IFRS vs ASPE

IFRS vs ASPE

Understanding the difference between IFRS (International Financial Reporting Standards) and ASPE (Accounting Standards for Private Enterprise’s) is important for businesses as it can have implications.

Business in Canada are allowed to choose to follow either IFRS or ASPE. This decision will be ultimately based on whether a business is a private company or a publicly traded company. Accounting standards have been developed to ensure that companies prepare their financial statements following the same rules, that financial statements are transparent and users have confidence in the information presented.

ASPE

ASPE is more suited for private companies as publicly traded companies are not permitted to use these set of standards. The reason for this is that the financial statements of private companies are generally prepared for the benefit of the owners or stakeholders of the company. They are less complicated and more cost effective for private companies. Under ASPE financial statement preparation and disclosures are less demanding compared to IFRS.

A private company can choose to follow IFRS which may be beneficial if the company is planning on going public in the future. Adopting IFRS early on while leading to higher costs will ultimately save it from having to convert its financial reporting from ASPE to IFRS. This process can be complicated and costly.

IFRS

Implementation and maintenance of IFRS is more complex compared to ASPE. Publicly traded companies are required to prepare their financial statements in accordance with IFRS and cannot choose to follow ASPE. The reason for this is that IFRS principles have been developed based on the fact that the public will rely heavily on the financial statements to make informed decisions regarding the business. IFRS standards are uniform across the world which makes comparisons between companies more meaningful and beneficial for investors.

At the end of the day, the choice of IFRS vs ASPE comes down to whether a companies is private or publicly traded.  A private company with no intention of going public should choose to follow ASPE.

Disclaimer: Information provided may not be complete or accurate. It should not be considered financial advice.

Cash vs Accrual Accounting

Cash vs Accrual Accounting

The difference between Cash vs Accrual accounting has to do with when the business will record the transactions.

CASH ACCOUNTING

Under Cash accounting, a transaction is recorded when it actually occurs. For example, a business will record income or expense when cash changes hands. It is ideal for small businesses as it is straight forward and easy to use. 

Another benefit of cash-based accounting is taxes. Under this method a business does not have to pay any taxes on money that has not changed hands. This is an important distinction between the two methods as small business can run in to cash flow problems if they have pay taxes before receiving cash.

ACCRUAL ACCOUNTING

Accrual accounting, on the other hand, income is recorded when a sale occurs regardless of whether the business has received the cash or not. This situation can occur when, for example, a sale has been made and the invoice has not been paid as yet. Accrual accounting requires this sale to be recorded as revenue even though cash has not been exchanged. The same applies to the expenses, the business will record an expense when it occurs even if the business has not paid for it yet. 

Under accrual accounting, a business will have to pay taxes even on income for which it has not yet received cash. This is due to the fact that accrual accounting focuses on the transaction event and more accurately captures the state of finances of a business.

IFRS (International Financial Reporting Standards) and ASPE (Accounting Standards for Private Enterprises) require financial reports to be prepared using the accrual accounting method.

Accrual method shows a more complete picture of a business’s financial health as it shows what has been earned in a period and what is actually owed.

CASH vs ACCRUAL ACCOUNTING

cash vs accrual accounting table