Amalgamations and Restructurings

Status: Statement of Principles being developed.

Background
Activities to Date
Next Steps
Contact Information

Background

Amalgamation activities occur at and within all levels of government for various reasons, including cost saving and improving efficiency of service delivery. From time to time, responsibility for programs may be transferred from one level of government to another to reduce duplication, to realign responsibilities and to better respond to local citizen needs. Governments frequently reorganize and restructure for policy and financial reasons. New government organizations are created from the transfer of existing government resources. Government responsibilities and related resources are reallocated among government departments, ministries and government organizations.

The current PSA Handbook addresses accounting for an acquisition of a government unit in Section PS 2510, Additional Areas of Consolidation, and the creation and acquisition of a government business enterprise in Section 3070, Investments in Government Business Enterprises. The purchase method prescribed in these Sections require identification of an acquirer and measuring the assets acquired and liabilities assumed at fair value at the date of acquisition. It is questionable whether an acquirer can be identified in most of the amalgamation and restructuring activities in the public sector.

Reasons for the Project
Accounting for amalgamation and restructuring activities, other than acquisition, is not specifically addressed in the PSA Handbook or other national and international standards. The standards in the private sector were developed primarily to address acquisition activities with organizations not under common control and when exchange of considerations is involved. The purchase method prescribed in these standards may not be appropriate for all of the amalgamation and restructuring activities in the public sector.

In practice, the continuity-of-interest method has been used in the public sector. The existence of alternative methods in accounting for amalgamation activities may result in divergence in practice that compromise comparability. On the other hand, it may be interpreted that in accordance with Section PS 1150, Generally Accepted Accounting Principles, only the purchase method is permitted, as other entity combination methods are not prescribed in the current international and national accounting standards.

Other standard setters also recognized a need for an accounting standard in this area and are at different stages of research and development of a standard. A Canadian standard that addresses the unique circumstances and issues of public sector in Canada would be necessary.

Issues
The issues to be addressed include:

• the scope of amalgamation and restructuring activities to be covered in the standard;
• the application of the standard to entity level and consolidated summary level financial statements;
• the terminology, definition and classification of amalgamation and restructuring activities;
• the initial measurement basis of assets and liabilities assumed or transferred;
• the recognition and measurement issues related to all the elements of the amalgamation and restructuring transaction;
• the consolidation issues subsequent to amalgamation and restructuring; and
• the disclosure requirements.

Objective
The objective is to issue an accounting standard that addresses:

• the definition and classification of amalgamation and restructuring activities;
• the recognition criteria and accounting treatment of various elements of the amalgamation and restructuring transaction;
• the measurement basis of assets and liabilities involved; and
• the disclosure requirements unique to amalgamation and restructuring.

Activities to Date

March 2010
PSAB discussed the scope of restructuring activities that should be addressed in the proposed standard and the need to recruit a task force for this project.

November 2009
PSAB discussed the definition and characteristics of amalgamations, and the general principles for development of the recognition, measurement, presentation and disclosure standards for amalgamations.  

The Board concluded that the issues addressed in this project are relatively straightforward and non-contentious and, as such, directed staff to proceed to develop an exposure draft for its approval.

March 2009
PSAB approved a Project Proposal.

Next Steps

PSAB expects to reach the following key steps at the dates indicated:

 
Contact Information

Questions or comments on this project should be directed to:

Lydia So, CA
Principal, Public Sector Accounting
Telephone: +1 (416) 204-3281
Fax: +1 (416) 204-3412

The Canadian Institute of Chartered Accountants
277 Wellington Street West
Toronto ON M5V 3H2 Canada