Although reliable internal financial information is very important, for many businesses, there is a need for external financial reporting. Generally speaking, external reporting must be produced to a set of rules or standards usually referred to as Canadian generally accepted accounting principles. In order to maintain comparability and consistency amongst financial statements, the Canadian Institute of Charted Accountants (CICA) has the CPA Canada Handbook.
The handbook contains the standards set by the Accounting Standards Board for entities that wish to prepare financial statements in accordance with Canadian generally accepted accounting principles (GAAP). GAAP are the accepted set of rules which must be followed in preparing financial statements. Depending on the nature of the entity, and the needs of the users of the financial statements, the entity will prepare their financial statements in accordance with one of the following set of standards:
- International Financial Reporting Standards (IFRS),
- Accounting Standards for Private Enterprises (ASPE),
- Accounting Standards for Not-for-Profit Organizations,
- or Accounting Standards for Pension Plans.
The choice of reporting framework can be a complex one, some considerations would be reporting requirements from shareholders, debtors and parent companies, stakeholders and other user needs, and accounting competences and capacities.
International Financial Reporting Standards (IFRS)
IFRS is a common international set of standards for reporting that is used around the globe to create comparable financial statements on the global scale. The standards allow two companies preparing statements in separate countries to use an identical set of standards to create consistencies and comparability between financial statements.
Given its mass application, there are considerable complexities in the standards used in IFRS. It is often only adapted by larger, international entities. Although Canadian private companies have the choice to adopt IFRS, all publicly traded companies in Canada are required to report in IFRS.
Accounting Standards for Private Enterprises (ASPE)
ASPE is a set of standards released by the Canadian Accounting Standards Board (AcSB) that can be adopted by private enterprises. A private enterprise is defined as a profit-orientated enterprise that is neither publicly accountable nor an entity in the public sector.
Generally speaking the requirements are less stringent and complicated in comparison to IFRS making them more easily applied by smaller enterprises.
Accounting Standards for Not-for-Profit Organizations (ASNFPO)
ASNFPO is a set of standards released by the AcSB that can be adopted by not-for-profit-organizations (NFPO). Again NFPO’s can adopt IFRS, but ASNFPO allows a less complicated set of standards tailored specifically for NFPO.
Accounting Standards for Pension Plans
Accounting Standards for Pension Plans is a set of standards released by the AcSB specifically established for pension plans, and benefit plans that have characteristic similar to pension plans
Canadian Institute of Chartered Accountants