Write a brief essay highlighting
the difference between IFRS and accounting standards for private enterprises
noted in this chapter, discussing the conceptual justification for each.
There are some major differences between IFRS and ASPE with respect to the items discussed
in the chapter. The differences arise
due to the fact that ASPE is used by private companies with less complex
business structures and fewer users. In
addition, the standards for ASPE have been designed to keep costs in line with
benefits by reducing disclosure and allowing more choices in standards. The
following highlights the differences between IFRS
and ASPE:
·
Disclosure is greatly reduced for
private enterprises as their business structures are less complex and the main
users usually have access to management and rely less on the notes for
information.
·
Due to the large range of sizes and
complexity of private enterprises, ASPE has a greater number of accounting
policy choices for reporting and measuring items such as income taxes,
controlled or significantly influenced investments, defined benefit pension
plans, to name a few. Additionally, when
a choice is made, it does not need to be shown to be reliable and more relevant. In contrast, IFRS is trying to reduce the
number of choices so that comparisons across peer groups are easier, and any
change in an accounting policy must be shown to be reliable and more relevant
than the previous one.
·
IFRS requires segment reporting and
provides detailed guidance on the definition of a reportable segment and the
information that must be disclosed. ASPE
does not require segment reporting due to private enterprises being less
complex, and to reduce the note disclosure required.
·
ASPE does not require interim
reports. Due to the fact that shares of
a private enterprise are not easily liquidated, shareholders and creditors are
long term investors in private enterprises.
Consequently, interim reporting would not be relevant for their
needs. In addition, these stakeholders
have access to management to request information as required. For publicly traded enterprises that have
shareholders who might be invested for very short periods of time, interim
reports are vital for their needs.
Although IFRS does not mandate who will issue interim reports and how
often, guidance is provided on measurement and reporting interim financial
information.
·
ASPE has detailed standards on how
to measure, report and disclose related party transactions. This results from past Canadian practices and
also the fact that related party transactions may be more prevalent in private
enterprises. IFRS only provides guidance
on disclosure requirements for related party transactions. IFRS also requires disclosure on key
management compensation, whereas ASPE does not.
(It is interesting to note that the first draft of ASPE did include
similar compensation disclosure, but the feedback was so negative that the
requirement was eliminated on the final version.)
·
For ASPE, subsequent events arise
between the report date and the completion date, which has been past practice
in Canada. IFRS defines subsequent
events to be events arising between the report date and the date of
authorization.
·
ASPE has standards for
unincorporated business requiring the statements to define the entity and
disclose salaries and other items accrued to the owners. ASPE has this standard since there may be
private enterprises that are not incorporated.
As all publicly traded entities are incorporated, there are no similar
standards under IFRS.
