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In January 2019, the Public Sector Accounting Board (“PSAB”) issued an Exposure Draft (ED) seeking feedback on proposed amendments to Section 3450
The ED proposes narrow-scope amendments to:
Currently, when a government issues a debt instrument then reacquires that debt instrument from the secondary market, the transaction is treated as an extinguishment. The ED proposes instead that such a debt buyback transaction would not be derecognized unless the debt issuer has legally cancelled, extinguished or discharged the debt instrument. Therefore, when the debt instrument is repurchased to hold for sinking fund purposes, investment purposes, or to resell in the near term, it is not derecognized. In such cases where the debt instrument is not derecognized, the repurchased instrument would be offset against the original financial liability in the statement of financial position, with interest income and expense offset in the statement of operations. Disclosures of the amounts that have been offset would be required.
Scope of PS 3450
The ED proposes amendments to eliminate a redundant clause and also to clarify that PS 3450 does not apply to receivables and payables compulsorily paid or payable to governments and non-contractual in their origin.
Presentation of Transfer of Collateral
A clarification is proposed to address consideration transferred pursuant to a credit risk management mechanism in a derivative contract. A new paragraph is added to propose that the transfer of collateral would not result in the recognition of a gain or loss in the statement of operations on the derivative contract, unless there is an extinguishment or modification in the underlying terms specified in the derivative contract. When the contract and all its terms remain in force, the transfer of collateral would be treated as a deposit.
Three clarifications are proposed:
Applying the Requirements
The ED proposes additional guidance to explain that derecognition of a financial asset does not occur if the transferor of a financial asset retains substantially all risks and benefits of ownership. Examples of situations in which a government retains all risks and benefits of ownership are also provided.
PS 3450 applies to fiscal years beginning on or after April 1, 2021. For those government organizations that applied the CPA Canada Handbook – Accounting prior to their adoption of the CPA Canada public sector accounting handbook, PS 3450 applies to fiscal years beginning on or after April 1, 2012.
Comments responding to this exposure draft must be received by May 1, 2019. The full history of this PSAB project, including related supporting materials, can be accessed
For more information on the financial reporting library, contact a local
MNP Assurance Professional, or
Jody MacKenzie, Director, Assurance Professional Standards.
This communication contains a general overview of the topic and is current as of April 17, 2019. The application of the principles addressed will depend upon the particular facts and circumstances of each individual case. Accordingly, this publication is not a substitute for professional advice and we recommend that any decisions you take about the application or not of any of the information presented be made in consultation with a qualified professional who can address any variance that may be required to reflect your circumstances. Please contact your local MNP representative for customized assistance with the application of this material. MNP LLP accepts no responsibility or liability for any loss related to any person's use of or reliance upon this material. © MNP LLP 2019. All rights reserved.
Categories:Public Sector Standards
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