International Financial Reporting Standards (IFRS) has gotten a
lot of press over the last few years. It has a reputation of being
only for public companies, expensive to apply and responsible for
really lengthy financial statements. Private companies often
don't even consider IFRS an option when preparing their
financial statements. But do they consider any other recognized
financial reporting framework? Accounting Standards for Private
Enterprises (ASPE) is the private company alternative to IFRS.
However, ASPE is not as widely talked about as IFRS. For those that
have heard of it, they know it as the cheaper and simpler option of
preparing financial statements in accordance with a recognized
financial reporting framework in Canada. But even though some may
have heard of ASPE and its benefits, there are still many private
businesses in Canada that ignore both ASPE and IFRS altogether when
preparing their financial statements.
Whether you are an investor in a private company or the owner of
one, reliable financial statements are critical for business growth
and sustained success. The best way to ensure your financial
statements are reliable is by applying an appropriate financial
reporting framework. When financial statement preparers ignore the
influence of a recognized financial reporting framework such as
IFRS or ASPE, they are essentially recording economic transactions
the way they personally feel they should, which automatically
reduces the reliability of any key number on the financial
Presenting financial statements that don't give the person
reading them that 'warm and fuzzy feeling' can be the most
expensive business decision an owner can make. Investors and
lenders want to feel confident that they are making the right
business decisions and reliable financial information is often one
of the key factors in that decision-making process. When a company
is called on to prepare reliable financial statements, it may find
itself going back in time to try to gather financial information in
order to restate its financial statements to satisfy investors or
lenders. This process can be very costly and in the end, the
information may not even be obtainable.
There are additional risks associated with using financial
statements that are not prepared in accordance with a recognized
framework such as IFRS or ASPE. For example, when a company is
sold, the agreed sale price may be significantly adjusted or
disputed after the fact when actual results reveal a financial
situation that is inconsistent with the financial reporting on
which the original price was based.
Private companies that are unwilling to invest the time and
money in learning to apply ASPE or IFRS risk being sold or bought
at prices that are higher or lower than fair value, having a harder
time finding investors or even paying higher interest rates as
lenders may realize the inherent riskiness in relying on financial
statements that are not based on any recognized framework. With the
tough economic conditions that exist today, no company can afford
not to use IFRS or ASPE.
Over the past year, we have watched the Canadian dollar drop relative to its U.S. counterpoint impacting Canadian businesses. U.S. goods and services are now more expensive, U.S. sales make a premium and errors when recording foreign exchange transactions can cost you more money.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).