SME Governance & Accounting Standards
for Private Enterprise
Speakers:
•Jon Grant, Examiner for the Institute of Corporate Directors
(ICD) and an Executive in Residence in the ICD's SME Board
Effectiveness Program
•Mark Walsh, Principal, Accounting Standards Board (AcSB), CICA
ACCOUNTING STANDARDS
FOR SMEs – WHAT’S
HAPPENING?
FEIC SME Conference
October 24, 2008
Mark Walsh
Accounting Standards Board
FINANCIAL STATEMENT
PREPARERS IN CANADA
PUBLICLY
ACCOUNTABLE
ENTERPRISES
(5,000)
PRIVATE ENTERPRISES WITH SIGNIFICANT
EXTERNAL USERS
(300,000)
NOT FOR PROFIT ORGANIZATIONS
PRIVATE ENTERPRISES WITHOUT SIGNIFICANT EXTERNAL
USERS
(1,700,000)
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AcSB Strategy
• Historical focus on (larger) public
companies
– Harmonization with US GAAP
– Differential reporting
– Not-for-profit section of Handbook
• One size does not fit all
– Separately address:
• Publicly accountable enterprises
• Non publicly accountable enterprises
• Not-for-profit organizations
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Overview
• Publicly accountable enterprises must
use IFRS, effective 2011
• Non-publicly accountable enterprises
may use standards based on existing
Handbook with some simplifications
• Not-for-profit organizations may use
standards for non-publicly accountable
enterprises with modifications
• All entities may use IFRS
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Publicly Accountable
Enterprises
• IFRS will be Canadian GAAP for publicly
accountable enterprises for years
beginning on or after January 1 2011
– First reporting Q1 2011
– Comparatives (i.e. Q1 2010)
– Early adoption
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IFRS
• IFRS are the basis for accounting in 100+
countries
– Includes Europe, Australia, Russia
• FASB and IASB strategy of convergence
– E.g. joint projects on revenue, business
combinations, concepts
• US likely to adopt IFRS
– SEC roadmap issued
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IFRS vs Canadian GAAP
• IFRS fundamentally similar to Cdn GAAP
– Principles and concepts closely match
– Harmonization over last several years
has eliminated many key differences
• Limited number of major differences
– Devil is in the details
– Do not underestimate the differences
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What will Canadian GAAP Be?
• Say farewell to existing standards,
guidelines and abstracts
• IFRS includes IAS 1-41, IFRS 1-8,
Framework and IFRIC Interpretations
• IFRS will be adopted without modification
– Less guidance than in Canadian GAAP
– More need to use professional judgment
– Some key policy choices on adoption
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Adopting IFRS
• This is a significant project
• More than accounting:
– Systems
– Debt covenants
– Compensation linked to financial performance
– Management reporting, budgets
– Controls
– Shareholders, analysts
GET STARTED NOW!!!!!
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Private Enterprises
• Recognition that IFRS too complex for
most private enterprises
• Significant pressure to create a private
enterprise GAAP – and quickly
• 3 alternatives considered
– IFRS with differential options
– IFRS for SMEs
– Canadian solution
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Private Enterprises
• Concerns expressed over IFRS
alternatives
– Timeliness
– Amount of change
• Canadian solution:
Base standards on current Handbook
– Identify and address major issues
– Reduce disclosure requirements
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Process
• Most AcSB members do not have much
private enterprise background
• Established Advisory Committee of
practitioners and users
– Review significant issues and all disclosures
– Recommendations to AcSB
• Extensive round tables held
• FEI Private Company Committee
• Exposure draft Q1 2009
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What are the significant issues?
(1)
•
•
•
•
•
Financial instruments
Consolidation
Intangible assets (including R&D)
Goodwill impairment
Income taxes
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What are the significant issues?
(2)
• Pensions
• Stock-based compensation
• Current/non-current classification of
liabilities
• Leases
• Asset retirement obligations
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Disclosures
• Major concern is length of notes that do
not seem useful for private enterprises
• Focus on meeting user needs
– accounting policy, risks and unusual events
• Anticipate significant reduction
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What will Private Enterprise
Standards look like?
• Very similar overall to existing handbook
– Eliminated irrelevant sections
– No EIC Abstracts
• Simplifications in key areas
• Disclosures significantly reduced
Private enterprises can use IFRS
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What next?
• Exposure Draft Q1 2009
• Final standards by end of 2009(?)
• Let us know your views
• FEIC Committee on Private Companies
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Keeping up-to-date
www.acsbcanada.org
• Register to be notified of changes
Questions?
Comments?
mark.walsh@cica.ca
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