Government of Canada recognizes the value of these derivative
contracts using historical-cost principles typically associated with long-term debt
the notional values of its cross-currency swaps are fully recognized on the balance
sheet and translated into Canadian dollars at each reporting date. Foreign exchange
gains or losses resulting from these positions are fully recorded each year in the
Statement of Operations. This treatment recognizes the intent and ability to hold
these positions until maturity. The intervenmg fair value of derivative contracts is
also fully disclosed in the Public Accounts of Canada.
In the rare case where the Government has viewed a particular swap an-angement as
no longer meeting its risk management criteria, the implications of an early
termination have also been Silly recorded within the Statement of Operations.
In previous correspondence, we raised concerns as to the potential for significant
volatility as a result of the implementation of PS 3450, specifically as it pertained to
the recognition of derivatives on a mark-to-market basis. Although this volatility will
not occur within the Statement of Operations, our analysis to date indicates that there
would be material intervening volatility within the Statement of Remeasurement
Gains and Losses.
.^l???!.i^.<lS2iI"i?l,°?!? B^its e°y<!nlmce md appmaches to risk-mmmgement are described indie 2014 Report (n
s, located at: httpsrfwww.fin.gc.ca/activty/oincp/oir-roli-I4-eng.pdf
Specifically, fair value requirements for derivative contracts will
introduce incremental volatility fhat is inconsistent with the underlying intent and
ability to hold these instruments to maturity. As these derivatives are not speculative
in nature and are designed to niinimize risk to the Government, these economic
results are inconsistent with their intended use.
Given the asset-liability framework, funding and related assets will mature at
amounts that will fluctuate only with prevailing exchange rates at (he time of
maturity. This fluctuation offsets at maturity given identical foreign denominations
and currently, in intervening periods, this foreign exchange fluctuation is fully
recognized on the balance sheet.
The usefulness of presenting intervening fair-value volatility to financial statement
users, given this hold-to-maturity relationship, is doubtful. This detracts from many
of the fundamental characteristics of financial statements, such as understandability
and relevance. Financial statement users will need to be informed that the results
presented within the Statement ofRemeasurement Gains and Losses are inconsistent
with the economic substance of the transaction. This becomes more critical if
remeasurement gains and losses are included in a single Statement of Comprehensive
Financial Results as proposed by the Conceptual Framework Task Force. It is our
understanding that this situation is not unique to the Government of Canada.
Our existing accounting policies fully recognize these positions, account for their
matured values, disclose their intervening fair values and account for any irregular
actions taken such as early termination. PSAB needs to consider the merits of its
'one-size-fits-all" approach to derivative accounting as presented within fhe standard
given these results and reconsider the merits of'hold-to-maturity" or historical-cost
approaches to derivative contracts. Given recent developments in the conceptual
framework project, this reconsideration is all the more important.
Summary of transitional provisions
Chanee in accountine riolicv
Transitional accountins treatment
Recognition of items not previously
recognized:
to be measured at fair value
Retroactive without restatement:
(derivatives)
adjust opening accumulated
remeasurement gains/losses
to be measured at cost/amortized
Not specified. Prospective
cost
treataient would result in impact to
annual suiplus/deficit.
Derecognition of items previously
recognized:
Repurchase of own debt (PS
3450.044 - proposed amendment)
Retroactive without restatement:
adjust opening accumulated
surplus/deficit
Any other items that must be
Not specified. Prospective
derecogirized (e.g. other types of
treabnent would result in impact to
aimual surplus/deficit.
debt extinguishment, assets that
must derecognized under proposed
amendment)
Recognition of items previously
derecognized that do not qualify for
Not specified. Prospective
derecognition (e.g. unredeemed debt
previously written off, transferred assets
annual surplus/deficit.
treatment would result in impact to
that do not meet criteria for derecognition)
Items to be remeasured fiom cost/amortized
cost to fair value
Retroactive without restatement:
adjust opening accumulated
remeasurement gains/losses
Item to be remeasured at amortized cost
using straight line to effective interest
method
Prospective: no change to carrying
value on transition, adjust amount
charged to annual surplus/deficit
over remaining life of the item
Foreign ciirrency: Unamortized exchange
Retroactive without restatement:
gains/losses on long-tenn items to be
derecognized at transition
adjust opening accumulated
.remeasurement gains/losses