Canada’s Accounting Standards Board (AcSB) is seeking comment on a
draft GAAP for Private Enterprises (PEs) that addresses contentious
issues such as financial instruments and disclosures.

Canada is due to adopt IFRS for publicly accountable entities by
2011 and the local standard setter said IFRS might not meet the
needs of all private companies.

Private entities in Canada produce financial statements mainly for
the purpose of acquiring funds from banks.

For almost a decade, some PEs have been permitted to apply
differential reporting, a component of Canadian GAAP that provides
accommodations for these entities. Differential reporting excludes
financial institutions and regulated public utilities. There must
also be unanimous consent from all shareholders.

Differential reporting offers alternative accounting treatments in
about 10 areas. This includes exemptions from preparing
consolidated financial statements and applying deferred tax
accounting. However, all the Canadian GAAP disclosure requirements
are still applicable.

The GAAP for PEs has been developed to provide further relief and
will be available to all PEs. The proposed standard primarily
addresses concerns related to financial instruments.

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“We have had, what is broadly speaking, an equivalent of IAS 39 in
place for a few years, but we kept deferring its application to
private enterprises because they kept saying ‘we can’t do it, it is
not useful’,” AcSB director Peter Martin told The

Private companies were adamant they didn’t want, need and couldn’t
produce fair value measurements of financial instruments. In
response, the proposed standard uses historical cost-based

There are two exceptions. Non-hedging derivatives and investments
in equity securities that are traded in active markets still
require fair value measurement.

The second PE concern the proposed standard addresses is the number
of disclosures – it has about half the requirements that are in
Canadian GAAP.

While the timing and philosophy of the proposed Canadian standard
runs parallel to the International Accounting Standards Board’s
IFRS for SMEs, which is due for release this quarter, Martin said
this is largely coincidental.

The two organisations have been communicating and the AcSB included
the draft IFRS for SMEs in its domestic consultations as a
potential approach for Canada. There was not enough support.

Martin said the AcSB is waiting to see the final IASB document and
will observe how it works in practice in other jurisdictions.

He said that in time Canadian stakeholders may see is as worthwhile
to adopt.

“It sounds nice to say we will adopt a globally accepted standard,
and there are certainly arguments for doing that, but when you get
down to specific details, there are some important technical issues
in the IFRS for SMEs that would not work well in this country, like
requiring consolidations or requiring deferred tax accounting,” he

Comments on the proposed standard are due by 31 July. It is
intended to be effective for annual financial statements relating
to fiscal years beginning on or after 1 January 2011, with early
adoption permitted.