ASPE standard specific FAQs

Learn more about adopting specific ASPE standards from our frequently asked questions.

Do private enterprises have to use fair value accounting under accounting standards for private enterprises (ASPE) for equity-traded securities? If so, where is the change in value recognized?

Yes, Section 3856 Financial Instruments requires that holdings of equity securities that are quoted in an active market be measured at fair value without adjustment for transaction costs. This treatment is mandatory, not optional. Changes in the carrying amount as a result of re-measuring such instruments at fair value at each period end are recorded in income.

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Why does the requirement to hold equity securities traded in an active market at fair value not apply to all quoted investments?

An enterprise can optionally measure any financial asset or financial liability at fair value by applying the fair value option set out in Financial Instruments, paragraph 3856.14. Fair value is not the mandatory measurement basis for quoted non-equity investments such as traded debt. Users are often more interested in historical cost for debt instruments, since they generally have a fixed term and private enterprises often hold such instruments to maturity.

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How should fees and transaction costs incurred in connection with debt financing arrangements be accounted for?

Financing fees and transaction costs that are directly attributable to the acquisition, origination or issuance of a funded debt financing arrangement are deducted when determining the initial measurement of the liability, if the instrument will be measured at amortized cost per Financial Instruments, paragraph 3856.07. On the balance sheet this is shown as a single amount — the debt is not shown gross and the fees and costs are not shown as separate assets. However, fees and transaction costs associated with a line of credit or a revolving debt arrangement are considered costs incurred to ensure the entity continues to have the ability to draw and repay the loan throughout its term, similar in nature to an insurance premium. Therefore, the fees and transaction costs in this particular situation are recognized separately from the debt as prepaid interest and amortized over the term of the arrangement in accordance with paragraph 3856.A57.

Financing fees and transaction costs may be amortized on any rational basis over the term of the arrangement including the effective interest method and straight-line. The amortization period is often determined by the nature of the fee. For example, a fee that is charged annually will be amortized over one year and a fee charged at inception for a term loan will be amortized over its stated term. A lender’s right to demand payment does not affect the amortization of fees and costs. The amortization period is always based on the expected life of the related asset or liability.

Note that financing fees and transaction costs related to any financial asset or financial liability that will be subsequently measured at fair value are expensed as incurred.

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What are the implications of adopting accounting standards for private enterprises (ASPE) for an enterprise that previously followed Accounting Guideline 18 (AcG-18) Investment Companies?

AcG-18 has been carried forward to ASPE largely unchanged. Under AcG-18 an enterprise that is a separate legal entity and meets all the criteria in paragraph 9 measures its investments at fair value. In addition to the disclosures in AcG-18, the disclosure requirements of Section 3856 Financial Instruments must be met.

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