Never in my long-standing experience in the accounting profession (from my picture you might not have guessed that I have been in the profession for 26 years) have I seen a period of such change.
The Canadian Institute of Chartered Accountants’ Handbook, which has been “gospel” for accountants, is to be completely replaced.
While the adoption by publicly-accountable enterprises of International Financial Reporting Standards (IFRS) in 2011 has garnered much attention in Canada, they are not the only entities undergoing change. Most Canadian organizations will face either a new financial reporting framework or some element of change to the standards they have historically applied.
Most publicly-accountable enterprises and government business enterprises are required to adopt IFRS for fiscal years beginning on or after Jan. 1, 2011. There has been an avalanche of information on this conversion given the public nature of these entities.
Canadian private enterprises, with no equity or debt that trades in a public market and that do not act in a fiduciary capacity for the general public, may choose to adopt either IFRS or a separate set of Canadian Accounting Standards for Private Enterprises (ASPE) for fiscal years beginning on or after Jan. 1, 2011.
While ASPE is mainly derived from existing Canadian Generally Accepted
Accounting Principles (that “gospel” I referred to above), certain recognition, measurement and presentation requirements have been simplified and disclosure requirements have been reduced, based on the needs of the users, who are typically owners, managers, investors and lenders. This new “lighter” version of accounting reflects changes in accounting for financial instruments, employee future benefits, income taxes and investments. If you don’t know what any of these items are, then you will likely be more comfortable with ASPE.
Despite these simplifications, there are some options relative to reporting that are interesting to consider as an owner or lender.
Individual items of property, plant and equipment with verifiable fair value in excess of carrying value can be written up on conversion to ASPE or IFRS. Users of financial statements should be aware of the potential to increase the carrying value of assets as well as equity when reviewing financial statements. Where an entity has an asset with significant appreciation, revaluation is a consideration. Be aware that the revaluation can result in increased depreciation in the future. It may be conducive to the “what goes up, must come down” adage. There are other potential changes in the new accounting standards and options, but this one has proven interesting to both owners and lenders alike.
Not-for-profit organizations (NPOs) may choose to adopt IFRS or a new NPO financial reporting framework for fiscal periods beginning on or after Jan. 1, 2012.
Business leaders of Northern Ontario: you might want to stay close to a great accountant. You may need him/her for interpretive purposes when you see your financial statements!
