ASPE & IFRS - Accounting & Assurance - Smythe Ratcliffe

By: Smythe Ratcliffe  09-12-2011
Keywords: Financial Statements, Preparing Financial Statements

Private Companies Have Options for Accounting Standards

For financial years beginning on or after January 1, 2011, privately held companies in Canada must choose which option they want to use in terms of a reporting framework for their financial statements — the new Accounting Standards for Private Enterprises (ASPE) or International Financial Reporting Standards (IFRS).


The default for most private companies will be ASPE, which were developed by the Canadian Accounting Standards Board to address the need for less complex accounting standards for smaller, privately held enterprises. ASPE is based on existing Canadian accounting standards, so private companies that choose this option will have a relatively smooth transition, as most accounting policies and practices won't change.

Note that ASPE differs from Canadian GAAP in several key areas, including disclosures. ASPE eliminates or simplifies a considerable number of disclosure requirements, but adds one important one: the disclosure of the amount payable at the end of the period for government remittances other than income taxes. This change was included because lenders consider this to be important information.

ASPE doesn't include the Emerging Issues Committee (EIC) abstracts, but some material from 29 of the abstracts has been incorporated into the standards. In addition, ASPE has consolidated all the financial instruments requirements into a single standard, allowed the use of regulatory funding valuation for defined benefits plans, and lets companies choose to capitalize or expense development expenditures. The new standards also simplify the measurement of asset-retirement obligations, and allow accounting policy choices that were previously permitted under differential reporting options to be made by management and disclosed in the notes to the financial statements.


IFRS is more complicated than ASPE and includes more financial disclosures, including the compensation of key management. Because of this complexity, preparing financial statements in accordance with IFRS requires additional time, which means more cost. However, there are specific circumstances that make adopting IFRS a better choice for some entities. For example, if the company already has significant competitors, suppliers or customers that use IFRS, or a parent company that uses IFRS, adoption of the international standards may make sense.

If growth plans involve an IPO, international expansion or financing from international sources, IFRS is a must.

Making the Transition

Adoption of ASPE is retrospective. In other words, if you adopt ASPE for 2011, your financial statements will include 2010 comparative information under ASPE and an opening balance sheet that must be prepared in accordance with ASPE.

One key thing to note is that ASPE includes several optional exemptions for first-time adopters. For example, at the transition date, you may elect to measure property, plant and equipment at fair value - a one-time opportunity to revalue fixed assets.

There is also the option to recognize any unrecognized actuarial gains or losses related to a defined benefits plan in retained earnings.

Both of these options can have significant financial consequences, including tax implications, so it is imperative that you discuss them carefully with your accounting advisors.

It's time! If you haven't yet chosen ASPE or IFRS, let's discuss your options at your earliest convenience.

Keywords: Financial Statements, Preparing Financial Statements

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