it’s official - IFRS will replace Canadian GAAP by 2011

The Canadian Accounting Standards Board (AcSB) confirmed this week that International Financial Reporting Standards (IFRS) will replace Canadian GAAP effective January 1, 2011 for publicly accountable profit-oriented enterprises. Why the move? Businesses increasingly work in a global context - look at Business Ready: we provide our examples in both US and Canadian GAAP. The goal of IFRS is to improve financial reporting internationally and set a single, simplified set of standards, world wide, for comparable reporting.

In general the principles of IFRS are similar to Canadian GAAP but as with most things the devil is in the details: the systems that companies use to record and analyze transactions and related infrastructure may need to be changed in addition to the changes in financial reporting that will be required. As the transition towards 2011 occurs expect to see many new pronouncements coming out (we will be reporting on those significant to the tech industry).

What does this mean for private companies?

The IFRS will only be mandatory for public companies in 2011; however, as you know ‘best practices’ evolve from public scrutiny so expect to see a move in the private sector towards IFRS as well. Realizing that this could become very costly for private enterprises the AcSB is currently reviewing three options for private companies: (1) eliminating and modifying some IFRS requirements but keeping the same public company framework (2) a new IFRS standard for small and medium businesses or (3) an independent Canadian accounting standard for small companies. We’ll keep you posted.

For small technology companies, the financial complexities arise in accounting for stock based compensation expense, revenue recognition and convertible notes and other financing options that have occurred, to name the top three. Lucky us, these topics all have significant differences between IFRS and Canadian GAAP. If you want to get a jump on the differences, the CICA has put out a great introductory guide that compares by section the CICA Handbook to IFRS. As well, each of the big four accounting firms have IFRS sections on their websites now.

In the United States, US GAAP is not being replaced by IFRS; there has been a project underway for the last five years to have US GAAP and IFRS ‘converge’ so that the principles are similar. However, don’t be misled, it is still a dual reporting system in the United States. For instance, early last year the SEC allowed international public filers to use IFRS instead of US GAAP!

One thing that does piss me off: if the whole world is moving towards IFRS provided by the International Accounting Standards Board (IASB) then why don’t they offer it online for free?!? The current online subscription fee is 200GBP/year. Sigh. When will the accounting world learn from the Financial Accounting Standards Board (FASB) that provides all US GAAP online and publicly available for free. Perhaps FASB and IASB should merge? Bringing the best of both to a new entity. Time to rock the accounting world!