We recently took a look at the Generally Accepted Accounting Principles (GAAP), a set of accounting principles and guidelines used by many US-based companies. Having a grasp on these foundational principles can help US-based small business owners to take stock of where their company’s finances stand. They can also help them to make smart, informed decisions about their company’s financial future. But what if you’re running a small business in Canada? Is there an organized set of guidelines Canadian small business owners can follow – a Canadian GAAP for small businesses? Yes, there is! And the most recent option, tailored specifically to private enterprises, is called the Accounting Standards for Private Enterprises (ASPE).
What is ASPE?
ASPE is actually a relatively recent development in the world of Canadian finance: the idea to simplify certain accounting procedures for private enterprises was taken on by the Accounting Standards Board (AcSB) in 2009. It had become clear that a “one size fits all” approach for accounting was not the most efficient approach for private enterprises. Private enterprises are businesses that are owned or controlled by private individuals, and not traded on the stock market. This means that the vast majority of Canadian small businesses fall under this category, and can therefore benefit from applying ASPE.
One of the main goals of ASPE is to make the preparation of companies’ financial statements, including the disclosure requirements for these statements, less complicated. Your financial statements include your balance sheet and income statement, and they are reviewed and analyzed by people like investors, creditors, and stakeholders. Implementing ASPE in your company’s accounting procedures can potentially be of great benefit to a variety of different parties who are involved in the preparation and analysis of your financial statements.
The transition date for private enterprises to switch over to ASPE from their previous accounting reporting system was for the fiscal year beginning January 1st, 2011. After this transition date, any publicly accountable enterprises officially had to follow the International Financial Reporting Standards (IFRS), which are structured a bit differently than ASPE. But certain private enterprises may still choose to adhere to IFRS rather than ASPE. Under what circumstances would a small business choose to do this? Read on to find out!
Learn more about defining your business’ fiscal year.
ASPE vs. IFRS
While most private enterprises will benefit from sticking to ASPE, since it simplifies certain key accounting procedures and its guidelines are less demanding than those laid out by IFRS, there are certain situations where a private enterprise may choose to follow IFRS instead of ASPE. They include:
- Businesses that plan to do an initial public offering (IPO) in the future
- Businesses whose main competitors are public enterprises that use IFRS, and so using IFRS themselves will help facilitate cross-business comparisons
- Businesses whose parent companies use IFRS
So how can you decide whether ASPE or IFRS is best for your company? Well, if you’re a private enterprise that doesn’t have a valid business reason for adhering to IFRS like those listed above, ASPE is very likely the way to go. If you’re still unsure, check with an accounting professional. And if you’ve got questions about accounting for your small business, feel free to reach out to us anytime at firstname.lastname@example.org!