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Chartered Accountants of Canada Accounting Standards Board / Conseil des normes comptables

Strategic Planning — Private Enterprises

Status: Summary comparison to XFI issued. Basis for Conclusions issued.

Accounting standards for private enterprises have been issued as Part II of the CICA Handbook – Accounting and are available for 2009 reporting for entities that choose to adopt them early. The new standards will be mandatory for private enterprises for years beginning on or after January 1, 2011. To help Canadians evaluate the transition to the accounting standards for private enterprises, a Summary Comparison of Part II to the XFI Version in Part V has been issued.

Background
Activities to Date
Related Information
Contact Information

Background

In its Strategic Plan, issued early in 2006, the AcSB noted that “one size does not necessarily fit all” and decided to pursue separate strategies for public enterprises, private enterprises and not-for-profit organizations.

Activities to Date

In 2006, the AcSB conducted extensive research into the needs of users of private enterprise financial statements.

In May 2007, the AcSB published an Invitation to Comment (ITC) and accompanying Discussion Paper to solicit stakeholders’ views as to the best approach for developing standards for private enterprises.

The ITC and Discussion Paper identified three possible approaches to developing private enterprise GAAP:
  • —a top-down approach based on public enterprise GAAP (i.e., IFRSs) but providing for differences on a number of topics;
    —adoption of the proposed IFRS for Small and Medium-sized Entities (IFRS SME) standard when finalized, possibly with some modification; and
    —an independently developed set of standards.

The AcSB discussed the responses to the ITC and other input and in May 2008 decided to develop a set of “made in Canada” financial reporting standards for private enterprises. An advisory committee consisting of preparers, auditors and users involved with private enterprises was created to aid in the development of these standards. The advisory committee met extensively during 2008 and early 2009 and provided its recommendations to the AcSB.

An Exposure Draft of the proposed accounting standards for private enterprises was issued in April 2009 with a comment deadline of July 31, 2009.

In September 2009, the AcSB approved the standards subject to drafting changes and final ballot.

The following approach was taken in developing the standardsr
  • the standards are intended to result in general purpose financial statements that meet the needs of external users (i.e., they will be GAAP);
  • the standards can be used by any private enterprise — there is no size restriction or other requirement such as unanimous consent (a private enterprise may choose to use IFRSs);
  • the standards are intended to be more principles-based and encourage the use of professional judgment;
  • the existing CICA Handbook – Accounting was used as a starting point;
  • issues in the existing Handbook that have caused significant concern to private enterprises were reconsidered, based on cost/benefit considerations; however the majority of the recognition and measurement standards in the existing Handbook were left unchanged as they do not raise significant concerns and are well understood;
  • standards and guidelines that are generally irrelevant for the sector have been eliminated; and
  • all disclosure requirements were re-evaluated from the viewpoint of the needs of users of financial statements of private enterprises.
        
Key differences between the accounting standards for private enterprises and current Canadian GAAP are as follows:
  • recognition, measurement and presentation simplification in the following areas:
    —financial instruments;
    —asset retirement obligations;
    —employee future benefits;
    —goodwill and other intangible assets;
    —income taxes;
    —stock-based compensation;
    —subsidiaries;
    —investments; and
    —joint ventures;
  • required disclosures that are appropriate for private enterprises and meet the needs of users — as a result, the number of required disclosures has been reduced by about half; and
  • elimination of EIC Abstracts as they currently exist in the Handbook. (Certain guidance that is important to this sector has been embedded in the standards).
       

A new Section (Section 1500, First-time Adoption) requires the accounting standards for private enterprises to be adopted retrospectively but provides alternatives for specific situations when that may not meet a cost/benefit test.

The accounting standards for private enterprises include the following significant changes to the Exposure Draft proposals:
  • Financial Instruments
    —A fair value option has been added permitting an enterprise to elect fair value measurement for any instrument. This election will be made on initial recognition and is irrevocable.
    —Enterprises should capitalize transaction costs for financial instruments measured at amortized cost (but not for those measured at fair value).
  • Employee Future Benefits — The scope of the simplified approach for defined benefit plans has been widened to include all defined benefit plans.  Enterprises adopting the simplified approach must use this approach for all defined benefit plans.
  • EIC Abstracts — Principles in several EIC Abstracts relating to financial instruments, revenue, income taxes and related party transactions have been incorporated into the standards.
  • Disclosures — Requirements to disclose management compensation and amounts of government remittances in arrears have been deleted. Changes have also been made to certain other disclosure requirements.

 The AcSB also clarified or modified other Exposure Draft proposals in the light of comments received.

In early 2010, the AcSB established an Advisory Committee to assist in maintaining and improving the accounting standards for private enterprises.  The Committee is expected to meet for the first time in the second quarter of 2010.

Related Information

Contact Information

Questions or comments on this project should be directed to:

Greg Edwards, CA
Principal, Accounting Standards
Telephone:  +1 (416) 204-3462
Fax:  +1 (416) 204-3412

Canadian Accounting Standards Board
277 Wellington Street West
Toronto ON  M5V 3H2  Canada