For accounting periods starting from January 1, 2011 Canadian Generally Accepted Accounting Principles (GAAP) have ceased to exist.
Public companies
From 2011 public companies are required to prepare their financial statements in accordance with International Financial Reporting Standards (IFRS).
This change recognizes that Canada is an international trading nation that seeks capital investment from around the world. IFRS are becoming the de facto international accounting standards. Overseas investors will be confident in reading the financial statements of Canadian companies, and Canadian investors can directly compare the performance of Canadian companies against their overseas competitors.
The main hold-out against the move to IFRS is the United States of America. However, even though the US is reluctant to give up its power to set US accounting standards, it is working on aligning many of its standards with IFRS. I believe that the US will end up with accounting standards that are only distinguishable from IFRS by their name.
Private Companies
While the change to IFRS is good for public companies and capital markets what does it do for small and medium sized companies (SMEs) that don’t need to raise funds from the public? Nothing much, except to increase the cost and complexity of producing financial statements. The owners of SMEs are generally involved in the day to day management of their businesses and don’t need the 70 to 100 pages of disclosures and discussion typically found in a public company’s financial statements.
Therefore the Accounting Standards Board has introduced a separate set of standards for use by private businesses. These are the Accounting Standards for Private Enterprises (ASPE). ASPE are based on the old Canadian GAAP but contain many of the simplifications for private companies that were optional under the old standards. Of greatest relief to accountants across the country is the simplification of reporting on financial instruments. Except where fair values are readily available (such as shares traded on the TSX) financial instruments will be reported at amortized cost.
Some of my clients decided to adopt ASPE early. My experience is that for companies that used the options for private enterprises in the old GAAP the change has been easy to manage and comparative figures from earlier years have needed little adjustment.
Micro companies
The majority of businesses in Canada are micro companies. These are companies that are owned by a few shareholders, have relatively small revenues and do not have significant amounts of debt. These companies do not produce financial statements that comply with any accounting standards. I don’t see this changing in the future. Nonetheless, their external accountant makes a brief assessment of whether their financial statements are false or could be misleading. ASPE will be the foundation of this assessment.
Public companies
From 2011 public companies are required to prepare their financial statements in accordance with International Financial Reporting Standards (IFRS).
This change recognizes that Canada is an international trading nation that seeks capital investment from around the world. IFRS are becoming the de facto international accounting standards. Overseas investors will be confident in reading the financial statements of Canadian companies, and Canadian investors can directly compare the performance of Canadian companies against their overseas competitors.
The main hold-out against the move to IFRS is the United States of America. However, even though the US is reluctant to give up its power to set US accounting standards, it is working on aligning many of its standards with IFRS. I believe that the US will end up with accounting standards that are only distinguishable from IFRS by their name.
Private Companies
While the change to IFRS is good for public companies and capital markets what does it do for small and medium sized companies (SMEs) that don’t need to raise funds from the public? Nothing much, except to increase the cost and complexity of producing financial statements. The owners of SMEs are generally involved in the day to day management of their businesses and don’t need the 70 to 100 pages of disclosures and discussion typically found in a public company’s financial statements.
Therefore the Accounting Standards Board has introduced a separate set of standards for use by private businesses. These are the Accounting Standards for Private Enterprises (ASPE). ASPE are based on the old Canadian GAAP but contain many of the simplifications for private companies that were optional under the old standards. Of greatest relief to accountants across the country is the simplification of reporting on financial instruments. Except where fair values are readily available (such as shares traded on the TSX) financial instruments will be reported at amortized cost.
Some of my clients decided to adopt ASPE early. My experience is that for companies that used the options for private enterprises in the old GAAP the change has been easy to manage and comparative figures from earlier years have needed little adjustment.
Micro companies
The majority of businesses in Canada are micro companies. These are companies that are owned by a few shareholders, have relatively small revenues and do not have significant amounts of debt. These companies do not produce financial statements that comply with any accounting standards. I don’t see this changing in the future. Nonetheless, their external accountant makes a brief assessment of whether their financial statements are false or could be misleading. ASPE will be the foundation of this assessment.
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