ASPE General Adoption

Do you have questions about adopting accounting standards for private enterprises (ASPE)? Read some of the frequently asked questions on general adoption of ASPE here.

1. How is the CPA Canada Handbook — Accounting organized?
The CPA Canada Handbook — Accounting (Handbook) has five parts. Each part contains standards and guidance for use by Canadian entities outside the public sector.

Part I: publicly accountable enterprises
Part II: private enterprises
Part III: not-for-profit organizations
Part IV: pension plans
Part V: pre-changeover accounting standards, including a complete archive of the Handbook
The Handbook is the only authoritative source of guidance on Canadian generally accepted accounting principles (GAAP). The division into Parts is necessary because different standards were created for different sectors, and various regulations and legislation make reference to specific parts.

2. Who can use accounting standards for private enterprises (ASPE)?
The preface of the Handbook defines a private enterprise as a profit-oriented entity that is not a publicly accountable enterprise.

Publicly accountable enterprises include those that have issued, or are in the process of issuing, debt or equity instruments that are, or will be, outstanding and traded in a public market. An entity is also publicly accountable when it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses. Banks, credit unions, insurance companies, securities brokers/dealers, mutual funds and investment banks typically meet this criterion.

Other entities also manage financial resources entrusted to them by a broad group of clients, customers or members not involved in the management of the organization. For example, a seller may receive and hold pre-payments from customers before making delivery. If such activity is only incidental to the seller’s primary business, it does not make that entity publicly accountable. How an entity is defined requires consideration of such questions as:

What is (are) the entity’s primary business(es)?
Is holding and managing these financial resources an integral part of the primary business(es) (i.e., could business be conducted without holding and managing these financial resources)?
Has receiving, holding, and managing these financial resources created a new primary business, of which the financial resource-related activity constitutes an integral part?

3. Does a private enterprise have to use ASPE?
No. A private enterprise can choose to adopt either International Financial Reporting Standards (IFRS or Part I of the Handbook) or ASPE (Part II of the Handbook). In either case, the private enterprise may then state that its financial statements have been prepared in accordance with Canadian GAAP. The Handbook does not set out conditions for choosing between Part I and Part II.

4. How should we decide which standards to follow?
The following questions may help make this decision:

Is the choice restricted by contracts or other commitments? For instance, do the terms of our lending arrangements require adopting a specific part of the Handbook?
Even if we are not publicly accountable at present, do we anticipate becoming so in the future, for example, by filing a prospectus to become a reporting issuer?
Are the majority of our competitors publicly accountable? If so, our shareholders may benefit from receiving financial information that allows more direct comparison with the financial information of those entities.
Even if we are not publicly accountable, do we have a large number of users who are not directly involved in the business, and whose needs may be better served by adopting Part I of the Handbook?
For some entities, there may be value in revisiting these questions from time to time as the entity’s circumstances change.

5. What is required of an enterprise that applies accounting standards for private enterprises for the first time?
A private enterprise may apply ASPE for the first time as a result, for instance, of having applied IFRS in the past, or of having prepared financial statements under another accounting framework not in accordance with Canadian GAAP. In this situation, the entity applies Section 1500, First-time adoption in Part II of the Handbook. Among other things, Section 1500 allows various defined exemptions from other standards in the period of adoption of ASPE. These are designed to assist a first-time adopter generate financial statements at a cost that does not exceed the benefits to users.

6. Can a Canadian private enterprise use IFRS for small and medium-sized entities (SMEs)?
A private enterprise may choose to use IFRS for SMEs, however, it should be noted that IFRS for SMEs are not included in the Handbook. Accordingly, if an enterprise uses IFRS for SMEs, it cannot state that its financial statements comply with Canadian GAAP. Paragraph 1.6 in the Introduction to Part I of the Handbook addresses this issue.

7. Do accounting standards for private enterprises apply to not-for-profit organizations?
Not-for-profit organizations not subject to the CPA Canada — Public Sector Accounting Handbook can choose whether to apply the accounting standards for not-for-profit organizations contained in Part III of the Handbook or IFRS in Part I of the Handbook.

A not-for-profit organization adopting the standards in Part III also applies accounting standards for private enterprises found in Part II, to the extent Part II addresses a topic not addressed in Part III. However, not all of Part II is applicable to not-for-profit organizations.