Comparison of Canadian Gaap and Ifrs

Topics: Balance sheet, Generally Accepted Accounting Principles, Financial statements Pages: 5 (1630 words) Published: October 28, 2010
From 2011, Canadian publicly accountable entities will cease to report under Canadian GAAP and instead use IFRS. This paper discusses three accounting topics to compare Canadian GAAP with IFRS. The three topics cover (1) conceptual framework, (2) property, plant and equipment, and (3) financial statement presentation.

Conceptual Framework
Both IFRS and Canadian GAAP are based on similar conceptual frameworks. Many of the basic concepts in IFRS (e.g., the going concern assumption, accrual accounting) are similar to Canadian GAAP. Many recognition and measurement principles are similar, as is the general structure and content of the financial statements. The framework is not an international accounting standard in and of itself and nothing in the framework overrides a specific accounting standard. The IASB notes that there may be a few rare cases where the framework is in conflict with a specific standard and, in these cases; the standard would override the framework. Where there is no specific standard, the framework should govern the accounting. The framework is similar to North American frameworks although some of the labels are different. According to the framework, users of financial statements are all parties and individuals who use general purpose financial statements to make decisions. The overall objective of financial reporting is to produce financial statements that present fairly the results of operations and the financial position. This is sometimes referred to as a “true and fair view” of the company and its financial position. To meet the objective, the information shown on financial statements should be useful to mass people. The characteristics of useful information are: 1.understandability, which creates less confusion and are more likely to be understood by users internationally. The more understandable information for users, the more confidence and interested in for investor to make their decisions; 2.relevance, which must be predictive and confirmatory so that is useful to the user in making the decision at hand. The concept of materiality is useful in defining the level of inclusion of information. However, currently the standard does not have a quantitative definition for what is material and what is not. The IASB view that “bright-line” test are not desirable and are more often found in rules-based standards models. If the rules are not applied, professional judgement are needed; 3.reliability, which should be faithfully representing the economic events and transactions in the financial statements, and should be substance over (legal) form; 4.comparability, which benefits all entities to have one set of global standards. The characteristics above are not viewed in isolation. Sometimes there are trade-offs. Preparers must choose which one to emphasize. This is another area where professional judgement must be applied. The framework separates the characteristics into two categories – fundamental and enhancing. The fundamental ones (relevance and reliability) are dominant. The enhancing will be understandability and comparability. Materiality and cost will be pervasive constraints. IFRS are referred to as principles based, whereas Canadian GAAP is more like rules-based model. In order to comply with GAAP, users need to know rules for every situation which is almost impossible for now a day’s complex and rapid change business environment. All different situations trigger different rules make the comparability of global standards as a “mission impossible”. It is more preferable for IFRS, the principle-based, because it’s more flexible to deal with unique economic and business circumstances, thought it involves more professional judgment which might introduce bias.

Property, Plant and Equipment
Canadian GAAP and IFRS are similar in the treatment of property, plant and equipment. However there are some major differences in the requirements such as: 1.Under Canadian GAAP properties held by an...
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