When you are filing financial documentation for your company, it is required that you follow a set of standards or guidelines. As of 2011 the Canadian Accounting Standards Board (CASB) requires that all publicly accountable enterprises use the International Financial Reporting Standards (IFRS) when preparing financial statements.
While IFRS is mandatory for publicly owned companies, private companies can choose to use the Canadian Generally Accepted Accounting Principles (Canadian GAAP).
What is the Difference Between GAAP & IFRS?
The main difference between the two accounting systems is that GAAP is rules based, while IFRS is principles based. Basically, the IFRS is less detailed than GAAP, and is accepted in countries all over Europe, and Asia. IFRS leaves more room for interpretation, but they tend to me more logically sound and can better represent the economics of business transactions.
What is GAAP?
GAAP is a set of rules, standards, and principles that public companies must follow when making financial statements. GAAP rules guide you on how your business transactions should be presented, disclosed, measured, and recognized on reports.
GAAP addresses revenue recognition, balance sheet, item classification, and outstanding share measurements.
What is IFRS?
IFRS is a set of international standards that help financial statements be consistent, transparent, and comparable around the world. The standards state how particular types of transactions and other events should be reported in financial statements.
Using these standards can help investors identify opportunities and risks in international markets, which then improves capital allocation.
IFRS has a set of mandatory rules for business accounting activities. The basic rules are:
- First Time Adoption of IFRS: Any entity that is adopting IFRS for the first time must prepare a complete set of financial statements covering their first reporting period and preceding year.
- Share-Based Payment: An entity is required to recognize share-based payment transactions in its financial statements, including transactions with employees or other parties to be settled in cash, other assets, or equity instruments of the entity. They must reflect any effects of share-based payment transactions in their profit or loss and financial position.
- Operating Segments: This standard requires that any entity whose debt or equity securities are publicly traded need to disclose information to enable users of its financial statements to evaluate all the effects of the entities business activities.
- Fair Value Measurement: It is required that all businesses disclose their fair value measurements, as defined by the IFRS. Learn more information here.
- Regulatory Deferral Accounts: Rate regulation is a legal framework for establishing prices that entities can charge customers. This can create a regulatory deferral account balance, which is an amount of expense or income that is not recognized as an asset or liability.
Learn more about the IFRS Standards here.
Is IFRS mandatory?
For publicly accountable businesses, IFRS became mandatory in Canada as of January 1, 2011. Private businesses have the choice to follow IFRS or a set of standards called Accounting Standards for Private Enterprises (ASPE).
How do I get IFRS certified?
To become certified, you can take a training course in-person or online. Most classes are one-day workshops, while others can be completed over a weekend.
Can I still use GAAP in Canada?
Private enterprises are still able to use the private enterprises GAAP, while all publicly accountable enterprises are required to use IFRS standards. Not-for-profits and other private enterprises can choose separately developed standards for those entities.
Whether you follow IFRS or GAAP for private enterprises, both sets of rules are integrated into QuickBooks’ small business accounting software. Keep your books accurate and up to date automatically. Change the way you manage your finances now.