There are unique and specific accounting standards that are applicable to companies across the world. The term GAAP stands for Generally Accepted Accounting Principles. Each country has GAAP defined as per its set rules and regulations, hence there exists a difference in the US GAAP and Canadian GAAP as they pertain to two different countries. In other words this difference arises due to the differences in American bookkeeping standards as compared to Canadian bookkeeping standards.
GAAP was originally framed with large organizations or companies in mind, typically companies with third party investors or lenders, hence these standards were not applicable to small businesses.
The first major difference between Canadian GAAP and US GAAP is that the Canadian GAAP is principle based whereas the US GAAP is rule based. A principle based GAAP ensures more flexibility in terms of capturing the substance of a transaction if not the actual form and a rule based accounting concepts ensures that guides behavior that can be acted on without contextualization.
The other areas of difference between US GAAP and Canadian GAAP are the following: in preparation of a financial framework, issuance of financial statements or consolidated financial statements, preparation of balance sheets, evaluation of assets and liabilities etc.
AICPA accounting and auditing guide for the basis for application and framing of the US GAAP. This includes a separate of instructions for the preparation of consolidated financial statements and issuance of the same. These financial statements under usual circumstances would include of a mention of assets and liabilities, financial announcements/ publication of the financial details concerning operations, the changes in the net asset of the organization, the details of the cash flows during the financial year and the calendar of investment for the year. This rules out the necessity of preparing a comparative financial statement by the company.
The Canadian GAAP on the other hand follows the Accounting Guideline *8 for setting their standard operating procedures. The Canadian GAAP mandates the preparation of the statements for cash flow of the organization, the statement of income for the financial year, the changes observed in the net asset during the year, investment details and other notes pertaining to the financial transactions of the company are all required to be prepared. Unlike US GAAP, the Canadian GAAP does not mandate the preparation of an investment calendar or schedule of investments for the financial year.
When it comes to the assets and liabilities of the company, the Canadian GAAP adheres to the standards and mandates laid down by the IFRS for initial recognition of assets and liabilities. The recording of the assets and liabilities can be done by the following either of the two methods mentioned below:
- Basis the date or the day in which the transaction was done
- Basis the day on which the settlement for the trade or the transaction was done.
However, when it comes to the US GAAP, the recording is done basis the day on which the transaction was done.
Since the US GAAP is based on the AICPA’s Accounting and Audit guidebook, the NAV per share is not required to be reported. However, as per the Canadian GAAP this is required to be done. The NAV per share is mandated to be reported or published as per the Canadian GAAP.
Thus to summarize, the US GAAP and Canadian GAAP have certain difference among them due to the different sources for accounting principles followed by them. Majorly the US GAAP requires the schedule or calendar of investments to be published by the company whereas the Canadian GAAP doesn’t deem it compulsory.
While the Canadian GAAP mandates the publishing of the NAV per share, the US GAAP doesn’t require reporting of the same.