Why Your Balance Sheet Will Have Three Columns
Starting on January 1, 2011 the rules of accounting in Canada have changed. Canadian businesses have the option of changing to one of two new methods of accounting. Change they must, there is no sticking with the old rules.
The public companies will switch to IFRS the International Financial Reporting Standards. The rest of us are going to be making a change to ASPE or Accounting Standards for Private Enterprises. So what does this mean, besides two new four letter words? Let's talk about ASPE as that applies to most Canadian companies.
The basic idea of ASPE is that companies who are not public should not have to follow the same complex rules that companies which are accountable to the public have to abide by. This makes sense. If you are a private company then odds are that your shareholders can get all of the information that they want, they are not relying on the annual financial statements. So what are the top three changes with ASPE?
1. The most popular change related to fixed assets. ASPE permits a one-time adjustment to fair value for your fixed assets at the beginning of the year, before the year, that you implement ASPE. So for a December year end the adjustment will be made at January 1, 2010. You will be allowed to increase the fixed assets to their fair value and balance your books by increasing your retained earnings. This adjustment can only be made at the comparative date that you adopt ASPE.
2. You now have to report the amounts you owe to government organizations separately either on the balance sheet or in a note. This includes HST, source deductions, workers compensation and corporate income tax. This change was requested by creditors, mainly the banks.
3. You must show any investments which are actively traded at their fair value. For example if your business owns shares of Bank of Montreal, those shares are shown at their fair value on each balance sheet date. There is no choice about this, if you would prefer to keep your shares at cost on your financial statements that is too bad. I
n order to make these changes your December 31, 2011 financial statements will have a column for December 31, 2010 and December 31, 2011 as expected, but they will also have a column for January 1, 2010. This three column balance sheet will only be required for the first year that you make the change to ASPE. The January 1, 2010 column will show all of the changes that you made to convert your financial statements from the old generally accepted accounting principles to ASPE.
About the Author
Debi J. Peverill CA is an accountant with a sense of humour. She has written 11 books for business owners and is in demand as a speaker. Learn more business strategies at http://www.Peverill.ca
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