For Canadian public companies, there is no choice. They have until 2011 to adopt International Financial Reporting Standards (IFRS) for the preparation of their financial statements.

But it's much less cut and dried for private companies, which make up the vast majority of businesses in Canada. The Accounting Standards Board (AcSB) has developed a distinct set of financial reporting standards for private companies. Now, these firms have to choose between the new Generally Accepted Accounting Principles (GAAP) for Private Enterprises or IFRS.

The AcSB finalized the new private enterprise standards late last year in time for use for December 31, 2009, annual financial statements. The absolute deadline for adopting them is 2011—in time to replace current Canadian GAAP and to coincide with the debut of IFRS in Canada. The first step in making an informed choice is to analyze business, accounting and stakeholder interests, and the impact of choosing GAAP for Private Enterprises versus IFRS.

Key considerations in the decision should include the following questions:

• What are the business and strategic considerations, now and in the future?
• How do the 2 sets of reporting standards differ?
• When should we decide?
• Will adopting 1 set of standards now preclude adopting the other reporting option in the future?
• What's involved in preparing for and managing an effective conversion?
• Will additional choices be introduced in the future?

The choice will ultimately come down to weighing the differences between the 2 sets of standards against the information needs of stakeholders and intermediaries.

But before getting down to the details of the standards, it's important to consider the big picture. Here are important factors to consider in weighing the GAAP for Private Enterprises against IFRS.

Usability
IFRS has extensive disclosure requirements, generally resulting in significantly more disclosure than Canadian GAAP. The nature of private company relationships often means stakeholders either don't require this level of information or can obtain it directly from the company. In developing the new standards, the AcSB recognized this and has significantly reduced disclosures required under GAAP for Private Enterprises. Private companies should consider whether their stakeholders need IFRS-level disclosures or whether the company needs to make such disclosures to achieve other reporting objectives.

Cost
There's no question that IFRS conversion will cost more up front, largely due to the scope of work involved in introducing significant disclosure requirements to systems and processes, and training employees.

Still, for some companies, it's well worth the investment. If there's a chance the company might want or need to move to IFRS later, it could make sense to adopt IFRS immediately.

Companies should consider immediate adoption of IFRS if they:

• intend to go public;
• do business with foreign lenders that are likely to require IFRS-compliant financial information;
• compete against public companies; or
• intend to make foreign acquisitions.

Agility
Private companies should also consider the ongoing efforts that will be required to comply with IFRS versus GAAP for Private Enterprises. Due to its greater disclosure requirements and complexity, IFRS will have a larger impact on the organization's financial systems, internal controls and human resources.

Specific considerations
Some of the specific attributes of IFRS might be so appealing to a private company that they alone will tip the balance in favour of those standards.

A good example is investment properties: IFRS allows companies to measure these at fair value at each balance sheet date; the proposed GAAP for Private Enterprises does not.

The bottom line
The bottom line is that private companies should weigh short- and long-term needs when deciding which option to adopt.

In assessing these and other factors, companies should be consulting closely with their advisors and preparing now for the transition.

This article is an edited and condensed version of Deloitte's publication Canadian GAAP at a Crossroads. It is used with permission.

Learn more:

• Brushing up on the new accounting standards
• Accounting rules for private companies released