In terms of financial reporting frameworks, most Canadian businesses and government enterprises have recently completed the switch from Generally Accepted Accounting Principles (GAAP) to International Financial Reporting Standards (IFRS) or Accounting Standards for Private Enterprises (ASPE).
CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
GAAP EXERCISE
For each of the following scenarios, identify the GAAPs that have been violated.
1. The owner of a sole proprietorship lists his family vehicle under the assets section of the company’s balance sheet.
(Business Entity)
2. The owner of a small clothing outlet lists the value of the company car at its current resale value because he assumes the business is about to close once Wal-Mart moves into the neighbourhood the following year.
(Going Concern)
3. An accountant alternates between using a one-year fiscal period and a three-month fiscal period for her business.
(Time Period)
4. A large, multinational corporation issues an amended balance sheet which features restated values for Office Supplies due to the omission of $16 worth of elastic bands.
(Materiality)
5. The purchase of a new computer was recorded at its retail value (sticker price) of $600 even though the company had negotiated a good deal and paid only $400 for the item.
(Cost)
6. A corporation fails to disclose in its annual report that it is the defendant in a $3 million class action lawsuit recently launched by disgruntled shareholders.
(Full Disclosure)
7. A bookkeeper records a credit sale in the books of the company on March 14 because that was the day that payment of the account was finally received.
(Revenue Recognition)
8. A telephone bill is recorded in the books on the day it was finally paid even though the bill had arrived three weeks earlier.
(Matching)
9. The CEO of a large company encourages her department to work from memory and not spend too much time worrying about the maintenance of source documents.
(Objectivity)
10. An accountant ignores the gradual loss in market value of the firm’s merchandise inventory in order to improve the equity position of the company.
(Conservatism)
11. An accountant alternates between the straight-line and declining-balance methods of depreciation on the company building in order to lower expenses and increase profits.
(Consistency)
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Canada’s Adoption of IFRS and ASPE
For fiscal years beginning on or after January 1, 2011 the Canadian Accounting Standards Board (AcSB) now requires International Financial Reporting Standards (IFRS) to be employed by PAEs (publicly accountable enterprises such as public corporations and financial institutions) while the Canadian Public Sector Accounting Board (PSAB) now permits some GBEs (government business enterprises such as government agencies, Crown corporations) to employ IFRS as well.
(Please note that Canada comprises less than four percent of world capital markets; therefore, IFRS provide more opportunities for publicly accountable enterprises in Canada by eliminating the need for multiple GAAP reconciliation, increasing access to international capital markets, and potentially reducing the cost of capital.)
On the other hand, private enterprises (sole proprietorships, partnerships, private corporations) were given the option by AcSB to employ either IFRS or the new Accounting Standards for Private Enterprises (ASPE) developed specifically to meet the needs of users of private company financial statements for fiscal years beginning on or after January 1, 2011.
Meanwhile, private charities and private not-for-profit organizations must now employ Accounting Standards for Not-for-Profit Organizations (ASNFPO).
Finally, some government business enterprises and government not-for-profit organizations may choose to employ Public Sector Accounting Standards (PSAS) as established by the Public Sector Accounting Board (PSAB).
IFRS, issued by the International Accounting Standards Board (IASB), are high-quality, global accounting standards that require transparent and comparable information in financial statements and other financial reporting.
IFRS are generally similar to Canadian GAAP. They are based on a similar conceptual framework with similar style and form, and generally reach similar conclusions. This fundamental similarity... should ensure a relatively smooth transition for Canada’s publicly accountable enterprises. (CICA's Guide to IFRS in Canada)
IFRS actually consists of: IAS 1 to 41 (International Accounting Standards) enacted by the predecessor to the IASB known as the International Accounting Standards Committee or IASC, IFRS 1 to 16 enacted by the IASB, and the various interpretations of those respective standards by the relevant governing body.
For a summary of all current IFRS, IAS and interpretations, click here.
Summary of Changes
Canadian publicly accountable enterprises and some government business enterprises are now required to use
International Financial Reporting Standards (IFRS)
Canadian private enterprises now have the option of using either
International Financial Reporting Standards (IFRS) or
Canadian Accounting Standards for Private Enterprises (ASPE)
(http://www.pwc.com/ca/en/private-company/publications/canadian-gaap-or-ifrs.jhtml)
Private charities and not-for-profits must adhere to Accounting Standards for Not-for-Profit Organizations (ASNFPO) while some government enterprises and not-for-profits must employ Public Sector Accounting Standards (PSAS).
IFRS and ASPE Summaries
For an excellent summary of IFRS and ASPE in Canada, click below for two reports prepared by a University of Toronto accounting professor.
The first summary describes the general characteristics of IFRS and ASPE.
The second summary examines how IFRS and ASPE treat specific accounts such as revenue and inventory.
IFRS and ASPE Foundations - Lisa Harvey Rotman FINAL v2 - Copy.pdf