Applying ASPE can be Complex

I have written about the importance of outreach activities and how the input we receive enhances the quality of the standards we issue in several of my previous posts. I highlighted the amount of outreach we undertook this past year in my Accounting Standards Board (AcSB) 's 2023-24 Annual Report Chair message.

In addition to the specific project outreach we undertake, we often get comments and feedback about the standard setting process. ?A comment we often get is that we focus on large entities and don’t consider the realities of smaller entities, including their lack of access to technical expertise to deal with complex standards.?

In this article, I would like to address this comment and in doing so, share how we are considering the challenges of smaller entities that apply ASPE.

Detailed Review of ASPE

In the AcSB’s 2022-2027 Strategic Plan, we said we would explore scaling the standards for non-listed entities to better meet stakeholders’ different reporting needs. Specifically, we stated:

“In Canada, the landscape of reporting entities is diverse. Private enterprises, NFPOs, and pension plans can vary widely in terms of size and complexity. Therefore, the information needs of financial statement users may also be varied. We have heard in some circumstances, IFRS Standards may be too complex or onerous to apply, but that ASPE does not sufficiently meet users’ needs. On the other hand, we are aware of small private enterprises and NFPOs that consider ASPE and NFPO standards too complex.? Therefore, we will undertake activities, including research and consultation with stakeholders, to explore scaling the existing accounting frameworks to better meet the needs of non-listed Canadian entities and of their financial statement users. Scaling the standards may include allowing additional accounting policy choices within the existing accounting frameworks and/or looking at the extent of disclosure requirements for existing frameworks.”

As a result, we issued a consultation paper on Scaling the Standards.? We received significant feedback on this consultation paper.? Two things were very clear from the feedback we received:

• no one wanted any more frameworks introduced as this would add more complexity to the system; and
• several areas of ASPE are either complex to apply or result in information that is not useful to financial statement users.???

As a result, we decided to conduct a Detailed Review of ASPE to identify the requirements that are most complex to apply and propose practical solutions. This project aims to increase the understandability and accessibility of the standards for all entities, but it does not intend or expect to address or fix every issue with each standard.

Over the past few months, we have discussed the project at the board-level, as well as with our Private Enterprise Advisory Committee and Not-For Profit Advisory Committees and our Small Practitioners Working Group.

Our initial focus has been to define the project’s scope, acknowledging that we cannot address every issue with every standard. The way I have approached this project is there are areas where we can improve the wording of the standards, simplify the requirements of the standard or add optionality without impairing the decision usefulness of the information to financial statement users.? In other words, we can reduce complexity where it is not warranted.?

Determining areas where complexity is not warranted involves a significant amount of judgment. As a result, the AcSB is developing a consultation paper to get broader feedback on the topics we plan to address and those we will not.

Please continue to read our decision summaries for the progress updates on this project as we work toward issuing this consultation paper in 2025.

Guidance Framework

In addition to hearing about unwarranted complexity in the standards, the AcSB also noticed a significant uptick in the amount of application issues related to our domestic standards.

In response, the AcSB has been talking about our role in providing non-authoritative guidance. Back in December, I wrote about Guidance with a “G” or a “g”, detailing some of our early discussions. These discussions led to the development of a Guidance Framework, which outlines a process for handling issues submitted to the AcSB.

Many issues submitted involve the application of professional judgment and do not require a change to the standard or additional guidance to be issued.? However, we must address these concerns from our interested and affected parties, especially smaller entities that don’t have access to technical expertise.

While the AcSB and its staff cannot serve as a helpdesk, the Guidance Framework will help us focus on significant issues. It will guide us in prioritizing issues that are widespread, involve diverse interpretations, and impact financial statement users. It will also enhance transparency by clarifying how we make decisions and outlining the considerations and judgments related to the issue in our decision summaries.?

It is important to note that principled-based standards, which rely on professional judgment, will naturally lead to some diversity in application. We cannot provide guidance for every situation involving diversity, and not all diversity is bad.

To stay informed about how the AcSB addresses application issues, please continue follow our decision summaries. These summaries will provide insights based on our Guidance Framework.