TORONTO, Jan. 21 /CNW/ - Canadian Accounting Standards Board (AcSB) staff
has issued a second commentary to help companies provide a fair presentation
of their holdings of Asset-Backed Commercial Paper (ABCP) to investors.
Many Canadian companies are wrestling with how to provide investors with
a clear financial snapshot of their assets - including non-bank sponsored
ABCPs - in their year-end reporting to investors. The continuing "freeze" on
the non-bank sponsored ABCP market created by the Montreal Accord means that
businesses preparing their 2007 financial statements are required to value
these assets as of Dec. 31, 2007 without knowing a market price of the
securities at that date. These companies are also required to provide
information related to risk as part of their management discussion and
analysis (MD&A), which is a key component of financial disclosure.
"The nature and extent of risks related to ABCP vary significantly
depending on the paper held," said Paul Cherry, Chair, Accounting Standards
Board, adding that the AcSB staff commentary titled Non-Bank-Sponsored
Asset-Backed Commercial Paper: Year-end Reporting Issues (at
www.acsbcanada.org) is intended to help businesses deal with assessing and
reporting the value and risks associated with ABCP.
"Basically, companies are being asked to make a realistic estimate of the
holding's value and then clearly explain to investors how that figure was
determined. In determining a holding's value, companies must estimate a market
price. With non-bank ABCP, this is difficult because of the current freeze
involving these holdings. That is why it is important for companies to explain
how the value was determined and any assumptions made," said Cherry.
The staff commentary also points to the importance of both the financial
statements and MD&A. These disclosure documents complement one another and
need to be consistent in their analysis of the risk and uncertainties facing
the company. Guidance on year-end MD&A disclosures about ABCP can be found in
an Alert issued by the Canadian Institute of Chartered Accountants
"Transparent financial reporting and full disclosure could help mitigate
the negative effects of risk and uncertainty," said Cherry.
In October 2007, AcSB staff issued an initial commentary on ABCP. It
dealt with the key issues of financial statement measurement, presentation and
disclosure and remains relevant for year-end reporting.
The Accounting Standards Board establishes financial accounting and
reporting standards for use by Canadian companies and not-for-profit
organizations. It also participates in the development of internationally
accepted accounting standards. The Board sets its financial accounting and
reporting standards after an extensive process of consultation with
organizations and individuals that are interested in or affected by the
standards. The standards contribute to enhanced decision making by
continuously improving the quality of financial and other information about
organizational performance reported by Canadian entities.
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