New Canadian Accounting Standards

Include Beneficial Option

Assurance | Taxation | Advisory

For many businesses, December 31 marks

the end of their financial year. However

this also marks an end to traditional Ca-

nadian accounting standards. For years

ending on or after December 31, 2011

Private Enterprises may have to change

accounting standards which means their

financial statements are going to look dif-

ferent.

Private enterprises will now have a choice between Inter-national Financial Reporting Standards (IFRS) and Account-ing Standards for Private Enterprises (ASPE). Most will report using ASPE, which simplifies accounting standards for small to medium-sized companies. IFRS is designed for public companies and includes more complex disclosure.

Adoption of ASPE on the other hand may simplify account-ing in areas that were previously seen as complicated, and may reduce the amount of disclosure in the notes to the financial statements. Nonetheless there are changes within ASPE that could result in different bases of meas-urement and disclosure for many private enterprise enti-ties that will take time to determine.

This change to Canadian Accounting standards includes a new fair value adjustment option that permits businesses to increase the cost of capital assets, including land and buildings, to their fair market value at the date of transi-tion to the new standards. For companies with a December 31 year end, the date of transition is January 1, 2010.

If you bought a business ten years ago, the current value

of the land and the buildings at January 1, 2010 may be

significantly higher than their original cost. And there’s an

option to change that.

This option could significantly improve the look of your balance sheet; however it would involve an ad-ditional cost with respect to getting a valuation per-formed.

Businesses that utilize bank financing may choose to capitalize on the option, but if so they will need to be proactive. Get your accountants and auditors in-volved, and they need to speak to your lenders to say ‘this is happening,’ because it could significantly im-prove your ratios.

If your year-end is prior to December 31, 2011, your first set of financial statements using the new ac-counting standards will be not be prepared until 2012.

There are other ASPE changes that could result in different bases of measurement and disclosure for many private Canadian enterprises. These changes will take time to determine and could include:

Separate disclosure of government liabilities such as GST and payroll deductions is re-quired.

Investments in publicly-traded securities, like stocks, must be accounted for at their fair market value rather than at cost, or lower of cost and net realizable value.

Expensing, rather than capitalizing invest-ment transaction costs related to publicly traded securities.

Selecting accounting policies that retain existing differential reporting options, while eliminating the requirement for unanimous shareholder consent of the accounting pol-icy choices.

Increased complexity in accounting for busi-ness combinations.

Simplified disclosures related to financial instruments such as financial assets and financial liabilities.

MacKay LLP

1100—1177 West Hastings Street Vancouver, BC V6E 4T5

(604) 687-4511

Gary Matthews

Business Development Manager (604) 697-5253

garymatthews@van.mackay.ca