Business Management Articles
Finally, a Victory for the Little Guys
Mississauga Business Times
Bob McMahon
For many owner-managers, they’re nothing short of confusing: Generally Accepted Accounting Principles, International Financial Reporting Standards, Accounting Standards Board rules.
While owner-managed businesses represent more than 85 per cent of private companies in Canada, they have had to take a back seat to public companies when it comes to standards for financial reporting.
Now, however, the Canadian Institute of Chartered Accountants has developed the Framework for Owner Managed Enterprises, which specifically addresses the financial reporting needs of these businesses.
This simplified accounting framework for owner-managed businesses is based on accounting and financial reporting standards in the CICA Accounting Handbook. The new framework includes only those transactions common to these businesses – owner-managed enterprises that do not have public accountability and don’t publish general purpose financial statements for external users (such as shareholders, investors, creditors or employees with stock options).
The framework is based on the standards in the current CICA Handbook rather than the International Financial Reporting Standards (IFRS) that "publicly accountable enterprises" in Canada will be required to adopt by 2011. IFRS are a single set of enforceable global standards that are already in use in the European Union and many other countries.
By contrast, the Framework for Owner Managed Enterprises offers flexibility. Certain measures, such as the use of fair value measurements, standards for complex transactions, and the volume of disclosure requirements, which are the source of complaints by many owner-managers, offer small- and mid-size private businesses the ability to depart from certain Generally Accepted Accounting Principles.
Because it is based on existing standards, the framework will also save training time and costs for owner-managed businesses. Owners and their accounting staff will not have to undergo significant additional training and education on the new standards.
Ultimately, the simpler standards should help to produce financial statements that are easier to understand, more relevant to the needs of owner-managers and more suited to helping them make sound business decisions.
The draft standards were released on November 7, 2007 and the CICA invited comments until January 31, 2008. The framework will now be finalized and should soon be incorporated into the CICA Handbook. The new standards will be effective for years beginning on or after January 1, 2009. Whether or not you wish to follow them is your choice.
This is a good time to speak with your accountant regarding the relevance of the simplified standards to your organization, and their potential impact on your information gathering, financial statements and management decision making.
It’s also about time the "little guy" has a victory. Finally, the Framework for Owner Managed Enterprises recognizes the importance of owner-managed enterprises - the engine that drives much of Canada's economy.
Bob McMahon is a senior manager of BDO Dunwoody LLP (www.bdo.ca). BDO, one of Canada’s leading accounting and advisory firms, helps entrepreneurs and family businesses succeed. You can reach Bob in the Mississauga office at bmcmahon@bdo.ca or (905) 270-7700.
This article was originally published in Mississauga Business Times, Sep 2008.
