Putting Canada on a continuum between fully converging or partially converging with the international financial reporting standards (IFRS) with their “Made in Canada” (Canadian Institute of Chartered Accountants [CICA], 2006) generally accepted accounting practice (GAAP), Canada would lie very close, if not on the line of convergence.
Over the past few years, before the consideration of IFRS and leading up to the full convergence of it, Canada’s GAAP has been a ‘no mans land’ (Martin, 2009). It was becoming vastly foreign to the rest of the world, when it was once similar to US GAAP. As a result participants in Canadian capital markets were left “increasingly uncomfortable” (Cherry, 2008). The costs of translating/reconciling these practices in various ends of foreign business were significant and repelled interest foreign investment and cross boarder-debt investment in Canadian companies. Canada accounts less than four per cent of the global capital market, so having a set of globally unrecognized financial standards served no merit; therefore a strong approach at converging IFRS was needed. (Martin, 2009). Canada’s GAAP is considered to be more alike in comparison to the gap between EU GAAP and the IFRS (Martin, 2009) allowing standards and principals to converge much easier.
In January 2006, The Accounting Standards Board of Canada (AcSB) made the decision to adopt the IFRS, after 2 years of research and consideration amongst the board and publicly. In January 2008 date for transition to the new system was announced. Convergence has been in full, with no areas in particular having significant differences to that implied in the IFRS. However Canada left, what was considered “ample time” (Martin, 2009) for the adoption of the IFRS in comparison to Australia and Europe, this left time for the converging to be well planned, monitored and learned but also left a lot of time for the International Board of Accounting Standards (IBAS) to make changes to the IFRS but time for IBAS to approve and implement Canada’s convergence.
The mandatory use of IFRSs for Canadian public companies and specified profit oriented enterprises (obtaining large/diverse shareholder groups) (CICA, 2008) was set for financial years starting and after 1st January 2011, however on October 2010, the AcSB gave an extension to investment companies and segregated accounts of life insurance enterprises in order to give the IASB “time to implement the proposed exemption for investment companies from having to consolidate investments they control” (Deloitte, 2011). However this has again been pushed back to 1 January 2013 for particular investment funds.
Convergence is on going. Non’ profit enterprises, private owned company, and medium to small issuers still can operate under “Made in Canada” GAAP, but are now being offered to practice IFRS as the IBAS and AcSB further develop and monitor standards suited for these enterprises (Deloitte, 2011).
Question 1 – b)
Advantages and disadvantages of departing from convergence International Financial Reporting Standards in relation to Canada and in general.
Not having to adjust to a new system (that may not benefit some entities): There is risk of issues caused by a wide range of companies having to make some drastic changes to their commonly used and understood accounting practices. Although the jurisdictions national accounting boards may believe that the change is necessary, many companies and enterprises may not. A possible indication of this in Canada is only ‘a handful’ (Deloitte, 2011) of companies adopting the new methods when they were given the option to adopt them two years prior to them becoming mandatory.
Making full convergence with the IFRS serves little point if companies aren’t likely to comply with the standards set out, causing tremious legal issues. Canada has a small internationally credible capital market, and...