Categories
Accounting Standards

IFRS for small and medium-sized enterprises

I received an email late yesterday from the IASB with the following message:

The International Accounting Standards Board (IASB) issued today an International Financial Reporting Standard (IFRS) designed for use by small and medium-sized entities (SMEs), which are estimated to represent more than 95 per cent of all companies. The standard is a result of a five-year development process with extensive consultation of SMEs worldwide.

For non-public companies, the development of IFRS tailored to their needs is good news. (Get the IFRS for SMEs at the IASB website.) For Canadian non-public companies, move along – there’s nothing for you to see here.

The reason is because despite the full embrace in my country of IFRS for public companies (they’re making the transition as of Jan. 1, 2011), our governing body has decided that for private, we’re going to go it alone. All the good reasons to join the international community when it comes to accounting standards for public companies get thrown out the window when it comes to private. Apparently, Canadian private companies are a special beast that no one outside our borders can comprehend, and thus the job of maintaining a separate set of accounting standards is preserved.

The decision to develop a separate set of standards for Canadian private companies is the wrong one, and I hope it won’t be long before the powers that be see it as such. At the very least, the AcSB should allow private Canadian companies to use IFRS for SMEs. (Currently they have the option to implement IFRS when public companies do, but no word on the SME variant.)

What do you think?

Categories
Accounting Standards

Simplified accounting rules for small business

The CICA announced late last year a draft version of a new accounting framework for small, owner-managed businesses. The framework is being developed because these types of companies don’t have complex reporting needs like public companies, non-profit organizations, or private companies with significant third party investors or creditors.

I haven’t begun working on public company clients yet, although I have a couple equivalent-to-public companies currently. I have made it known in the office that I want to work on public companies in the future, so hopefully I will be scheduled on one or two soon.

Canada is moving towards international accounting standards (IFRS) for publicly accountable enterprises. The decision has been made and the process of reconciling Canadian GAAP to IFRS is in motion. Word around the office is that IFRS is very similar to Canadian GAAP in terms of the financial statements, but much more developed (read: verbose) when it comes to note disclosure.

But back to small business, or Owner Managed Enterprises (OMEs) as the framework calls them. The framework’s Foreword offers a glimpse into the thinking behind the endeavor:

Such a system could share some of the basic requirements of GAAP financial reporting … but expressed in a basic fashion.

You aren’t going to hear me complain if we can make accounting standards more understandable and accessible. In fact, I would consider it a prime concern if we want to create a more robust, entrepreneurial economy, here and around the world in the future. Such a milieu would help developing countries pull themselves up and improve their lot the only surefire way: through the expansion of trade.

A non-GAAP solution opens up a wide range of possibilities. A tax basis of accounting, a modified cash basis of accounting, a less complex version of GAAP – all are possible.

This is really interesting. I can’t say as I think these bases would provide better information, but they would be easier in many ways. The tax basis would obviously make filing a snap, and minimizing taxes is a key concern for small business owners. As for modified cash basis, there’s not enough information here to comment. Modified how?

Concerns were about the loss of a well-known frame of reference for financial statements [due to the transition to IFRS].

IFRS is great for the global economy. You want to tap into the global markets, you gotta play by the global rules (regardless of how dubious the model for the setting of those rules happens to be at this point in time). The conclusion of the CICA stems from the above quote – keep the accounting standards we know, just cut out the complicated stuff that small businesses don’t need. In their words (again):

The existing financial reporting framework in the Handbook represents … the collective intellectual capital of the accounting profession in Canada.

That is the best reason I can think of for reusing the standards for Owner-Managed Enterprises.

The CICA sought comment from interested parties on the framework by January 31, 2008. They recently posted an update on those consultations.