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Accounting Standards for Private Enterprises (ASPE)

ASPE definition

Accounting Standards for Private Enterprises (ASPE) are widely used accounting principles for private companies in Canada.

When it comes to accounting, precision and accuracy are paramount. But, financial transparency and credibility come with the complex landscape of accounting standards.

Many private businesses and not-for-profit organizations use the Accounting Standards for Private Enterprises (ASPE), developed by the Accounting Standards Board (AcSB).

It’s vital to understand ASPE, how to comply with it and how it compares to another option for private businesses in Canada, International Financial Reporting Standards (IFRS), also known as IFRS Accounting Standards.

What is ASPE?

ASPE is a set of accounting standards available for private companies in Canada. It provides a comprehensive framework for preparing and presenting financial statements that are relevant, reliable and understandable.

While publicly traded companies in Canada must use IFRS, private companies can choose ASPE or IFRS. When a lender, investor or other user doesn’t require GAAP (generally accepted accounting principles), private companies can also choose to prepare non-GAAP financial statements.

ASPE's main features include:

  • A simplified framework: Private businesses will find the accounting principles of ASPE simpler than those of IFRS Accounting Standards.
  • A cost-benefit approach: ASPE aims to balance the cost of implementing accounting standards and the benefit of the financial information’s relevancy to the users of that data.
  • A focus on Canadian context: The AcSB factors the unique needs and characteristics of Canadian private enterprises into the development of ASPE.

Did ASPE replace GAAP?

Generally accepted accounting principles (GAAP) provide accounting guidelines, conventions, rules and procedures. They specify how transactions should be recognized, measured, presented and disclosed in financial statements.

In Canada, we have a multiple framework model, which includes ASPE.

The Canadian GAAP is comprised of four parts:

  1. International Financial Reporting Standards (IFRS)
  2. Accounting Standards for Private Enterprises (ASPE)
  3. Accounting Standards for Not-for-Profit Organizations (ASNPO)
  4. Accounting Standards for Pension Plans (ASPP)

IFRS Accounting Standards and ASPE are the accounting frameworks available for use in Canada by for-profit enterprises.

Why is ASPE important?

Canadian private businesses are not obliged to follow GAAP for financial reporting. Small companies can maintain tax compliance and request modest loans by submitting balance sheets and other financial reporting tools found in most accounting software.

“If you’re a small business and the only loan you have is completely secured by real estate, a potential lender probably doesn’t care too much about financial statements because they feel protected by the security they have,” said Armand Capisciolto, FCPA, FCA and chair of the AcSB.

“However, if you’re looking to expand your private business, maybe build a new facility or invest in $10 million worth of equipment, the bank may say they need an audit prepared by a proper financial reporting framework.”

In Canada, that financial reporting framework would require ASPE or IFRS. Adhering to ASPE allows domestic lenders to evaluate your business using a standardized financial information package.

Other players who may want to see a company’s financial statements in an ASPE framework include:

  • owners not involved in managing the business
  • potential buyers of the business
  • existing and potential lenders
  • creditors
  • credit rating agencies
  • vendors and suppliers

Why should a business adopt ASPE?

Capisciolto notes that adhering to ASPE can benefit creditors and other stakeholders beyond providing compelling financial information.

ASPE provides guidelines for recognizing revenue, evaluating assets and accounting for liabilities. Following these standards can lead to more accurate financial information, supporting better decision-making within the organization.

“Accounting standards offer a predictive value. With more of a standardized framework, owners will be able to see more precisely how the company is doing in the present and the future. It provides more insight into the business,” he says.

Adopting ASPE will also enable businesses to:

  • Comply with legal and regulatory requirements
    Some bodies mandate the use of recognized accounting standards. Using ASPE helps businesses comply with these requirements, reducing the risk of legal issues and penalties.

  • Be comparable to other businesses
    Having ASPE provides a standardized accounting framework, making it easier for businesses to compare their financial statements with those of other Canadian companies. This comparison is essential for investors and creditors when evaluating investment or lending opportunities.

  • Manage risks
    A structured accounting framework like ASPE can help businesses identify and manage financial risks more effectively. This includes understanding the impact of accounting treatments on the balance sheet, income statement and cash flow statement.

What is the difference between ASPE and IFRS?

Public companies in 147 jurisdictions worldwide use IFRS for all or most listed domestic companies. IFRS creates consistency and transparency and allows investors to properly compare companies globally. Canada adopted IFRS in 2011.

“If you’re trying to attract global investment, you need globally comparable financial statements. The purpose of IFRS Accounting Standards is to provide standards used worldwide to have efficient capital markets across borders,” says Capisciolto.

Remember that IFRS can be more complicated than ASPE, and companies may require professional advice to apply IFRS.

“You need someone who can read and understand standards and ensure they comply correctly. Even for a simple entity, IFRS Accounting Standards will be more onerous,” says Capisciolto.

For example, a contractor using IFRS must report more detailed information about in-progress contracts than if they adhere to ASPE. They must disclose how much work is left and how much revenue is expected for each ongoing project to create a complete picture of the business’s finances.

ASPE doesn’t require such extensive disclosures because companies that use it typically have relationships with their lenders and can answer questions and provide further information. A Canadian bank or domestic investor will connect with the business to gather the information needed to extend credit.

“IFRS Accounting Standards makes it so that businesses and investors don’t need to engage with each other. Investors can look at a business’s financial statements to get what they need. However, if a company is private and uses ASPE, the investor would need to strike up a relationship, as they may need to see additional information to complete their assessment,” Capisciolto says.

Another difference between IFRS and ASPE is how they consider leases. Under IFRS, leases for vehicles or property are considered liabilities, not operating expenses that can be expensed over the lease term.

“With IFRS accounting standards, you must report that five-year lease as a liability over the entire term. If a private company uses IFRS Accounting Standards but has many leases, it would treat every lease like a loan. The cost of that accounting is significant.”

Capisciolto says it’s essential to consider both models from a cost-benefit perspective. While ASPE is more straightforward and requires less time and resources, attracting foreign investment can create difficulties. On the other hand, IFRS can be costly to comply with. If a company isn’t looking for foreign capital, it may be more burdensome than advantageous.

ASPE offers entrepreneurs a simplified yet comprehensive framework for financial reporting tailored to the needs of private enterprises. Understanding ASPE's accounting principles and disclosure requirements is crucial for entrepreneurs seeking to communicate their financial performance effectively to stakeholders. Consider consulting with accounting professionals specializing in ASPE compliance to navigate ASPE and ensure accurate financial reporting for your business.

More detailed information about ASPE is available in the CPA Canada Handbook.

Next step

Learn to analyze the four primary financial statements and calculate your business’s profitability by downloading the free BDC guide, Understand Your Financial Statements.

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