International Financial Reporting Standards

International Financial Reporting Standards

IFRS and Canada

Canada was one of the first prominent nations involved in the North American Free Trade Agreement to consider switching their financial reporting to the International Financial Reporting Standards. For years, Canada had been under the pressure of the United States to adopt a system aligned with the GAAP. Still, growing opportunities across the globe made the adoption of the IFRS in Canada a better option. It was announced in early 2008 that the move was going to be made in Canada. Canada officially adopted the IFRS standards in January of 2011 (PWC, 2014). Actually, the IFRS standards were quite similar to the already existing Canadian GAAP standards. Thus the transition, for most businesses, was not extremely different than what they had encountered in the past.

The country made the official decision to adopt the IFRS over their own GAAP system came in a new development that shows less dependency on the United States for the country. Canada has worked on fully implementing the system for the last few years now. The official announcement came in 2008. What was supposed to be concluded in 2011 ended up lagging on until 2012 and now some reports saying 2015 (PWC, 2013). There are still changes that are being set for January of 2015, which is when the U.S. GAAP standards will stop being exempted for certain domestic companies (PWC, 2013). Thus, the process of implementing the system did take a significant amount of time and is still not complete yet.

Most of the adopted changes remained true to the IFRS principles, although this was not that big of a jump from the existing Canadian GAAP principles that were being used. Still, there are special modifications allowed in Canada for non-profit organizations, since the IFRS are not handle such businesses appropriately. Additionally, the U.S. GAAP system is still acceptable for use for companies that are listed in the United States as well as Canada (IFRS, 2013). According to the research, "foreign public companies (U.S. Or otherwise), listed on Canadian exchanges, that are also SEC issuers have the option of using U.S. GAAP" (PWC, 2013). Thus, there were some adjustments made to the IFRS seen in Canada, as it was not adopted in its complete entirety. There still is an option for using U.S. GAAP principles in a number of different contexts.

The entire process has it made it easier for companies to work in new, international markets. According to the research, "over the last few years, over 100 countries, including the European Union, Australia and New Zealand, have adopted IFRS. Pressure on Canadian businesses to harmonize with U.S. GAAP and its higher compliance costs have declined" (Canadian Institute of Chartered Accountants, 2011). This would essentially open up greater international potential for Canada and lessen its limitations to being in the shadow of the United States. It opens up easier access to new, emerging markets like India, which also adopted the IFRS standards recently. This greatly increases the ability for Canada to trade easier with international markets. Moreover, it helps facilitate foreign investing in Canada because of more unified international standards now as well. Here, "the goal of IFRS is to improve financial reporting internationally by establishing a single set of high quality, consistent, and comparable reporting standards" (Canadian Institute of Chartered Accountants, 2011). These can be taken advantage of in a growing international context, where the opportunities for global business are greater than what NAFTA had to offer years ago.

Clearly, the United States needs to rethink its isolationist stance on financial recording methods. True, the U.S. GAAP will still hold influence in many of the countries that are thinking of switching to the IFRS, like seen in Canada today with certain exemptions for U.S. listed organizations. However, it is just bad business to keep working on a dying, outdated system, as the world's biggest economic players start to adapt a new system. This does not necessarily mean a full integration of the IFRS standards without regard to potential adjustments in order to flow better with accounting practices here in the United States (IFRS, 2013). The best method for the United States would be to make an integrated approach, where GAAP principles are aligned with IFRS in a way that makes it easy to adjust over a longer period of time, with special allowances based on the unique needs of the United States.