This year Canadian accountants are moving public companies to international financial reporting standards (IFRS). Private companies by contrast can choose one of two options IFRS or Accounting Standards for Private Enterprise (ASPE).
The acronyms seem bureaucratic, but the impact for farmers can be real.
About two million private businesses operate in Canada, and although all now can adopt the international IFRS standards, Peter Martin from the Canadian Accounting Standards Board expects very few will. The companies that do make the move will be larger private companies with international ownership or with other business activities abroad.
Most small-business accountants will use the new private business standards, which are very close to the old Canadian standards and require less disclosure. The transition to these private business standards should be quite easy, says Martin. It will generally be business as usual but with an opportunity for some one-time reevaluation changes.
Farmers will also feel comfortable with the reports. The format of statements the income statement, balance and cash flow statement will look the same, says David Engdahl, accountant with Hergott Duval Stack in Saskatoon.
The accounting changeover will open a one-time window for farmers to bump the value of capital and intangible assets on their financial statements.
Such a move could better reflect the value of the farm in review engagements and audits, and possibly notice to reader. However, notice to reader reports can already use market value since these reports don t have to follow any set accounting standards.
Many lenders look to the balance sheet to see the strength of a business, says Engdahl. Bumping the value of assets to fair value may allow for more financing or a better rate.
Tax will continue to use historical costs. This increase to your assets will not flow through to your income statement, says Engdahl. In very rare instances this bump may affect tax numbers, most notably if assets were in excess of $10 million for a corporation.
The accounting switch is meant to standardize financial reports and reduce the number of piecemeal changes that were constantly being made to the current Generally Accepted Accounting Standards (referred to as GAAP). Most countries use the IFRS/ASPE system except the U.S. This should only be a problem unless you re going to the U.S. for credit and they want financial statements in their formats.CG