Learn which accounting standard works for your business. Discover when to use the Accounting Standards for Private Enterprises (ASPE) or the International Financial Reporting Standards (IFRS).
It is important to familiarize yourself with the different types of accounting standards when you run a small to medium sized business. There are two set of account standards within the Generally Accepted Accounting Principles (GAAP) framework: ASPE and IFRS. These fundamentals were created to support the unmet needs of small businesses. Discover which standard works for the type of business you run.
What Do ASPE Principles Cover?
The Canada Centre of Financial Reporting provides an extensive list of ASPE principles, but you don’t need to know all the tenets of the ASPE as a small business owner. Here are some of its key attributes:
- Information that must included on financial statements
- Preparation of opening balance sheets
- Disclosure standards
- Criteria for accounting changes and corrections of error
- How to present current assets and liabilities
Who Can Use the ASPE?
If your business’ stocks aren’t traded on a public stock exchange, you are considered a private company. Due to the reduced reporting needs of a private enterprise, only these organizations are allowed to use the ASPE when drafting financial statements.
Advantages of ASPE
You create a standardized look at your financial situation that can be understood by anyone in the finance or accounting sector when you use ASPE standards to create your income statements, profit-and-loss reports, and other financial documents. This is extremely helpful when you apply for loans, present information to investors, or prove your financial strength to vendors.
What is IFRS?
When you run a small business in Canada, efficient record keeping and information exchange requires uniform guidelines for handling financial reporting. That’s the thinking behind International Financial Reporting Standards.
IRFS provides a set of accounting standards developed by the International Accounting Standards Board. These standards offer companies around the world guidance on how to prepare their financial statements. Businesses in more than 100 countries use IFRS, including Canada and the European Union, and publicly traded companies in these countries must also follow the standards.
What Is IFRS All About?
The IFRS Foundation is an international organization that develops the IFRS global accounting standards. The organization’s mission aims for transparency, accountability, and efficiency in Canada’s and the world’s financial markets. It also fosters trust and financial stability in the global economy.
The IFRS for SMEs Standard
Your Canadian small business can use a less complex version of the IFRS, known as the IFRS for SMEs, which provides small- and medium-size companies with guidelines on financial reporting. This version of the IFRS contains topics relevant only to small- and medium-size companies.
These standards serve creditors, lenders, people who use financial statements of small- and medium-size businesses, and finance-related professionals who need information about cash flows, solvency, and liquidity. The standards take into account the costs and capabilities of SMEs to prepare financial information.
You have fewer mandatory disclosures under this set of standards, and the language and terms prove easy to understand. The organization revises these standards less frequently than the full IFRS.
The Choice Between ASPE or IFRS
Publicly traded companies began using the International Financial Reporting Standards (IFRS) at the same time that the ASPE was implemented. While public companies must use the IFRS, private companies can choose one or the other. The Canada Centre for Financial Reporting asserts that the ASPE is simpler and less demanding than the IFRS, and as a result, it makes sense for private businesses to use the ASPE.
If you plan to go public in the near future, you may want to switch to the IFRS. Additionally, you may want to use IFRS if your parent company or your competitors use it.
Whichever accounting standard applies to your business practices is the best route to go. Remember that keeping your financial statements accurate and organized signals that you run your business well. This is just one way to optimize the efficiency of your small business. 5.6 million customers use QuickBooks. Join them today to help your business thrive for free.