The past year has been one of change for corporations and accountants.  July 1 brought the change to the new HST, on December 14 new audit standards were brought in which will impact how audits and reviews are conducted in the future and, effective January 1, 2011, we now face a change in the accounting basics.  Privately held companies with fiscal year ends beginning on or after this date must transition to a new set of financial reporting standards.  Canadian Generally Accepted Accounting Principles (GAAP) are now a thing of the past and a choice must be made between adopting the International Financial Reporting Standards (IFRS) or the new Accounting Standards for Private Enterprises (ASPE).

Unless the company is planning on going public, has a parent or affiliated company that will be using IFRS or needs to be compliant with IFRS for purposes of international financing or contracts, most will be choosing to adopt the new ASPE.  The good news is that ASPE is based on existing Canadian GAAP and has been designed to simplify rather than complicate the accounting standards and reporting.  No change is without its challenges, however, and there are several transitional requirements and options that must be dealt with.  Once the options are chosen and the initial year completed the subsequent years’ reporting should be simpler.

One of the more interesting  transition elections is a one time opportunity to increase the value of the company’s property, plant and equipment to its fair market value as at the transition date and use that fair market value as its deemed cost.  The offset would be a bump up in the retained earnings.  This may have a favourable impact on certain key financial statement ratios and debt covenant calculations; however, it will also result in an increase in future depreciation expenses and may have a negative impact on the small business deduction limit and Scientific Research and Development claims.  It would, of course, also mean the additional cost of having the appropriate valuations done.
One other change is that investments in publicly traded stocks will be required to be disclosed at their fair market value with a bump to retained earnings at the transition date and any subsequent changes in value being recognized in net income.  Currently these investments are required to be held at their cost with note disclosure indicating their fair value and generally no impact on income until the stocks are sold. 
Other changes include the elimination of the need for unanimous shareholder consent for differential reporting options – the options are now available with no consent requirements, changes to the accounting for employee future benefits, and more streamlined note disclosure requirements.
This transition will impact companies for who review or audit engagements are performed and will require additional work and statement disclosure in the transition year.   As discussed above, the changes may impact income calculations and covenant or profit sharing calculations which may be based on different assumptions.  Do not hesitate to call Martyn, Dooley & Partners to discuss just how these changes will impact your company and what we should be considering during this transition period.