Profession > Standards
The Evolution of Standard Setting
A look back at the origins of Canadian accounting standards.
FROM: JAN-FEB 2008 ISSUE | BY STEPHEN SPECTOR
As CGA-Canada celebrates its 100th anniversary, it is interesting to reflect on the evolution of accounting and auditing standards in Canada. Today, CGA-Canada is an active participant in the standard-setting process, but it wasn’t always that way.
For the first part of the 20th century, there was neither a formal oversight body nor a formal structure to accounting standards. Then in 1945, the Dominion Association of Chartered Accountants (DACA) established the Accounting and Auditing Research Committee to provide guidance on matters of practice. In 1949, the DACA became the Canadian Institute of Chartered Accountants (CICA). Twenty years later, the CICA established the Handbook, which replaced bulletins as the main source of accounting and auditing standards in Canada.
In 1975, the Canada Business Corporations Act added a degree of quasi-legislative authority to the Handbook, when Regulations 44 and 45 of the Act proclaimed:
44) The financial statements referred to in paragraph 149(1) of the Act shall, except as otherwise provided by this Part, be prepared in accordance with the standards, as they exist from time to time, of the CICA set out in the Handbook.
45) The auditor’s report referred to in Section 163 of the Act shall, except as otherwise provided by this Part, be prepared in accordance with the standards of the CICA set out in the Handbook.
Recent Changes in Standard Setting
By the 1980s, the collapse of a number of Canadian financial institutions and the emergence of what became known as the “expectations gap” in auditing resulted in a rethinking of the composition of Canadian standard-setting bodies. By 1988, the CICA had created Task Forces to deal with specific standards. Then in 1991, the CICA replaced the Accounting Standards Committee and the Auditing Standards Committee with the Accounting Standards Board (AcSB) and the Auditing Standards Board.
A few years later, CICA re-evaluated its standard setting efforts. The CICA Task Force on Standard Setting released its final report in May 1998, and among its recommendations was the establishment of an “independent standard setting organization for Canada.”
The report also recommended that the chair of the AcSB become a full-time paid position, the size of the AcSB be reduced from 13 to not more than nine members, and members be appointed on the basis of attributes such as “maturity, broad vision, an understanding of accounting theory, and the ability to anticipate and evaluate implications of proposed standards on all sizes of business and different types of industries.” This was a significant change, as candidates were no longer chosen on the basis of gender, geography, and language.
In addition, the CICA established the Accounting Standards Oversight Council (AcSOC) to support the setting of accounting standards domestically and to contribute to the development of internationally accepted standards. AcSOC’s mandate also includes providing opportunities for the public to comment on all aspects of accounting setting, and reporting to the public annually on the performance of the AcSB.
Between 1998 and today, the AcSB has changed the structure of the standard-setting process and sought partnerships with other constituents affected by its decisions. Since 2005, CGA-Canada has had a representative on the AcSB.
All in all, the current approach to standard setting is a far cry from the system that began more than 60 years ago.
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Stephen Spector, MA, FCGA, is the proprietor of Spector and Associates and teaches Financial and Managerial Accounting at Simon Fraser University. He also serves on CGA-BC's board of governors. E-mail shspector@shaw.ca.