“Give us standards that meet the needs of the people who use our financial statements.” That’s the message standard setters have heeded in developing new standards for private enterprises. The profession has been waiting for this for a long time and finally, things are changing. The conventional wisdom in accounting standards used to be one size fits all; people believed that a single, wide-ranging umbrella could cover the needs of businesses of all stripes. Not any more!
Don’t let the word ‘new’ put you off – the proposed private enterprise GAAP is essentially the existing CICA Handbook – Accounting, simplified.
This change in direction reflects a recognition that the financial statements of public and private companies are meant to accomplish different things. A public company’s primary focus is on providing investors with sufficient information to make decisions about whether to buy, sell or hold securities.
“For a private company, you can’t say that’s irrelevant, but it’s much less frequent, because its securities aren’t publicly traded. They’re usually closely held — often passed down generation to generation,” says Toronto-based Paul Cherry, newly appointed chair of the International Accounting Standards Board’s Standards Advisory Council and former chair of the AcSB.
Significant differences between GAAP for Private companies and Publicly Accountable Enterprises:
- 1.We have a standard telling people how to calculate earnings per share (Section 3500). That standard is not applicable to nonpublic companies; it’s only public companies that really provide that information, and it’s only relevant to those sorts of companies. So there’s no need to carry forward that standard and it was just simply dropped.
- A greatly reduced number of disclosure requirements for Private companies — the understanding is that Private company shareholders can obtain more as required.
1. What are some of the differences between a Public company and a Private company?
2. Has the accounting profession moved in the right direction in proposing two sets of Accounting Standards? IFRS for Public Accountable Enterprises (PAE’s) and Canadian GAAP for (Non-PAE’s)?
3. Are these companies so different that separate standards are required?
Footnote: On or after January 1, 2011 Private companies have the option to adopt IFRS or Canadian GAAP.
Article written by: Jeff Buckstein