The CICA Handbook – Accounting (Handbook) now consists of five parts, with each part containing standards applicable to certain enterprises: 

• Part I contains standards applicable to publicly accountable enterprises (International Financial Reporting Standards and government business enterprises)
• Part II contains accounting standards for private enterprises
• Part III contains accounting standards for not-for-profit organizations
• Part IV contains accounting standards for pension plans
• Part V contains pre-changeover accounting standards including complete set of the archived CICA Handbook – Accounting.

This segregation is necessary as the Handbook is referred to in various pieces of regulation and legislation as constituting the principal source of Canadian GAAP.  With the creation of different standards for different sectors, each of which constitutes Canadian GAAP, it is necessary to house all of these standards in the Handbook, thus the creation of "Parts".

‘PE GAAP’ is the vernacular term for ‘Accounting Standards for Private Enterprises’ (ASPE).   Accounting Standards for Private Enterprises is a specific subset of Canadian Generally Accepted Accounting Principles (GAAP) that has been tailored to meet the needs of specific users – private enterprises.   All private enterprises will have to choose whether they will adopt ASPE or International Financial Reporting Standards (IFRS) for fiscal years beginning on or after January 1, 2011.

A private enterprise is defined as a profit-oriented entity that is not a publicly accountable enterprise.  A private enterprise has not issued debt or equity instruments that are traded in a public market (such as a stock exchange) nor does a private enterprise hold assets in a in a fiduciary capacity for a broad group of outsiders as one of its primary businesses.  Banks, credit unions, insurance companies, securities brokers / dealers, mutual funds and investment banks typically hold assets in a fiduciary capacity and may not be considered a private enterprise.  Most owner-managed small businesses would be considered a private enterprise.

The accounting standards for private enterprises are a simplified basis of accounting for private enterprises developed based on the specific financial reporting needs of this sector.  They are found in Part II of the CICA Handbook.

No.  Private enterprises have a choice of adopting accounting standards for private enterprises (Part II) or international financial reporting standards (IFRS) (Part I) of the Handbook. In either case, a private enterprise will be able to state that its financial statements have been prepared in accordance with Canadian GAAP.

Deciding whether an enterprise is publicly accountable (other than a not for profit organization) is a matter of professional judgment.  When making the determination, you should consider the following questions:

• Do I consider the enterprise to be publicly accountable?
• Does the enterprise manage financial resources (e.g. deposits or advances) that have been entrusted by a broad group of clients, customers, members who are not involved in the management of the enterprise?
  • What is the primary business?
  • Is the holding and managing of these financial resources an integral part of any of the primary businesses? Could I conduct the business without holding and managing these financial resources?  If so, then the holding of these financial resources might be incidental to the primary business.
  • Has holding, receiving and managing these financial resources created a new primary business, and would it be considered integral to that part of the business?

If you answered “No” to the above questions, it may indicate the enterprise is not publicly accountable and therefore ASPE would apply.

If you answered “Yes” to the above questions, it may indicate the enterprise is publicly accountable and therefore IFRS would apply.

Any private enterprise can adopt accounting standards for private enterprises.  Any private enterprise also has the option to adopt International Financial reporting Standards.

The majority of private enterprises would choose to adopt ASPE over IFRS because:

• ASPE have been designed to meet the needs of private enterprises
• ASPE are simplified and easier to use and understand
• Implementation of ASPE is cost efficient and audit / accounting fees tend to be lower than IFRS reporting
• ASPE requires less disclosure than IFRS
• Many of the Standards have not changed from the current Handbook
• ASPE allows accounting policy choices, including access to “differential reporting” options
• ASPE is less complex in some areas compared to IFRS (e.g. financial instruments)
• ASPE will see changes to Standards less often
• Of the one time fair value bump on plant property and equipment that is available

• There are plans in the future to go public
• Financial statements will be comparable to pubic counterparts
• The private enterprise is a subsidiary of a parent company that reports its financial statements under IFRS and consolidation of the subsidiary would be easier
• The users of the financial statements could be globally represented and an international financial reporting framework is needed
• The common practice of the  industry where the private enterprise operates typically reports under an IFRS platform
• There could be an external restriction, such as one mandated by a bank financing agreement, that requires financial statements prepared under an IFRS framework

Not-for-profit organizations that are not subject to the CICA Public Sector Accounting Handbook, will be able to freely choose to adopt either:

1) accounting standards for not for profit organizations, which is the 4400 series of Handbook Sections (Part II of the CICA Handbook) plus accounting standards for private enterprises (Part III of the CICA Handbook) or

2) International Financial Reporting Standards (Part I of the CICA Handbook).

Not-for-profit organizations will need to make this choice for years beginning on or after January 1, 2012.  Earlier application is permitted.

Private enterprises are required to adopt accounting standards for private enterprises for annual financial statements relating to fiscal years beginning on or after January 1, 2011.  Earlier adoption of ASPE is permitted.

The accounting standards for private were published in December 2009 and therefore, a private enterprise could have applied the accounting standards for private enterprises to any financial statements issued after December 2009, even if the financial statements were dated before December 2009.  For example, an enterprise could apply accounting standards for private enterprises to October 31, 2009 financial statements that were issued after December 2009 fiscal period.

The general approach is to apply the accounting standards for private enterprises on a retrospective basis.  This means that the financial statements for the current year and comparative period must comply with the accounting standards for private enterprises. It is important that financial information be available for both the current and prior period.  However due to the cost benefit associated with obtaining historical financial information, there are some exemptions in certain areas upon first time adoption that the enterprise can elect.   The exemption elections are related to:

• business combinations
• fair value
• employee future benefits
• cumulative translation differences
• financial instruments
• share-based payment transactions
• asset retirement obligations
• related party transactions

If you require more specific details relating to these exemptions, please contact any of our advisors.  We can help explain this process and help you decide which exemption elections should be taken based on your circumstances.

Upon first time adoption of ASPE, the enterprise may elect to measure an item of property plant and equipment at the date of transition to ASPE at its fair value.  They enterprise would then use the fair value as its ‘deemed’ cost at that date.

For example, an enterprise has land of $40,000 and a building depreciated to $100,000 as the book value of these assets.  At the date of transition to ASPE, the land was valued at $90,000 and the building at $130,000. The enterprise could take a bump in the fair value of these assets so that the book value would reflect the fair value at the date of transition.  The enterprise could choose to bump the value of the land by $50,000 from $40,000 to $90,000.  The enterprise could choose to bump the value of the building by $30,000 to $130,000.  The increases to these assets would be reflected in an increase to retained earnings. 

The advantage to recording the ‘bump’ to fair value is that the enterprise will generally reflect a stronger balance sheet since the plant, property, and equipment will be reflective of fair value as opposed to historical cost.  This allows for more transparency of the financial statements.  The disadvantage is that net income will be lower in subsequent years since amortization expense will be higher due to the bump in the capital asset value.  There may also be increase capital taxes if the private enterprise exceeds the capital tax threshold.  There is also a valuation cost to obtaining the fair value of the asset

The bank is often a primary user of the enterprise’s financial statements and may require compliance with financial covenants for continued borrowings.  Electing to record these assets at fair value upon first time adoption allows for more transparency and will often result in stronger and more beneficial covenant calculations.  The bump may assist in preventing financial covenant violations.

There may be no overall benefit to the enterprise electing to take the fair value bump on the plant, property and equipment.  There may not be any financial covenant restrictions placed on the enterprise by the bank.  The cost of obtaining the capital asset valuation may exceed the benefits. 

You should discuss your options with your trusted RLB advisor.

An enterprise may elect on an individual item basis to revalue property plant and equipment upon first time adoption of ASPE.  Revaluing an asset to a higher amount will result in increased amortization if the asset is depreciable and will increase the likelihood of a future impairment.

The holdings of equity securities that are quoted in an active market (such as a stock exchange) are to be measured at fair value without adjustment for transaction costs.  This treatment is mandatory.  Changes in the carrying amount as a result of re-measuring these financial instruments to fair value at each period end are recorded in income.

An enterprise has the option to record any financial asset or financial liability at fair value by applying the fair value option listed in the CICA handbook, Part II, Financial Instruments, paragraph 3856.13.  

The enterprise will most likely choose to record most financial instruments (e.g, accounts receivable, accounts payable, deferred revenue, due to or from related parties, investment in subsidiary, long-term debt) at historical cost with the exception of equity instruments traded in an active market.

An enterprise needs to disclose separately from accounts payable and accrued liabilities the amounts of government remittances payable (other than income taxes).  Government remittances (other than income taxes) include, for example, federal and provincial sales taxes, payroll taxes, health taxes, and workers' safety insurance premiums.

Yes and no.  Differential reporting options have directly been absorbed into ASPE and therefore no longer exist outside of Canadian generally accepted accounting principles.  Written unanimous consent of all of the shareholders no longer applies.  However, the differential reporting options are now part of the accounting policy choices offered within ASPE. 

For example, before ASPE has been adopted, a private enterprise could have elected under differential reporting options to record a subsidiary at cost.  Written consent could have been obtained from the shareholders and the financial statements and assurance report would have identified the differential reporting options chosen.  Under ASPE, this is now an accounting policy choice.  The enterprise can choose to consolidate, use the equity method, or cost method to account for the subsidiary.  The financial statements and assurance report would remove any reference to differential reporting options.

IFRS is the acronym for ‘International Financial Reporting Standards’ (IFRS).   International Financial Reporting Standards is a specific subset of Canadian Generally Accepted Accounting Principles (GAAP) that has been mirrored to conform with IFRS as issued by the International Accounting Standards Board.   All publicly accountable enterprises will mandatorily adopt International Financial Reporting Standards (IFRS) for fiscal years beginning on or after January 1, 2011.  Investment Companies, Segregated Accounts of Life Insurance Enterprises and Rate Regulated Entities have been given a one year deferral until January 1, 2012 to adopt IFRS.  Deferral of the mandatory adoption of IFRS by investment companies and segregated accounts of life insurance enterprises is extended to January 1, 2013, as issued by The Accounting Standards Board in January, 2011.

International Financial Reporting Standards (IFRS) is a specific subset of Canadian Generally Accepted Accounting Principles (GAAP) that has been mirrored to conform with IFRS as issued by the International Accounting Standards Board (IASB).  They are found in Part I of the CICA Handbook.  The aim of IFRSs is to provide "a single set of high-quality, global accounting standards that require transparent and comparable information in general purpose financial statements" (IFRS Handbook, Introduction).  IFRS replaces Canadian generally accepted accounting principles (GAAP) as the financial reporting framework for publicly accountable enterprise and government business enterprises, effective for year ends beginning on or after January 1, 2011.

A publicly accountable enterprise (other than not for profit organizations) has issued debt or equity instruments that are traded in a public market (such as a stock exchange) or hold assets in a in a fiduciary capacity for a broad group of outsiders as one of its primary businesses.  Banks, credit unions, insurance companies, securities brokers / dealers, mutual funds and investment banks typically hold assets in a fiduciary capacity and are considered publicly accountable.  Public companies, whose shares are sold on a stock exchange or active market, are publicly accountable.

All publicly accountable enterprises must use International Financial Reporting Standards (IFRS) for years beginning on January 1, 2011.  Investment Companies, Segregated Accounts of Life Insurance Enterprises and Rate Regulated Entities have a one year deferral and must use International Financial Reporting Standards (IFRS) for years beginning on January 1, 2012.    Deferral of the mandatory adoption of IFRS by investment companies and segregated accounts of life insurance enterprises is extended to January 1, 2013, as issued by The Accounting Standards Board in January, 2011.

Private enterprises have the choice to adopt IFRS or the specific accounting standard tailored to their sector (Accounting Standards for Private Enterprises - ASPE) for years beginning January 1, 2011.

Not for profit organizations that are not subject to the CICA Public Sector Accounting Handbook have the choice to adopt IFRS or the specific accounting standard tailored to their sector (Accounting Standards for Not for Profit Organizations + ASPE).  These not-for-profit organizations will need to make this choice for years beginning on or after January 1, 2012.

Government business enterprises, which are a part of the public sector, will be required to adopt IFRS as directed by the CICA Public Sector Handbook for years beginning on or after January 1, 2011.

Other government organizations which are part of the public sector may follow IFRS if it is determined to be more appropriate considering their objectives and circumstances.  Professional judgment may be needed to determine this based on a case by case basis.

Publicly accountable enterprises are required to adopt International Financial Reporting Standards (IFRS) for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011.

Investment Companies, Segregated Accounts of Life Insurance Enterprises and Rate Regulated Entities have a one year deferral and must use International Financial Reporting Standards (IFRS) for interim and annual financial statements relating to fiscal years beginning on January 1, 2012.  Deferral of the mandatory adoption of IFRS by investment companies and segregated accounts of life insurance enterprises is extended to January 1, 2013, as issued by The Accounting Standards Board in January, 2011.

The Accounting Standards Board made the decision to adopt IFRS for publicly accountable enterprises after extensive consultation with stakeholders, investors, preparers and others. Businesses operating and competing in global capital markets need to be comparable on a worldwide basis.  IFRS provides this opportunity for Canadian enterprises.

IFRS is becoming the universal language of accounting and have been adopted by over 100 countries, including all those of the European Union, Australia, and much of the Pacific Rim. Note that the debate over whether to adopt IFRS continues in the United States.

IFRS are now required or permitted in over 120 countries, including the European Union, Australia and much of the Pacific Rim. The United States has not yet adopted IFRS, but is working with the International Accounting Standards Board (IASB) to align accounting standards, with the long-term goal of a single set of standards.  It is estimated that there are more than 4500 publicly accountable enterprises in Canada.

The US Securities and Exchange Commission removed the requirement in December 2007, for the reconciliations to US GAAP by foreign private issuers who financial statements are prepared in accordance with IFRS as issued by the IASB.

The benefits of adopting IFRS are as follows:

• There is global comparability of financial statements
• IFRS is useful if you want to go public in the future
• IFRS is useful if you deal extensively on an international market
• It is easier for the parent company using IFRS to consolidate an IFRS subsidiary
• The fair value bump is taken annually

• There is no relief for smaller entities – they are required to fully apply IFRS
• Extensive disclosures are required
• There is a potential need to change the accounting systems so that information required for IFRS reporting is captured
• There will be increased audit / accounting fees
• The costs may be prohibitive

You may want to adopt international financial reporting standards if you

• Have foreign lenders or users that require IFRS financial statements
• Have shareholders that prefer IFRS
• Have a parent company or subsidiaries that already report under IFRS
• Want to go public or may be sold to a public company
• Want to report under the same framework as competitors that are publicly accountable
• Desire to be seen by third parties as being similar or equal to public companies

You may want to adopt accounting standards for private enterprises if you

• Have few users of your financial statements
• Want to see less disclosure (than IFRS) in the financial statements
• Want to keep audit / assurance costs down (compared to IFRS)
• Want to see fewer changes to accounting standards less often
• Want a simpler financial reporting model with more accounting policy choices

You will need to adopt ASPE for year ends beginning on or after January 1, 2011.  If your year end is December 31, your date of transition to ASPE is January 1, 2010, which has already passed.  You should talk to your RLB advisor now about what you need to do to ease the transition, if you have not already done so.

If you are a publicly accountable enterprise, you will need to adopt IFRS for year ends beginning on or after January 1, 2011.  If your year end is December 31, your date of transition to IFRS is January 1, 2010, which has already passed.  You should talk to your RLB advisor now about what you need to do to ease the transition, if you have not already done so.

Yes you are able to adopt IFRS at a later time even if you have adopted ASPE first.  You would need to go through the IFRS transition process.  Your RLB advisor will be able to guide you through this transition.