ASPE – the seductive alternative

I’ve found it difficult to identify much objective research or commentary on the overall effectiveness of Canadian Accounting Standards for Private Enterprises (ASPE).

This is hardly a surprise, as it’s almost as hard to get a read on the real value of IFRS, which of course has much greater overall visibility in the market and as a focus of debate. I suppose the effective adequacy of an ASPE set of statements in any particular set of circumstances depends largely on the subjective perspectives of the usually small number of recipients, and if they don’t like some aspect of it, they can likely address those problems on an ad hoc basis, for example by asking for additional information or analysis. I’ve heard anecdotal accounts that accounting firms have been challenged by too many staff members preferring an ASPE-driven environment to an IFRS-driven one (because of greater ease of learning and use, a more “entrepreneurial” accompanying culture, the absence of perceived CPRB-mandated compliance overkill, and so forth) but I don’t know what magnitude of problem that constitutes.

As far as one can tell, changes to ASPE emerge on a somewhat intuitive kind of basis. For example, a recent Accounting Standards Board decision summary indicated that the issues of potentially amortizing goodwill and providing relief from recognizing intangible assets on business combinations, and of clarifying the definition of a business to help distinguish between the acquisition of a business and a group of assets, would be considered as priorities for ASPE; on the other hand, no amendments would be considered to mirror the new IFRS leasing standard. One might detect in there a general theme of reluctance to fill ASPE statements with assets the nature of which is somewhat “conceptual” and not readily understood. But that’s never been articulated as a key imperative within ASPE. On the contrary, the definition of an asset within the ASPE conceptual framework is largely the same as that within IFRS, perhaps suggesting that “new” assets identified by the latter as a result of an extensive standard-setting and consultation process should be subject to a high presumption of being appropriate within ASPE as well. If you choose to look at it that way…

This points to my own broad reservation about ASPE – that certain of its prescriptions can be seen as distinctly arbitrary. Take for example the differences in the impairment model compared to that in IFRS, as summarized in a CPA Canada publication:

  • Section 3063 differs from IAS 36 as IAS 36: i. does not include a separate trigger for recognizing impairment losses based on an assessment of undiscounted cash flows; ii. determines an impairment loss as the excess of the carrying amount of an asset or group of assets above the recoverable amount (the higher of fair value less costs to sell and value in use), rather than the difference between carrying amount and fair value; and iii. requires the reversal of an impairment loss, other than for goodwill, when there has been a change in estimates used to determine the recoverable amount.

This reflects old Canadian GAAP, the starting point for developing ASPE. But as this starting point recedes into the distant past, it’s hard to justify those differences with reference to the underlying conceptual frameworks, or necessarily with regard to a notion of ease of application, or to some intuitive notion of small companies versus big ones. If a private enterprise concludes the carrying value of its assets would be better reflected by applying IAS 36 principles (which might in some cases result in earlier and/or larger writedowns) it’s hard to see why ASPE wouldn’t at least allow that as an option (if only as a gesture toward easing any subsequent exercise to convert the statements from ASPE to IFRS, for purposes of going public for instance). Of course, this might mean that two comparable private enterprises might recognize different impairment losses in different circumstances, but that would hardly matter, as long as the impairment loss within a particular set of private enterprise statements is rational and clearly disclosed on its own terms.

Perhaps in cases where anyone’s concerned about that, preparers and auditors find a way to ensure that the ASPE-derived number materially conforms with IFRS, I don’t know. I doubt that the broad issue I’m raising here bothers too many people, nor should it. And yet, it seems to me that the lack of alignment between certain aspects of IFRS and ASPE implicitly supports those who might cast doubt on the utility of IFRS on the basis of it being overly cumbersome, or of not meeting a cost-benefit test, or whatever it might be. If we can’t explain exactly why something that purportedly makes sense for public company reporting does or doesn’t make equal sense for private enterprise reporting, then in truth we probably can’t really explain why it’s so important for public company reporting either.

Certainly I’m shooting in the dark here. But then by its nature, ASPE doesn’t ever have to come out completely into the light…

The opinions expressed are solely those of the author

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