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br />Intermediate Financial Accounting II
Contemporary Accounting Issues
October 18th, 2005
1) The primary change proposed in CICA Section 3855-Financial Instruments-Recognition
and Measurement is to introduce new requirements for the recognition and measurement
of financial instruments and comprehensive income that are harmonized with standards
issued by both the US Financial Accounting Standards Board and the International
Accounting Standards Board.
As the market for financial instruments has expanded in terms of growth as well as
sophistication, the traditional recognition, measurement and disclosure principles have
since proven inadequate to handle the financial instruments readily available to most firms.
Section 3855 dictates when a financial instrument is to be recognized on the Balance Sheet
as well as how financial instrument gains and losses are to be reported and presented on a
firm financial statements.
2) The new standards must be applied no later then the first day of a firm fiscal year
beginning on or after October 1st, 2005. Companies can choose to apply the standards
earlier, but they must choose to do so as of the first day of their fiscal year. Although
companies will not be required to restate comparative figures from previous years, the
CICA suggests, significant implementation planning may be necessary if you use financial
instruments extensively.
3) Examples of the most common financial instruments that are excluded from the new
standards set forth in CICA Section 3855 include:
- Interest in subsidiaries, joint ventures and significant influence investees
- Employee benefits
- Insurance contracts
- Leases
- Stock-based payments
4) The four major classifications under Section 3855 are as follows. It should be noted that
