ASPE exemptions from retrospective applications FAQs

Applying accounting standards for private enterprises (ASPE) retrospectively raises a lot of important questions about exemptions. Find the most frequently asked questions here.

Can the exemptions in Section 1500, First-time Adoption, be applied subsequent to the adoption of accounting standards for private enterprises (ASPE)?

No. Paragraph 1500.02 states that an enterprise can apply Section 1500 only to its first financial statements prepared in accordance with ASPE.

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Can the exemptions in Section 1500, First-time Adoption, be used if an enterprise ‘re-adopts’ the standards?

An enterprise may adopt ASPE, then in a future reporting period adopt some other basis of accounting (e.g. adopt IFRS), and then at some later time decide to move back to ASPE. This set of circumstances has been called ‘re-adoption’. Section 1500 does not specifically address ‘re-adoption’.

Section 1500 is titled ‘first-time adoption’ which might imply that an enterprise can only apply Section 1500 once, the first time that it adopts ASPE. However, paragraph .02 states that an entity applies the section to the first set of financial statements prepared in accordance with ASPE, which has led some to argue that re-application of ASPE creates a new ‘first set’ of financial statements.

Section 1500 includes provisions intended to facilitate the adoption of ASPE. Entities readopting the standards face the same cost/benefit issues regarding retrospective application of the standards as entities adopting the standards for the first time. Section 1500 should be applied on ‘re-adoption’ of ASPE.

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How are business combinations affected by the transition to accounting standards for private enterprises (ASPE)?

Sections 1582, Business Combinations, and 1602, Non-controlling Interests, address the accounting for a business combination and subsequent changes in ownership interests.

The transitional provisions in respect of business combinations effectively provide adopters with three alternatives:

  • to apply the standards retrospectively to all previous business combinations,
  • to apply the standards retrospectively to all business combinations occurring after a specified date selected by management,
  • to apply the standards only to business combinations occurring subsequent to the date of transition. Paragraph 1500.11 sets out the consequences of not applying the standards retrospectively to a past business combination.

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When there is goodwill in an enterprise’s records, does it have to be retrospectively tested for impairment on transition to accounting standards for private enterprises (ASPE)?

Without first-time adoption standards, ASPE requirements would have to be applied to all transactions your organization had ever entered into. On the date of transition, there is an assessment of what balances continue to qualify under ASPE, and this may involve some adjustments. This would have included retrospective assessment for impairment of any goodwill in accordance with the revised one-step test in Part II in Section 3064, Goodwill and Intangible Assets. However, the Accounting Standards Board (AcSB) recognized that the cost of retrospectively testing goodwill for impairment would outweigh the benefits and in January 2012, announced amendments to the first-time adoption standard requiring goodwill to be recorded at the carrying value recognized in previous financial statements. This exemption is found in paragraph 1500.11 and applies to an entity that does not apply Section 1582, Business Combinations, retrospectively to a past business combination.

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What are the accounting consequences of revaluing property, plant and equipment as allowed by paragraph 1500.12 on adopting accounting standards for private enterprises (ASPE)?

An enterprise may elect to revalue property, plant and equipment on adoption of ASPE. This is a one-time election and can be made on an individual item basis. Revaluing an asset to a higher amount will result in increased depreciation if the asset is depreciable and will increase the likelihood of a future impairment.

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When an entity elects to use the exemption in First-time Adoption, paragraph 1500.12, (which allows an entity to measure an item of property, plant and equipment at the date of transition to accounting standards for private enterprises (ASPE) at its fair value and use that value as its deemed cost), how is the increase to fair value accounted for?

This new fair value is reflected by an increase in the carrying value of the asset to its fair value and a reduction of any related accumulated depreciation to zero, with the net of those two adjustments being offset by a charge to retained earnings in accordance with paragraph 1500.07. Learn more about valuation considerations for the fair value option for property, plant and equipment.

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If an entity is applying First-time Adoption, paragraph 1500.12, for the revaluation option for some items of property, plant and equipment, can it use a valuation as of a date other than the date of transition?

An enterprise with a calendar year end adopting ASPE in 2010 would have a date of transition of January 1, 2009. Revaluing an item of property, plant or equipment on adoption would mean that the value must be established as of January 1, 2009.

The date of the valuation itself is not critical, provided that it appropriately reflects the fair value of the asset at the transition date. An enterprise could not, for example, use a valuation as of some other date unless it could establish that the valuation on that date is not materially different from that on the date of transition.

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What happens if the estimated useful life of the asset changes as a result of revaluing property, plant or equipment?

Some practitioners have noted that in the process of revaluing property, plant and equipment on transition to ASPE, previous estimates regarding useful life need to be changed.

On revaluing at the date of transition, the revalued amount becomes the deemed cost at that date. Subsequent depreciation, based on the estimate of useful life made on transition, is recognized from that date.

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What is the purpose of the exemption in First-time Adoption, paragraph 1500.24, regarding asset retirement obligations?

Section 3110, Asset Retirement Obligations requires an enterprise to recognize and calculate the obligation in the period in which it is incurred, with initial recognition resulting in an increase to the cost of the related asset. Paragraph 1500.24 allows an enterprise that did not previously recognize asset retirement obligations on a basis consistent with Section 3110 to calculate the obligation at the date of transition. Therefore, the enterprise would not have to reconstruct the obligation as of a previous date, i.e. ‘bump’ the carrying amount of the related asset and subsequently amortize the ‘bump’ for periods prior to the date of transition.

This exemption is not available to enterprises that previously recognized asset retirement obligations on a basis consistent with Section 3110 as such enterprises would already have recognized the obligation and the ‘bump’ in previous financial statements.

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What is the significance of the related party transaction exemption in paragraph 1500.25?

The general approach is retrospective adoption of the standards. Paragraph 1500.25 allows an enterprise to avoid restatement of past-related party transactions in accordance with Section 3840, Related Party Transactions.

The Accounting Standards Board (AcSB) noted that it could potentially be quite difficult and costly to apply Section 3840 retrospectively, particularly to transactions that may have taken place many years ago. However, subsequent to the date of transition Section 3840 must be complied with.

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Can a company that has Canadian dollar functional currency but reports in U.S. dollars deem the cumulative translation account to be zero on first-time adoption of accounting standards for private enterprises (ASPE)?

First-time Adoption, paragraph 1500.18, permits the cumulative translation differences for all operations to be deemed to be zero at the date of transition to ASPE. In March 2012, the Accounting Standards Board (AcSB) amended this exemption, effective for periods beginning on or after January 1, 2011, to permit cumulative translation differences arising from domestic as well as foreign operations to be deemed to be zero on the date of transition. This exemption from retrospective application of Section 1651, Foreign Currency Translation, does refer to cumulative translation differences for all operations where a company has different functional and measurement currencies. If the exemption is applied, it should be applied consistently to all cumulative translation differences for domestic and foreign operations.

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