Accounting standards for private enterprises - ED

After three years of research, consultation with stakeholders and deliberation, the Accounting Standards Board is inviting public comment on proposed financial accounting standards for private enterprises. The AcSB’s proposed changes to private company GAAP are outlined in a recent Exposure Draft, Generally Accepted Accounting Principles for Private Enterprises.

Much attention has been focused on the 2011 adoption of International Financial Reporting Standards for publicly accountable enterprises but Canadian standards setters recognize that IFRS might not meet the needs of all private companies. Ron Salole, vice-president, standards - Canadian Institute of Chartered Accountants, says, “The board recognizes that one size does not necessarily fit all. While some private businesses will opt to report under IFRS, the majority will prefer to adopt a more straightforward set of standards specifically tailored to address private business issues.”

The proposed standards are built from the existing CICA Handbook– Accounting, which will be familiar to many users, thereby not requiring extensive education or training. Change on recognition and measurement issues is limited to areas of most concern to stakeholders, most notably financial instruments, employee future benefits, asset retirement obligations, internally developed intangible assets, impairment testing for goodwill and other intangible assets, and stock-based compensation.

Other major changes include elimination of EIC Abstracts as they currently exist, deletion of sections and guidelines thought to be generally irrelevant to this sector, and a total refocus of disclosure requirements. The new standards aim to reduce the number of specific disclosure requirements (reduced by approximately one-half as compared to the existing Handbook) while still providing sufficient information to give a fair presentation of an enterprise’s financial position and operating results.

The exposure draft also contains a new section that sets out transitional provisions for first-time adoption of the proposed standards. Section 1500, First-time adoption, is designed to ensure an enterprise’s first financial statements prepared in accordance with the new standards contain high-quality information that is transparent and comparable, provide a suitable starting point for accounting under new standards, and can be generated at a cost that does not exceed the benefits to financial statement users.

The proposed standards would be effective for annual financial statements relating to fiscal years beginning on or after January 1, 2011, but early adoption would be permitted. The AcSB expects that the final standards will be issued in time for use for 2009 calendar-year end financial statements. They will be available to any private enterprise. No size threshold or other barriers, such as unanimous consent by shareholders of other users, will be imposed.

“The Board has consulted widely in the development of standards for private business,” says Ron Salole. “The 2007 Invitation to Comment and accompanying Discussion Paper generated valuable insight into financial reporting priorities in this important sector of the Canadian economy. As well, the Board recognizes the valuable effort of the appointed Advisory Committee that provided broad based input from a range of industry sectors. The Exposure Draft released in April is another opportunity to gain public input.”

The EDGenerally Accepted Accounting Principles for Private Enterprises can be accessed by clicking here. The ninety-day comment period for the exposure draft closes on July 31, 2009.

Senior-level AcSB and CICA staff are participating in various events across the country to raise public awareness of the proposed standards and encourage stakeholder input on the exposure draft. Contact your provincial institute/ordre for information about events in your area.

Also, for more information see this month’s cover story, “Private matters,” in CAmagazine and visit the CICA’s Canadian Standards in Transition website for developing orientation and training materials.

An audio/PowerPoint presentation www.acsbcanada.org/presentationpegaap will also be available by May 15.

Updates on the deliberations will be made public on the AcSB website following the comment deadline.