GAAP is not a law of nature. Someone has to write the rules, someone has to check that businesses follow them, and someone has to punish those who do not. Hockey works the same way: the league writes the rulebook, referees call the game, and a disciplinary office hands out suspensions. If one body did everything, nobody would be checking that body. Canadian accounting splits these jobs among several independent organizations, and knowing who does what tells you where to look for an answer and who can act when something goes wrong.
The profession: CPA Canada and CPA Ontario
Until recently Canada had three separate accounting designations: the Chartered Accountant (CA), the Certified Management Accountant (CMA) and the Certified General Accountant (CGA), each with its own national and provincial bodies. The national CA body (the Canadian Institute of Chartered Accountants, CICA) and CMA Canada combined on January 1, 2013 to form Chartered Professional Accountants of Canada (CPA Canada), and CGA-Canada joined in 2014. The provincial bodies unified as well. Today there is one designation, the Chartered Professional Accountant (CPA).
- CPA Canada is the national organization. It supports research and education, and it publishes the CPA Canada Handbook, which contains the standards written by the standard-setting boards.
- CPA Ontario is the provincial regulator. Regulating professions is a provincial responsibility in Canada, so CPA Ontario grants the CPA designation in Ontario, licenses public accountants, enforces the Code of Professional Conduct and disciplines members who break it.
- Why unify? One designation is easier for the public and employers to understand, removes duplicated programs and costs, and gives Canadian accountants a single, internationally recognized credential.
Who writes the standards: AcSB, ASPE and IFRS
The Accounting Standards Board (AcSB) is an independent body that sets accounting standards for Canadian private-sector entities. Rather than write a separate Canadian version for public companies, the AcSB adopted International Financial Reporting Standards (IFRS), which are written by the International Accounting Standards Board (IASB). Since fiscal years beginning on or after January 1, 2011, publicly accountable enterprises in Canada must use IFRS. At the same time the AcSB created Accounting Standards for Private Enterprises (ASPE), a simpler framework designed for businesses whose statements are read mainly by owners, lenders and the CRA. Governments follow a separate set of public sector standards.
- Written by the AcSB specifically for Canadian private enterprises
- Fewer, simpler disclosures; lower cost to apply
- Allocating a capital asset's cost is called amortization
- Property, plant and equipment stay at cost less accumulated amortization
- Optional: a private enterprise may choose IFRS instead
- Written by the IASB and used in well over 100 jurisdictions
- Required for Canadian public companies and similar entities
- Allocating a capital asset's cost is called depreciation; amortization is used for intangibles
- Allows a revaluation model for some property, plant and equipment
- More extensive disclosure, so investors around the world can compare
| Entity | Framework |
|---|---|
| Company whose shares trade on a stock exchange (publicly accountable) | IFRS required |
| Bank, credit union or insurer holding assets for a broad group of outsiders | IFRS required (publicly accountable) |
| Private family-owned corporation | ASPE, or IFRS if it chooses |
| Sole proprietorship or partnership | Usually ASPE |
| Not-for-profit organization | Not-for-profit standards (ASNPO) or IFRS |
| Municipality, province or federal government | Public sector accounting standards |
Who enforces: the OSC, the CRA and auditors
- Ontario Securities Commission (OSC): regulates Ontario's capital markets. Companies that have sold shares or bonds to the public (reporting issuers) must file audited annual financial statements, interim reports and timely disclosure of material events. The OSC can investigate misleading disclosure and impose penalties. It co-ordinates with the other provinces' regulators through the Canadian Securities Administrators.
- Canada Revenue Agency (CRA): administers federal income tax and the GST/HST (including Ontario's portion of the 13% HST). It enforces tax law, not GAAP, so its rules sometimes differ from accounting standards.
- Independent auditors: public accountants licensed by CPA Ontario examine a company's records and express an opinion on whether the statements are presented fairly, in all material respects, under the stated framework. Audits follow Canadian Auditing Standards; the Canadian Public Accountability Board (CPAB) oversees the firms that audit public companies.
Tax rules versus accounting rules
A business can legitimately show two different amounts for the same cost. On its financial statements it amortizes equipment using a method that matches the equipment's real pattern of use, such as straight-line. On its tax return it must instead claim capital cost allowance (CCA), using the classes and maximum rates the CRA prescribes. Neither number is wrong; they answer different questions. The same is true of some expenses that are fully recorded under GAAP but only partly deductible for tax, such as business meals, which are generally only 50% deductible.