You may have heard some discussions regarding the changes in accounting standards, specifically International Financial Reporting Standards (IFRS) and generally accepted accounting principles for private enterprises (PE GAAP). The date to mark for the change was January 1, 2011; however, not to worry. You haven’t missed any important deadlines as the new standards take effect for fiscal periods beginning on or after January 1, 2011.
Based on our knowledge of small- and medium-size businesses, we believe the accounting principles available under PE GAAP will be the most suitable. The new standards allow businesses to adopt the accounting policies that are right for them, while also simplifying financial reporting.
Although there are many factors to consider during the transition, the following questions should be asked:
- How is the business currently reporting under existing Canadian GAAP? Previously there had been options available on how to account for items such as investments, intangible assets, income taxes, and preferred shares under differential reporting options. These past policies are still available for use under PE GAAP.
- Does the business own its land and building? PE GAAP provides a one-time opportunity to revalue capital property and strengthen the balance sheet by revaluing assets to their current fair market value, directly increasing the equity in the business with no tax consequences.
- Does the business have any active investments? This will affect how various financial instruments are reported on the balance sheet and needs consideration for the appropriate policy selection.
- Who are the users of the financial statements? This will affect what policies are adopted in the transition year to PE GAAP to ensure an accurate picture is portrayed.
In the transition year there may be additional costs incurred for the time and consideration needed to determine the appropriate policies. We would like to arrange a meeting to further discuss your business’ transition to PE GAAP.