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FROM: JUL-AUG 2009 ISSUE | BY STEPHEN SPECTOR
As Canadian public companies get ready for the adoption of International Financial Reporting Standards (IFRS), private companies are likewise facing changes in the way they report to shareholders. The 2006 decision by the Accounting Standards Board (AcSB) to move to IFRS acknowledged that “one size does not fit all” – recognizing that changes to generally accepted accounting principles applicable to private companies were necessary. In April 2009, the AcSB released for comment its Exposure Draft (ED) entitled Generally Accepted Accounting Principles for Private Enterprises. The ED consists of:
- a summary of significant changes to standards in the existing Handbook;
- specific questions on which the AcSB would like input from stakeholders;
- proposed text that differs significantly from that in the existing standards; and
- a listing of all proposed disclosure requirements.
The ED represents a principles-based set of standards that encourages the use of professional judgment. Consequently, there is less prescriptive material and detailed guidance than in the existing Handbook. Furthermore, disclosure requirements have been re-examined and focused on the needs of users in the private sector. The ED recognizes that private sector financial statement users generally have the ability to obtain additional information from an enterprise. Therefore, the disclosure requirements in the standards for private enterprises will be considerably fewer than in the existing Handbook.
The ED contains a new section, Section 1500, First-time Adoption, which sets out specific transitional provisions for first-time adoption of the new private enterprise standards. The objective of Section 1500 is to ensure that a private enterprise’s first financial statements prepared in accordance with the new standards contain high-quality information that:
- is transparent for users and comparable over all periods presented;
- provides a suitable starting point for accounting under the new standards; and
- can be generated at a cost that does not exceed the benefits to financial statement users.
In general, Section 1500 will require private enterprises to apply the private enterprise standards retrospectively. However, Section 1500 also provides different transitional provisions for specific standards when the AcSB believes the cost of retrospective application would exceed the benefit.
To allow stakeholders to become familiar with the standards and their application in practice, the AcSB does not intend to make substantive changes for a period of time after the final standards are issued, with the possible exception of Accounting Guidelines AcG-12, Transfers of Receivables and AcG-15, Consolidation of Variable Interest Entities. These guidelines deal with topics that are currently being addressed by both the IASB and the FASB. More appropriate standards may be forthcoming and the AcSB will consider amending the proposed standards if and when that happens.
Basically, the AcSB intends to update the private enterprise standards every one or two years, rather than the existing practice whereby each new standard is issued as it is completed. This was the approach used in 2007 when the AcSB issued an omnibus exposure draft to deal with not-for-profit organizations and changes to the 4400 sections of the Handbook. Consequently, standards for private enterprises will evolve over time based on concepts shared with IFRS. As a final check, the AcSB intends to review the effectiveness of these standards and reassess its strategy for this sector after the standards have been in place for approximately five years.
The AcSB has published a Background Information and Basis for Conclusions document (see www.acsbcanada.org). Web links on the site enable interested parties to access the complete text of the proposed standards, and comments on the ED must be received by July 31, 2009. The proposed standards for private enterprises would be effective for annual financial statements relating to fiscal years beginning on or after January 1, 2011. As early adoption will be permitted, the AcSB intends to issue the final standards by the end of 2009 so as to permit their use for 2009 calendar year-end financial statements.
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