Comments on Canadian Accounting Standards Board Exposure Draft on Generally Accepted Accounting Principles for Private Enterprises

Abstract

The Canadian Accounting Standards Board (AcSB) issued an exposure draft on a proposal to adopt a separate 'Made in Canada' GAAP for private enterprises. This new GAAP is justified as being consistent with the current FASB/IASB conceptual framework, but as being responsive to the different cost/benefit considerations facing private entities vis-a-vis public entities. We viewed this proposal as being innovative and responsive to the differential financial reporting needs of private entities. We proposed that the AcSB should develop a separate conceptual framework to guide the future evolution of this new GAAP and not rely only on cost-benefit considerations. We sketched a preliminary conceptual framework that could be used to develop and justify the type of changes proposed in this exposure draft. We then responded to the specific questions asked in the exposure draft and were very supportive of the concepts proposed. First, we support the proposed GAAP which is based on historical cost with very minimal reliance on fair values. Second, we expressed agreement with the proposal to reduce the amount of required disclosures for private enterprises given their significant economic differences from public companies. Third, we agreed with the proposal to drop provision of significant guidance and especially (ex-post) emerging issues committee interpretations (EIC’s). We are in favour of a principles based GAAP and the provision of detailed authoritative guidance is not conducive to professional judgment. We also suggested a series of transition issues that the AcSB should consider including the mechanism for financing the standard setting board, the need to ensure compatibility between accounting and auditing standards, and a process for adjusting the education system (both in Universities and professional exams) to support this new private enterprise GAAP. This comment was developed by the Financial Accounting Standards Committee of the American Accounting Association and does not represent an official position of the American Accounting Association.