As stated in the case, Canadas accounting bodies have understood the importance of comparability and as such have strived on the achievement of a harmonized standard with that of U.S GAAP, however due to the momentum of the IFRS and the high profile financial reporting scandals of U.S companies such as Enron and WorldCom. Canada's accounting community has begun to question the integrity of the "rules- based" nature of U.S. standards, versus the "principles-based" nature of IFRS. Unlike the principle-based approach , the rule base approach is congested with details and rules aimed at addressing as many potential problems and contingencies as possible, which has resulted in a much more complex and longer standard (exceeding 17000) leading to the arbitrary criteria for accounting treatments that allow companies to structure transactions to circumvent unfavourable reporting (Shortridge & Myring, 2004).
On the other hand the principle based approach provides a conceptual framework for accountants to adhere to instead of detailed rules. A conceptual framework refers to a collection of theories that help define what must be included to generate high-quality, useable financial statements and it is these theories which serves as guidelines for IFRS.
The transition from GAAP to IFRS can prove to be beneficial to Canada and Canadian Businesses both small and large in a number of ways. Firstly the implementation of the IFRS standard may lead to an increase in foreign investment from external investors who wish to enter the Canadian economy. This is made possible due the removal of the restriction/ limitations which comes with the existence of different accounting standards in a globalised economy. This restriction and cost are in the form of The training and time spent in understanding Canada's GAAP which can lead to reduce cash flow, as well as the pressure on foreign investor to comply with the rules and regulations of Canada, which can cause a delay in the finalization of a deal between the local company and the foreign investors (Dikova, Sahib and Witteloostuijn, 2010). In short the harmonising of accounting standards reduces the information asymmetry which exists between countries as the information available to investors are in a format which can be understood and compared across international boundaries.(Gordon and Bovenberg, 1996).
Also as it relates to publicly accountable entities (PAEs) and Canadian firms with subsidiaries operating in foreign countries are able to reduce cost involved with auditing and training staff. Cost associated with the training of staff in a foreign countries' GAAP is eliminated as both countries accounting information should be similar if both are using the IFRS standard whilst also reducing the need and cost of hiring auditors who are able to understand and assess the application of the financial standards in the different countries.
Improved transparency, comparability and apprehensibility that come from the use of IFRS can also be beneficial to small public companies who are seeking foreign investment to expand international as well as private companies who plan on going public. Investors interested in investing in these companies are more likely to, because of the reduce cost of equity and risk due the access to accounting information which is understandable, allowing investors to better perceive all the risks and benefits of an possible investment appropriately and in a timely manner.
On the other hand the implementation of the IFRS standards has its drawbacks. A change from GAAP to IFRS not only involves a change of accounting procedures buts also entails the revamping of those public accountable companies as well. This means that policies and disclosures, strategies, objectives and action plans would have to be changed or put in place to not only facilitate the transition but also capitalise on the benefits that comes with the switching to IFRS accounting standard. All of which can be time consuming, resource consuming, costly and can hinder or interrupt the day to day activities and performance of those companies.
Also the transition to IFRS would also require the training and hiring of staff, updating of accounting technology and the contracting of auditors from auditing firms to help with the transition from GAAP to IFRS. As a result cost will increase as firms make technology changes and train and hire new staff as well increase cost in the contracting of auditors and advisor to help with this transition.
Finally all disclosures, reports, financial documents, contracts and agreements will have to be revised or renegotiated to adhere to IFRS requirements due to the difference that will result from the application of the new accounting policies. This is an onerous and costly task for publicly accountable entities especially small companies who possess limited financial resources.
Some recommendations which can aid Canada in the transition from GAAP to IFRS are:
Implementation should focus first on a few companies during the early stages of transition.
The implementation of IFRS standards should initially be applied to a few significant firms, such as large public companies who are listed on the stock exchange, financial institutions such as banks and also companies of national importance.
The involvement of key policy makers, governmental agency and other key agencies is essential in the transition from GAAP to IFRS and should be incorporated throughout the transition process.
The transition process should be gradually instead of immediate. The Canadian government should set a date when all companies should comply with the IFRS standard and also a task force to oversee and enforce this gradual change.
In conclusion the implementation of IFRS accounting standard is a step in the right direction for Canadian businesses both public and state owned. IFRS implementation leads to a more transparent and understandable book keeping and financial statement preparation but can also economic activities internationally, by making it less onerous and less costly for foreign investors to engage in financial transactions locally and vice versa.
