Section 1500 in Part II of the CPA Canada Handbook - Accounting provides guidance for first-time adoption of ASPE at any time. It doesn’t matter whether the enterprise is transitioning from another part of the Handbook or adopting a proper reporting framework for the first time. The key requirements for first-time adoption include the following:
- An opening balance sheet, often referred to as the third column on the balance sheet, that presents the opening balances at the date of transition to ASPE. This opening balance sheet is the starting point for the entity's accounting under accounting standards for private enterprises framework.
- The amount of each charge to retained earnings at the date of transition to ASPE resulting from the adoption of these standards and the reason therefor;
- A reconciliation of the net income reported in the entity’s most recent previously issued financial statements to its net income under ASPE for the same period;
- If the entity presented a cash flow statement under its previous accounting policies, it shall explain the material adjustments to the cash flow statement; and
- If the entity elects to use one or more of the exemptions in paragraphs 1500.10 to 1500.25, it shall disclose the exemptions used.
Transitioning from a Compilation Engagement
In 2011 when private businesses transitioned from Part V GAAP to ASPE, there were many cases where there weren’t any required adjustments to figures in the financial statements. In addition, the required changes to the note disclosure from Part V to ASPE were often not that significant. This is because ASPE is fairly similar in nature to Part V GAAP when the differential reporting options were selected. However, this might not be the case for entities going from non-GAAP financial statements to ASPE.
Non-GAAP financial statements typically do not include a cash flow statement, which is an ASPE requirement. In addition, non-GAAP statements tend to have few or no note disclosures. Lastly, many of the recognition, measurement, and presentation requirements of ASPE are often not reflected in non-GAAP financial statements. As a result, the work necessary for first-time ASPE adoption from non-GAAP statements will likely differ considerably from what was required to transition from Part V GAAP to ASPE.
CPA Canada has several resources available to assist in first-time adoption. One document in particular for practitioners to consider is First-Time Reporting on Financial Statements – Adopting Accounting Standards for Private Enterprises.
For guidance specific to conducting the assurance (audit or review engagement) procedures related to first time adoption of a financial reporting framework.