Bakers Journal

Business Advisor: January/February 2012

February 3, 2012
By Simon Francis

Private companies have a decision to make between two sets of accounting standards

The deadline for private companies to adopt and report under a new set of accounting standards in Canada has arrived. Effective for fiscal years that end on Dec. 31, 2011, and later, private companies have to make a choice between two sets of standards: Accounting Standards for Private Enterprises (ASPE) and International Financial Reporting Standards (IFRS).

The new handbook for private enterprises outlines standards similar to those that existed under the previous Canadian GAAP but more clear and simple to apply. For example, some disclosure requirements, such as those relating to financial instruments and hedge accounting, have been removed and there is no longer a need for the differential reporting options that were introduced in 2003. The emphasis is on simplified reporting for a few specific, local interested parties (users) of the financial statements.

IFRS represents the accounting language of international business. In response to today’s global economy, it offers a single set of high-quality, consistent and comparable reporting standards that will prove more efficient and cost effective by eliminating the need for the reconciliation of information reported under different national standards.


In speaking with CFOs, controllers or other entrusted senior members of private company finance teams in the Food & Beverage sector, I’ve discovered that they believe IFRS is not applicable to them. There are several factors that may challenge this thinking, including selling the business to a public company, raising capital through worldwide public sources or expanding internationally. They all boil down to understanding the business’ intentions for its future; for example, market share and growth orientation, financing, infrastructure and accounting practices, and exit strategy.

Most private business owners might be thinking that adopting ASPE is the most attractive because it will likely involve less change and disruption to their accounting practices, but it might not be the best choice for your business.

What private businesses should consider
The decision of whether to choose ASPE or IFRS starts with an understanding of the business intentions and needs of the lenders to and shareholders of the business. An early dialogue with these key stakeholders and their needs should be undertaken as soon as possible. 

The decision to adopt ASPE or IFRS doesn’t affect just the finance department. Other key functional areas must be included in the planning and execution of strategy, including information technology and human resources. The information technology department needs to be aware because software programs must be updated to account for the new standards. In addition, if there are many changes to current accounting standards, there may be a requirement to run systems parallel in 2012.

Human resources may also have some planning to do. They need to assess their talent levels and determine whether or not they need to hire candidates who have experience with the new standards and potentially additional support staff for the key functional areas that are impacted by the change.

Next steps
A discussion should take place to decide which new set of accounting standards to adopt and to weigh the costs and benefits of each of the two options.

As part of this process, your financial statements must be reviewed carefully to ensure that all applicable areas are addressed. The differences are vast and vary based on the industry in which the company operates. Specific areas where transition adjustments occur on adoption of the new standards are property, plant and equipment, future liabilities, pension and stock option benefits, and business combinations. The financial result can be very different under the two standards. Key financial statement ratios and performance measures such as EBITDA, net income and owners’ equity should be evaluated as part of the decision.

Private companies are currently trying to understand how the changes to the accounting standards affect them. Businesses are making decisions without sufficient information and the fear is that without the proper understanding of both choices, there will be negative repercussions such as the stalling the closing date of the potential purchase of the business or delays in obtaining the required financing for strategic initiatives such as expansion or global partnerships.

I encourage you to consult your accountant to make sense of your options, focusing on these three key areas:

  1. Understanding the key users of the financial statements and their needs
  2. Facilitating a discussion of the future plans to determine if IFRS will be applicable
  3. Knowing the necessary steps for implementation, including timelines for the decision on accounting policy adoptions

Being armed with all the right information will ensure you make the best choice in accounting standards for your business.

Simon Francis is a partner in the audit and assurance practice at the Toronto office of Fuller Landau LLP. He can be reached at 416-645-6583 or

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