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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.
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