Redeemable preferred shares issued in a tax planning arrangement

373 Pages·2015·15.06 MB·English

by  Marites Alvarez

Response Questionnaire
To be considered, comments must be received by
January 15, 2015

Redeemable preferred shares issued in a
tax planning arrangement

Exposure Draft
The AcSB welcomes comments on all aspects of the Exposure Draft.
This form is not intended to constrain your response. Each text box will
accommodate your full comments.
You are able to save and forward this form to others in your organization for review prior
to submission.

Organization: Douglas E. Munton Professional Corporation (Munton & Co)

Contact Name: Curtis Michaelis, CA

Position: Partner

Email: [email protected] Phone: [phone]

Comments are most helpful if they are related to a specific paragraph or group of
paragraphs. Any comments that express disagreement with the proposals in the
Exposure Draft should clearly explain the problem and include a suggested alternative
supported by specific reasoning.
While the AcSB welcomes comments on all changes proposed in this Exposure Draft, it
particularly welcomes comments on the following:
1. Do you agree that the preferred shares described in FINANCIAL INSTRUMENTS,
paragraph 3856.23 are liabilities and that paragraph 3856.23 should be deleted in
accordance with the cost/benefit assessment set out in the Basis for Conclusions in
this Exposure Draft in order to improve financial reporting? If not, why not? What
aspect of the cost/benefit assessment do you disagree with?
A simple reclassification of shares from common to preferred stock should not force
an entity to record this value as a liability. This change will require off balance sheet
equity (appreciation in assets) to be shown as a liability with no increase in asset
values. The users of the financial statements must be considered and this will
provide more confusion as to the true financial position of the entity by requiring a
debit posted to retained earnings (creating a deficit). Based on our experience, we
see the vast majority of users disclosing as equity in past so this is clearly the
choice that all users prefer.
2. If you think there are sufficient cost/benefit arguments to justify retention of the
equity classification, how should paragraph 3856.23 be amended to address the
issues with that paragraph noted in the Basis for Conclusions?
As with many other Handbook areas, we should have a choice as to present as
equity or a liability. Disclosure in the accounting policies would provide clarity to the
user of the entities choice.
3. Do you agree that the adjustment to equity as a result of recognizing and measuring
the liability should be presented in a separate component of equity? If not, how
should the adjustment be presented?
The adjustment to equity will likely result in most companies being in a deficit
position in retained earnings even through there is considerable value in the entity
to pay for the preferred share redemption amounts. This will also have
considerable impact on the covenants with creditors making many entities offside
on covenants.
4. Do you think that COMPREHENSIVE REVALUATION, Section 1625, should be
amended to clarify when the conditions to apply push-down accounting are met for
some of the transactions covered by paragraph 3856.23? If so, what aspects of
Section 1625 should be clarified? In your view, to what extent would entities apply
push-down accounting?

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5. Do you agree that the current disclosure requirements in Section 3856 are
appropriate for redeemable preferred shares currently accounted for under
paragraph 3856.23? If not, why not and how should the disclosures in Section 3856
be amended?
Current standards are appropriate and are widely accepted and understood by the
users
6. Do you agree with the proposed disclosures in EQUITY, Section 3251, in respect of
the presentation of the effect of liability recognition as a separate component of
equity? If not, why not and what disclosures, if any, should be provided?
Disclosure should be required somewhere in the financial statements as to the
redemption value of the preferred shares. I feel appropriate choices are either on
the face of the balance sheet or in a required share capital note are both
appropriate options.
7. Do you agree that the proposals should be applied retrospectively in accordance
with ACCOUNTING CHANGES, Section 1506? If not, why not?

8. Do you agree with the proposed effective date (i.e., fiscal years beginning on or
after January 1, 2016)? If not, why not?
No concerns.

Any other comments?
Changes should only be made to improve financial statement presentation to give
users transparency as well as useful information. The proposed changes will create
significant confusion with owners and creditors requiring banking covenants to be
rewritten. Also, this paints a poor picture of an entity as it suggests a deficit based
on a simple tax planning transaction.

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Response Questionnaire
To be considered, comments must be received by
January 15, 2015

Redeemable preferred shares issued in a
tax planning arrangement

Exposure Draft
The AcSB welcomes comments on all aspects of the Exposure Draft.
This form is not intended to constrain your response. Each text box will
accommodate your full comments.
You are able to save and forward this form to others in your organization for review prior
to submission.

Organization: Meerstra & Co., Chartered Accountant, Professional Corporation

Contact Name: Colin Meerstra, CPA, CA

Position: Sole Practitioner

Email: [email protected] Phone: [phone]

Comments are most helpful if they are related to a specific paragraph or group of
paragraphs. Any comments that express disagreement with the proposals in the
Exposure Draft should clearly explain the problem and include a suggested alternative
supported by specific reasoning.
While the AcSB welcomes comments on all changes proposed in this Exposure Draft, it
particularly welcomes comments on the following:
1. Do you agree that the preferred shares described in FINANCIAL INSTRUMENTS,
paragraph 3856.23 are liabilities and that paragraph 3856.23 should be deleted in
accordance with the cost/benefit assessment set out in the Basis for Conclusions in
this Exposure Draft in order to improve financial reporting? If not, why not? What
aspect of the cost/benefit assessment do you disagree with?
Yes, I agree.

2. If you think there are sufficient cost/benefit arguments to justify retention of the
equity classification, how should paragraph 3856.23 be amended to address the
issues with that paragraph noted in the Basis for Conclusions?
N/A

3. Do you agree that the adjustment to equity as a result of recognizing and measuring
the liability should be presented in a separate component of equity? If not, how
should the adjustment be presented?
Only partially. If comprehensive revaluation cannot somehow be applied with
related parties, then how about a debit to the asset side of the balance sheet to
recognize the amount by which the fair value of the assets exceeded the book value
at the time of the valuation? The portion of the redemption amount which accounts
for previous retained earnings can be charged to retained earnings, but the portion
that represents the excess of FV over BV should not be charged to equity.
If we cannot increase the individual asset, perhaps a separate line item recognizing
the fair value/book value difference is appropriate? Without it the balance sheet can
be ridiculously lopsided, raising the worth of such financial statements.
For example, in many farming enterprises the fair value of the assets (land, quota)
can far exceed the book value. As such, if an estate freeze were to be undertaken,
the Preference Shares issued in exchange under this proposal could create a
liability and a deficit of millions of $ - making the f/s look ludicrous and necessitating
an annual explanation that the deficit exists because the fair value of the assets is
so much more than the book value - but is not allowed to be presented because the
statements must use the lower of cost or market value on the assets...
Specific example: R/E of $500k, land & quota in excess of book value by $2.0M,
therefore rough FMV of $2.5M. Pref shares issued for this amount. Ongoing
balance sheet shows a deficit of $2.0M if the pref shares are shown as a liability.
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How about allowing the $2.0M excess of FV over BV to be booked to the asset side
of the balance sheet, either to specific assets if known (land & quota) or as a
separate line item? This would give the most accurate picture of the reality of the
situation - which would be a balance sheet with $0 of equity rather than a balance
sheet with a non-existent deficit of $2.0M!
4. Do you think that COMPREHENSIVE REVALUATION, Section 1625, should be
amended to clarify when the conditions to apply push-down accounting are met for
some of the transactions covered by paragraph 3856.23? If so, what aspects of
Section 1625 should be clarified? In your view, to what extent would entities apply
push-down accounting?
Yes - please see my comments in the previous section. Section 1625 is not allowed
for related parties - perhaps that restriction can be removed? Or the related parties
section amended to allow for tax planning arrangements to be handled in this
manner?
5. Do you agree that the current disclosure requirements in Section 3856 are
appropriate for redeemable preferred shares currently accounted for under
paragraph 3856.23? If not, why not and how should the disclosures in Section 3856
be amended?
Yes.

6. Do you agree with the proposed disclosures in EQUITY, Section 3251, in respect of
the presentation of the effect of liability recognition as a separate component of
equity? If not, why not and what disclosures, if any, should be provided?
Yes,

7. Do you agree that the proposals should be applied retrospectively in accordance
with ACCOUNTING CHANGES, Section 1506? If not, why not?
Yes.

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8. Do you agree with the proposed effective date (i.e., fiscal years beginning on or
after January 1, 2016)? If not, why not?
Yes.

Any other comments?

Click here to submit

To finish submitting the form, please click “send” in the email addressed
to [email protected] that will appear immediately on your screen.

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Formulaire de réponse
Pour être pris en considération, les commentaires
doivent être reçus au plus tard le
le 15 janvier 2015.

Actions privilégiées rachetables émises à
titre de mesure de planification fiscale

Exposé-sondage
Le CNC invite les intéressés à formuler des commentaires sur tous les aspects de
l’exposé-sondage.
Le présent formulaire ne vise pas à restreindre votre réponse. Chaque boîte de
texte acceptera l'intégralité de vos commentaires.
Vous pouvez sauvegarder le formulaire et l´envoyer, pour examen, à d´autres
personnes de votre organisation avant de le soumettre.

Organisation : MARIO GUILLEMETTE, CPA

Personne-ressource : MARIO GUILLEMETTE, CPA auditeur, CA

Fonction : PROPRIÉTAIRE UNIQUE

Courriel : [email protected] Téléphone: 418-884-3063

Les commentaires ont d’autant plus de valeur qu’ils portent sur un paragraphe ou un
groupe de paragraphes précis. En cas de désaccord avec les propositions de l’exposé-
sondage, veuillez expliquer clairement le problème en cause et indiquer une solution
possible, avec motifs à l’appui.
Le CNC invite les intéressés à formuler des commentaires sur toutes les modifications
proposées dans le présent exposé-sondage, mais favorise particulièrement ceux
formulés en réponse aux questions énoncées ci-dessous :
1. Êtes-vous d’accord que les actions privilégiées décrites au paragraphe .23 du
chapitre 3856, INSTRUMENTS FINANCIERS, constituent des passifs et que ce
paragraphe devrait être supprimé, compte tenu de l’analyse coûts-avantages
présentée dans la base des conclusions du présent exposé-sondage, et ce, afin
d’améliorer l’information financière? Dans la négative, pourquoi? Avec quel aspect
de l’analyse coûts-avantages êtes-vous en désaccord?
Je suis en désaccord de supprimer ce paragraphe. Pour la PME, client majoritaire
en nombre pour les cabinets, le fait de présenter les actions émises par planification
fiscale à la valeur de rachat viendrait par le fait même réduire et rendre négatif
(dans la majorité des cas) le BNR. On retrouvera des DÉFICITS IMPORTANTS
dans toutes ces compagnies dont les actions émises l'ont été pour fins fiscales
seulement. Je ne crois pas que la déduction accordée aux petites entreprises est la
préoccupation dans ce cas-ci.
2. Si vous êtes d’avis que le rapport coûts-avantages est suffisant pour justifier le
classement de ces actions dans les capitaux propres, comment faudrait-il modifier
le paragraphe 3856.23 pour résoudre les problèmes soulevés dans la base des
conclusions?
Pour le problème d'application différente sur d'autres actions de planification fiscale,
serait-il possible d'appliquer le paragraphe .23 à toutes actions émises suite à une
planification fiscale. Est-ce que cette ouverture amènerait des abus possibles des
préparateurs d'états financiers?
Pour le second problème, je n'ai malheureusement aucune solution.
3. Êtes-vous d’accord que l’ajustement des capitaux propres découlant de la
comptabilisation et de l’évaluation du passif devrait être présenté sous un poste
distinct dans les capitaux propres? Dans la négative, comment l’ajustement devrait-
il être présenté?
Sous un poste distinct ou non, mon opinion à la question #1 est de ne pas ajuster la
valeur comptable de ces actions.
4. Selon vous, faudrait-il modifier le chapitre 1625, RÉÉVALUATION INTÉGRALE DES
ACTIFS ET DES PASSIFS, afin de préciser les conditions qui doivent être réunies
pour procéder à la réévaluation des comptes d’une filiale dans le cas de certaines
opérations visées par le paragraphe 3856.23? Dans l’affirmative, quels aspects du
chapitre 1625 faudrait-il modifier? À votre avis, dans quelle mesure les entités
procéderaient-elles à la réévaluation des comptes d’une filiale?
NON, les coûts seraient trop importants versus les avantages pour l'utilisateur des
états financiers, en débutant par l'actionnaire des PME.
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5. Êtes-vous d’accord que les obligations d’information contenues actuellement dans
le chapitre 3856 sont appropriées en ce qui concerne les actions privilégiées
rachetables actuellement comptabilisées selon le paragraphe 3856.23? Dans la
négative, pourquoi et comment conviendrait-il de modifier ces obligations
d’information?
OUI, à moindre d'élargir les LOIS de planifications fiscales admissibles au
paragraphe .23
6. Êtes-vous d’accord avec les obligations d’information qu’il est proposé d’inclure
dans le chapitre 3251, CAPITAUX PROPRES, en ce qui concerne la présentation
sous un poste distinct dans les capitaux propres de l’effet de la comptabilisation du
passif? Dans la négative, pourquoi et quelles sont les informations qui devraient
être fournies, le cas échéant?
Sous un poste distinct ou non, mon opinion à la question #1 est de ne pas ajuster la
valeur comptable de ces actions.
7. Êtes-vous d’accord que les propositions devraient s’appliquer rétrospectivement, en
conformité avec le chapitre 1506, MODIFICATIONS COMPTABLES? Dans la négative,
pourquoi?
OUI

8. Êtes-vous d’accord avec la date d’entrée en vigueur proposée (les modifications
s’appliqueraient aux exercices ouverts à compter du 1er janvier 2016)? Dans la
négative, pourquoi?
OUI

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