Canada releases basis of conclusions on move to IFRSs
Jul 05, 2011
With many Canadian companies currently in their first year of reporting under IFRSs, the Canadian Accounting Standards Board (AcSB) has recently released a publication setting out its rationale and process for adopting IFRSs, rather than alternative frameworks such as United States Generally Accepted Accounting Practices (US GAAP), or retaining a separate domestic Canadian GAAP.
Whilst much of the rationale included in the document is not new or unexpected, it does reveal the AcSB's rationale and is instructive on the issues facing countries when considering their own financial reporting frameworks.
An extract from the document dealing with the decision to adopt IFRSs over US GAAP follows:
The AcSB observed that more Canadian than US publicly accountable enterprises have a small market capitalization... and were less willing to accept the expense and effort of applying detailed and extensive US GAAP. They preferred broad principles within which a company could determine how best to present its financial position and results of operations in a way that meets the needs of its shareholders and lenders...
The AcSB also noted the different nature and purpose of IFRSs compared with US GAAP. The IASB has a global mandate and its structure, due process and composition have been designed with a global perspective. However, US GAAP is not just the standards of the FASB. It is also whatever the US Securities and Exchange Commission (SEC) requires, including a number of rules that are set directly by that organization, and can be costly to monitor and satisfy...
Further, concerns about the extent of rules-based requirements in US GAAP brought about by recent financial scandals had resulted in changes to the US system. These changes increased the active role of the SEC and the potential for regulatory interference in standard setting...
... It was likely that significant differences between US GAAP and other sets of standards would persist for some time while the FASB dealt with its large body of legacy issues. The AcSB concluded that selecting US GAAP would be a more difficult and indirect path to the ultimate goal of global convergence than direct adoption of IFRSs. More importantly, in light of recent developments, it made little sense for entities not already familiar with US GAAP to incur the considerable costs necessary to learn and apply it in its entirety.
Click for access to the full document (link to the AcSB website).