Essentially, they are a set of publicly accepted standards and they specify how transactions, events, and occurrences are to be categorized, measured, recorded, presented and finally disclosed in the financial statements.

In Canada profit-oriented businesses have 3 options to select from:

1. IFRS – International Financial Reporting Standards
2. ASPE – Accounting Standards for Private Enterprises
3. NON-GAAP – Cash Accounting or Accounting for Tax Purposes

A business should consider its future goals and vision when choosing to adopt reporting standards. I.e. If a start-up is planning an initial public offering in the next couple of years; it may be optimal to choose IFRS (as this is the required accounting standard for Public Companies). Although, since the U.S. has not adopted IFRS, they use their own set of standards known as U.S. GAAP. Therefore, if a start-up is trying to attract U.S. investment that should be taken into consideration as well.

Most businesses we deal with are small and medium-sized businesses across the Greater Toronto Area. In practice, these businesses are not actually obligated to use any of the 3 standards noted above, and they have the option to choose any standards they want. Practically, speaking most private businesses should use ASPE, aka private GAAP. ASPE is most likely the best choice for your Toronto-based business. This may make your business more credible in the long run if you consider selling, arranging to finance, raising equity capital, or even just complying with industry norms. Most importantly, your Toronto business should have a tailored approach and take these factors into consideration.

Small owner-managed businesses who are not required to be audited or have a review engagement may see it advantageous to prepare financials in accordance with tax purposes. Essentially, the financials would be prepared in the same format and structure that they would appear to be on your corporate tax return or sole proprietor return. There is minimal disclosure for external users, and these types of statements sometimes overlap with GAAP, although not all aspects. Keep in mind, if preparing statements for tax purposes it may be costlier to convert your statements to ASPE later down the road.