Summary:
As of January 1, 2011, all Canadian publicly accountable enterprises will adopt and replace Canadian Generally Accepted Accounting Principles (GAAP) to the International Financial Reporting Standards (IFRSs). The IFRS are the collection of financial reporting standards issued by the International Accounting Standards, an independent, international standard setting organization. The aim of IFRSs is to provide "a single set of high-quality, global accounting standards that require transparent and comparable information in general purpose financial statements". Because Canada comprises less than four per cent of world capital markets, IFRSs will provide more opportunities for Canadian businesses and investors by reducing the cost of capital, increasing access to international capital markets and reducing costs by eliminating the need for reconciliations. Rapidly becoming the global language of accounting, IFRSs have been adopted by over 100 countries, including all those of the European Union and much of the Pacific Rim. In the US, the debate over whether to adopt IFRSs continues, but foreign private issuers who prepare their financial statements in accordance with IFRSs are no longer required to file reconciliations to US GAAP.
Connection:
In our book, it stated that there are many similarities between IFRS & Canadian GAAP, but there are also significant differences. There will be some major changes to financial reporting, which have the potential to impact stakeholders considerably; planning and communication is critical to managing the change.
Generally, Canadian GAAP and IFRS are very similar in terms of the style and form of the individual standards, and the fact that the standards are based on a similar conceptual framework. However, in addition to some pervasive differences, there are many subtle differences in the details, the significance of which will vary by industry and individual organization.
The three areas of IFRSs considered to create the most significant changes from Canadian GAAP are:
- Impairment – Under IFRSs impairments will generally be triggered more often but unlike Canadian GAAP, impairments under IFRS can be reversed
- Securitization – IFRSs are fundamentally different in this area from Canadian standards
- Revaluations – Some IFRSs including Property, Plant and Equipment,Investment Property and Intangibles allow the re-valuation of assets under certain circumstances.
I believe it is a good approach for Canadian publicly accountable enterprises to adopt the IFRS as we only make up less than 4% of the world's capital markets. As stated, in the long term, if all internationally traded companies and companies with international operations report under IFRSs, the need for reconciliations between national GAAPs will be eliminated. The financial information they report will be consistent and comparable, creating new opportunities in international financial markets, with increased access to and lower cost of capital. On the other hand, for short term, the impact on entities adopting IFRSs will vary, and for some it will be considerable. Every affected organization should assess the likely impact as soon as possible.
