Accounting Standards for Private Enterprise (ASPE)

The Canadian Institute of Chartered Accountants (“CICA”) has announced that private enterprises will be required to adopt the new Accounting Standards for Private Enterprises (“ASPE”) or International Financial Reporting Standards (“IFRS”) for year ends beginning on or after January 1, 2011.

For companies with calendar year-ends, the December 31, 2011 financial statements will be the first set of statements affected. Companies will also be required to restate any comparative figures based on the new accounting framework chosen. Due to the requirement to restate the comparative figures, January 1, 2010 will be the mandatory transition date for most companies with calendar year-ends.

For many companies, the mandatory transition date has already passed, so it is important to begin evaluating the effects of the new accounting framework as soon as possible to ensure a smooth transition.

It is expected that the majority of private enterprises will choose to adopt ASPE, as it is very similar to existing Canadian accounting standards. The following is a brief summary of the differences under ASPE that are expected to affect most companies:

Differential reporting

Elimination of differential reporting elections; the existing differential reporting options have become standard accounting policy options or requirements under the respective sections. This includes:

  • Option to account for taxes using the tax payable or future income tax method
  • Option to present non-consolidated financial statements, with investments in subsidiaries and joint ventures being accounted for using the cost or equity method
  • Option to account for investments subject to significant influence using the cost or equity method
  • Requirement to classify preferred shares, issued as part of certain tax planning arrangements, as equity

Property, plant and equipment

One-time option to bump the carrying value to fair value as at the transition date

Financial instruments

Requirement to measure all equity investments quoted in an active market and free-standing derivatives at fair value; option to measure all other instruments at fair value

Requirement to capitalize all financing fees and transaction costs against the respective financial instrument, except for those measured at fair value

Single impairment model for all financial instruments

New disclosures relating to liquidity risk, market risk, other price risk and changes in the concentration of risks

Stock-based compensation

Requirement to take stock volatility into account when calculating the value of stock options granted. Volatility can be based on either a similar public company or a stock market index

Intangible assets

Option to either expense or capitalize development costs of internally generated intangible assets if certain criteria are met

Employee future benefits – defined benefit plans

Option to account using either the method under current GAAP or a new, simplified immediate recognition approach

Other

Requirement to disclose all amounts payable to government entities (e.g., sales tax, payroll remittances)

This is not meant to be a comprehensive list of all the changes under ASPE. If you have any questions regarding the adoption of either ASPE or IFRS, please contact your Smythe Ratcliffe advisor.