Many private companies that are required to issue financial statements in accordance with Canadian Generally Accepted Accounting Principles will be required to adopt Canadian Accounting Standards for Private Enterprises (ASPE) for periods beginning on or after January 1, 2011. For many companies this transition will be relatively seamless since the new ASPE standards are comparable to existing standards. There are, however, some changes that may have a significant effect on a company's financial reporting practices. A few of these changes are explained below.

Under ASPE, investments in equity instruments, whose prices are quoted in an active market, will now be required to be measured at their fair value. In addition, an organization has the option of electing to measure any of its financial instruments at their fair value. The decision to take advantage of this option should not be taken lightly as it could have a significant impact on the company's financial statements and the costs incurred to produce them.

Under ASPE a company may also take advantage of a one-time election to re-measure any item of land, building and equipment at its fair value at the date of transition to ASPE. At first glance this may seem like an attractive option as it will increase the value of the company's assets and its equity. However, there are also some significant drawbacks:

  • An appraisal will likely be required to substantiate the fair value of the asset which will result in incremental costs to the entity.
  • If the value of a building or a piece of equipment is increased it will result in higher amortization costs in the future, which will adversely impact the company's bottom line.
  • For some larger companies increasing the value of its assets could result in the company paying higher taxes.

Even though the adoption of these new standards might seem a long way off, it would be useful to get an understanding of the impact that ASPE will have on your company.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.