Accounting involves a number of activities. They include measuring, analyzing, and communicating financial information concerning economic entities (Chartered Professional Accountants Canada, 2012). The information is communicated to the various stakeholders involved in the running of the organization. They include shareholders, potential investors, and members of the public. Accounting is also used as a measure of economic activities that a given organization has been engaging itself in for a specific duration of time. The activities involved are important to the welfare of the various stakeholders, including the management, market regulators, and creditors (Chartered Professional Accountants Canada, 2012).
Over the past few years, Canada has adopted a number of Generally Accepted Accounting Principles (GAAPs). As a result, the current economy is regarded as a multi-GAAP environment. The move to diversify was informed by the fact that the various economic sectors in the country have different characteristics. As a result, a single standard cannot adequately cater for the needs of all the enterprises operating within the local market.
A professional auditor should be aware of these multi-GAAP factors. In this paper, the author will provide a detailed analysis of the diverse accounting principles in the country. A total of five GAAPs are used in Canada. The author will analyze each of them in detail. The time when the specific principles were implemented, together with the standards recommended for different firms in the country, will be highlighted.
Accounting and Financial Standards in Canada: A Brief Overview
Accounting mainly involves the auditing of financial statements. It is usually carried out by accounting firms and other professional bodies. Only certified accountants are allowed to engage in this activity. In Canada, the GAAPs were established in 2006 by the Accounting Standards Board (AcSB). They were meant to act as guidelines for professionals operating in this field. The principles used in the country today are in line with the International Financial Reporting Standards (IFRS). In 2011, the authorities made the move to fully comply with the provisions and requirements of IFRS. All business firms, including private organizations, are required to comply with the new policies under the Accounting Standard for Private Enterprises [ASPE] (Chartered Professional Accountants Canada, 2012).
The Use of Generally Accepted Standards in Canada
The five GAAPs adopted in Canada inform the activities of auditors in the country. They include the Accounting Standards for Pension Plans and Accounting Standards for Not-for-Profit Organizations. Others are Accounting Standards for Private Enterprises and Public Sector Accounting Standards. The last one is Assurance and Related Services Standards. The principles are diverse and apply different concepts. However, all of them adhere to the guidelines put in place by IRFS (Chartered Professional Accountants Canada, 2014).
Accounting Standards For Pension Plans
The principle was introduced by The Governmental Accounting Standards Board (GASB) in collaboration with the AcSB. It is aimed at providing auditors and accountants with GAAPs for pension plans. It is also used on other benefit policies whose characteristics resemble those of pension structures. The standard is only applicable to the services provided by the state and local governments (Chartered Professional Accountants Canada, 2014).
The accounting standards for pension plans came into effect on 15th June, 2013. The principles define pension as a form of a benefit and a contribution. They also determine the number of plans that should be reported. Transactions whose financial statements are to be considered when auditing pension plans are also defined by the principles (Chartered Professional Accountants Canada, 2014). Supplementary information that is required in the auditing process is also defined. The standards require organizations and individuals to disclose information on net pension liability.
Accounting Standards for Not-for-Profit Organizations
Initially, the accounting principles for non-profit entities were to be implemented starting from the 1st of January, 2012 (Chartered Professional Accountants Canada, 2012). However, organizations were allowed to adopt the standards before that day. As the name suggests, the standards deal with entities that are not involved in profit making commercial activities. In addition, the organizations using these principles should not have provisions for the transfer of ownership interests (Chartered Professional Accountants Canada, 2012).
The firms using these principles include those involved in the provision of charitable, educational, religious, professional, and health services. The owners of such organizations, as well as their respective sponsors, should not receive any financial returns from their participation in the operation of the entity. The clients in this category include non-governmental organizations (NGOs), privately owned schools, and hospitals that are charitable by nature.
Public Sector Accounting Standards
The principles used in the public sector are meant to regulate and standardize accounting activities meant for government not-for-profit organization in Canada. The GAAPs adopted in this area were implemented starting from the 1st of January, 2012. However, organizations operating in this sector were allowed to use the standards before the official launching date. It is important to note that the standards are only applicable to local, territorial, provincial, and federal government organizations (Chartered Professional Accountants Canada, 2012).
Other entities that fall beyond these boundaries are required to use alternative principles. School boards and government-private partnerships fall under this category. What this means is that any project that is undertaken by the government in conjunction with a private investor is subjected to these standards.
Organizations that are controlled by the government, and which fall under this category, should not have an element of transfer of ownership interests. In addition, the entities must be involved in the exclusive provision of charitable, social, educational, religious, health, professional, and other related services that are not meant to generate profits (Chartered Professional Accountants Canada, 2012). The organizations are also required to have close ties with stakeholders operating outside the public sector. The resource providers and members of the organization should not receive financial returns from the entity.
Assurance and Related Services Standards
The principles were first introduced on January 2011. The new version of the standard was issued by the AcSB in June 2014. It mainly focuses on firms operating in the emerging sectors of the economy. The standards ensure that businesses in this area of the economy comply with the laid down guidelines, especially those related to environmental pollution (Financial Reporting and Assurance Standards Canada, 2014). One of the most used GAAP in this standard is the one that regulates the emission of greenhouse gases. The guideline mostly applies to organizations and enterprises in the manufacturing sector.
Accounting Standards for Private Enterprises (ASPE)
The regulation is meant for private organizations. It affects the activities of both the auditors and the management of the firms whose financial statements are to be audited (Accounting Standards Board, 2009). The auditor is required to apply professional judgment when reviewing the financial reports. In addition, they are expected to be objective and impartial. On their part, the management of the private entity should avail all financial statements and additional information required by the auditor (Accounting Standards Board, 2009).
The principle is different from the others since private entities are allowed to use the reporting standards of their choice. In the case of a private company, the type of reporting should be discussed by the shareholders before a final choice is made. Organizations falling under this category should be privately owned, either by a single individual or by a group (Accounting Standards Board, 2009). The owners are held liable for the activities of their firm. There must be evidence that the contributors benefit financially from the activities of the organization.
Accounting involves a review of economic activities carried out by a given organization in a specified period of time. The assessment is carried out by certified accountants. Different standards are adopted to harmonize the activities of the different accountants involved in the operations. Today, most economies in the world have adopted the IFRS principles. Canada is one of the fastest growing markets in the global arena. In light of this, the economy is characterized by various sectors growing at a rapid pace. The situation has resulted in the emergence of a wide range of organizations and business enterprises operating in the country.
The entities have different characteristics in terms of ownership, policies, and the scale of operations. As such, it is not possible to use one standard to audit all the sectors. As such, the country has adopted five GAAPs. The situation has resulted in a multi-GAAP environment in the country.
Accounting Standards Board. (2009). Accounting standards for private enterprises. Web.
Chartered Professional Accountants Canada. (2012). First-time reporting on financial statements adopting Canadian Accounting Standards for Not-for-Profit. Web.
Chartered Professional Accountants Canada. (2014). Financial reporting. Web.
Financial Reporting and Assurance Standards Canada. (2014). Serving the public interest by establishing standards on accounting and auditing. Web.