A globalized economy requires common standards and practices – that's why public companies across Canada are working hard to prepare for the introduction of new accounting rules based on International Financial Reporting Standards (IFRS).
Private companies don't have to adopt IFRS, but they will have their own accounting changes. The good news for most private enterprises is that the new accounting rules will make their lives easier. Still, they will have to ensure they understand the changes and prepare for the transition.
Canada's 80,000 public companies must adopt new Canadian generally accepted accounting principles (GAAP) based on IFRS for fiscal years that start on or after January 1, 2011. It will bring Canada in step with more than 100 countries around the world where IFRS are already the standard and mean far-reaching changes in the financial statements of publicly accountable enterprises.
At the same time, the Canadian Accounting Standards Board will soon issue a new GAAP framework for the country's 2.2 million private companies that will also come into effect on January 1, 2011. Based on the current accounting standards in the Canadian Institute of Chartered Accountants (CICA) handbook, the framework will greatly reduce disclosure requirements, along with introducing other simplifications. The changes come in recognition of the fact that the financial statements of private companies are typically used by a small circle of stakeholders, notably lenders. While publicly accountable enterprises are required to follow IFRS-based standards, private companies can choose between using IFRS or the Canadian GAAP specifically for private enterprises.
Most private companies will opt for the simplified rules. Exceptions will include companies planning to go public or very large companies that wish to compare their financial results against publicly accountable enterprises in similar industries.
Private businesses should plan to ensure a smooth transition to the new standards, following the same three-stage process that many publicly accountable enterprises are using to get ready for IFRS.
The first stage involves reviewing the new sections of the CICA handbook and assessing what changes apply to your company. The second requires looking at the impact of the changes on your company's financial statements and systems and choosing the options that are best suited to your enterprise. The final stage is implementation: applying the new standards to your accounting.