NEW ACCOUNTING STANDARDS FOR WINERIES
Date: January 2011
Publication: 2010 Winter Issue of Canadian Grapes to Wine
As you may already be aware, the former Canadian Generally Accepted Accounting Principles (GAAP) is effectively being eliminated and replaced with two new policies: International Financial Reporting Standards (IFRS) and Accounting Standards for Private Enterprises (ASPE). Canadian private companies must now choose one of these standards to adopt for year-ends beginning on or after January 1, 2011 (although early adoption of the standards is permitted). It is required that all presented comparative years be restated to comply with the new standards.
This change in accounting standards could have important implications on your business. For winery or vineyard owners, there are several things to consider before making your choice. Typically, private enterprises will want to adopt ASPE rather than IFRS, as ASPE is not significantly different than the current Canadian accounting standards. However, in select cases, adopting IFRS might make sense for a privately-owned winery. It will make more sense to adopt ASPE if your financial statements have few users, or your business does not have the resources to make the significant changes required to move to IFRS.
ASPE may also make sense if you want fewer changes in accounting standards or less disclosure in your financial statements. In addition, you may choose ASPE if you prefer the simpler financial instrument model rather than the more complex model used under IFRS. Another factor you may want to consider is what the industry practice norm will be and choose accounting standards based on what most of your peers are using. You should also consider future plans for your business, such as whether you plan to go public, issue public debt, or obtain foreign financing (debt or equity), which could impact your decision.
ASPE may be a better fit for your winery if you are interested in retaining many of the accounting policy choices currently available, including ― but not limited to ― consolidated versus non-consolidated financial statements, taxes payable method versus future income taxes payable method, and all other options formerly available to private enterprises under differential reporting. ASPE also provides a simplified model for accounting for defined benefit plans, asset retirement obligations and financial instruments.
For wineries choosing to adopt ASPE, there can be many significant implications on your business, including the following.
Taxation: If you use the fair value option on your vineyards, winery equipment and buildings, there will be an increase in your capital taxes base.
Value of your business: If you elect to use the fair value exemption on first-time adoption, you will want to start receiving the back-up for any fair value adjustments you make at the date of transition, which may involve engaging the services of a Chartered Business Valuator.
Ratios and financial covenants: Talk to your bankers before you adopt a new accounting policy and let them know what changes to expect in your financial statements. You may need to have your ratios and covenants modified, given the changes in accounting.
Management reporting: How you measure and report your winery’s transactions will be affected by your change in accounting standards in areas like stock-based compensation, asset retirement obligations, and defined benefit plans.
Change is here for privately-owned wineries and vineyards. BDO wants to help you make the transition into the new world of financial reporting as easy as possible for your enterprise ― no matter what decision you make. Contact the BDO Winery Services Team if you have any questions.
The BDO Winery Services Team may be reached at 250 492 6020 or 1 800 993 3313, or by email at: wineries@bdo.ca.
