Generally Accepted Accounting Principles, also abbreviated as GAAP are guidelines and accounting principles used by most companies based in the US. These foundational principles usually help the owners of small businesses in the US to have a grasp of where finances of their companies stand. These also assist them in making decisions that are not only smart but also informed with regard to the financial stand of the company. However, if one is conducting his business in Canada, there is a different set of organized guidelines for the owners of small businesses in Canada. The recent option that is specifically tailored for private enterprises is referred to as Accounting Standards for Private Enterprises (ASPE).
ASPE is the recent development in the Canadian world of finance, which simplifies the private enterprises’ accounting procedures. The notion of simplifying certain private enterprises’ accounting procedures was adapted in 2009 by the Accounting Standards Board. It was clear that for accounting that a single size fit everything accounting approach was not the best suitable for the private enterprises. Private enterprises refer to businesses owned or controlled by individuals privately and which are not traded in the stock market. Therefore, many small businesses in Canada fall under this category and therefore would benefit from the application of ASPE.
Among ASPE’S major goals is making preparations of financial statements of companies and making the disclosure needs of these statements to be less complex. The financial statements of a company include the income statement and the balance sheet, whose analysis and review is made by creditors, investors and other stakeholders. 1st January 2011 was the date of transition for private enterprises to switch from the former system of accounting reporting to ASPE. After the date of transition, the other publicly accounting enterprises had to officially follow the International Financial Reporting Standards that are differently structured compared to ASPE. IFRS was planned to be used by public companies in Canada while ASPE was planned as the choice for Canada’s private enterprises. Most ASPE standards offer options for similar companies in the implementation, relevance and adaptability to the business’ size.
Therefore, ASPE is in most cases the best choice for a private company based in Canada unless there is a particular reason for using non-GAAP reporting or IFRS. ASPE reflects and acknowledges that there are different needs of enterprises compared to the various reporting requirements of the public.
Before Canada adopted ASPE, there was just a small difference between the US GAAP and Canadian GAAP for the small businesses. Many of the differences between these standards came about when dealing with the reporting that is advanced required of companies that are traded publicly.
ASPE and US GAAP have got the following similarities:
- Collectability is assured reasonably
- Delivery has already occurred or services have already been rendered
- There exists an arrangement of persuasive evidence
- The price of the seller to the buyer is determinable or fixed
The Canadian GAAP is different from ASPE in the following aspects:
- Measurement, recognition and presentation needs have been made simple in the following aspects
- Obligations of asset retirement
- Financial instruments
- Future benefits of employees
- Intangible assets and goodwill
- Income tax
- Compensation that is stock based
- Joint ventures
- For ASPE, appropriate disclosures for private enterprises which meet the users’ requirements have been minimized by 50 %
- The previous Abstract guidelines of the Emerging Issues Committee (EIC) that was significant to this sector was imbedded in these standards
- ASPE requires changes in tax rates and laws reporting in the fiscal period of substantive enactment when using the method of future income while the US GAAP expects changes in reporting of tax rates and laws in the fiscal enactment period which can only happen on receiving Royal Assent.