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More Changes Coming!!
April 15, 2010 |
If there is one constant in the world of accounting and the preparation of financial statements, that constant is change.
The latest changes to affect all assurance engagements (where an audit or review engagement report is issued) for profit oriented entities are International Financial Reporting Standards, “IFRS”, and Generally Accepted Accounting Principles for Private Enterprises, “PE GAAP”.
Effective for fiscal year ends commencing on or after January 1, 2011, all Canadian “non publically accountable entities” (pretty much everybody except Not-for-Profits, Co-ops, and Public Companies) will have to choose between PE GAAP or IFRS as the principles by which their financial statements are prepared.
For the vast majority of Young Parkyn, McNab clients, that choice will most probably be PE GAAP. These new standards were developed in response to what has been called in recent years, “Standards Overload.” Every year, more and more seemingly “useless” disclosures are required in the financial statements, until the financial statements resemble a book rather than a summary of financial information. Input from users of assurance financial statements, mainly Bankers, has led to these “simpler” kind of financial statements.
Major changes include removal of differential reporting options, the ability to choose to report financial instruments at fair value, reduced disclosures (notes to the financial statements), recording preferred shares issued in tax reorganizations as equity rather than debt, and finally one change that may be of interest to many clients, the ability to revalue land, buildings, and equipment to “fair value” as at the transition date (the first day of the year preceding the implementation of PE GAAP). For a year ending December 31, 2011 the transition date would be January 1, 2010.
When restating assets to fair value, the choice to revalue is made on an asset by asset basis, not by type or description. Most importantly, the optional revaluation is a onetime occurrence, and may not be repeated. Appraisals will usually be required to support fair value adjustments. The restating of assets like land purchased long ago may be of benefit for covenant or borrowing purposes, especially if there has been a significant increase in value since acquisition.
To discuss your choice of one of these two sets of standards, and the effects on your business and financial reporting, please contact any partner at Young Parkyn, McNab LLP.
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