Over the next two years, all Canadian non-publically accountable businesses that require audits or review engagements and that do not adopt International Financial Reporting Standards (IFRS) will be required to transition to Canadian generally accepted accounting principles for private enterprises (GAAP PE).
Generally speaking, GAAP PE will retain most of the current accounting standards and will simplify others. However, there is one new provision that we believe would be of most interest to few clients: the one-time ability to increase the value of their capital assets (e.g., land, buildings, equipment, etc.) to fair market value, with an offsetting increase in equity. The ability to restate the value of capital assets may have a positive impact on your entity's financial statement covenants and/or your ability to use these assets as security to obtain financing. However, it is important to note that there is a cost to revaluing your capital assets as a valuation to support the increase in value (i.e., evidence of the sale of similar assets or professional appraisal) is required. Further, increasing the value of depreciable capital assets (building, equipment, etc.) would result in an increased amortization expense and reduced earnings in future periods, which may impact your financial covenants. In order to qualify for the "bump" in value, your business must ascertain the fair market value of the assets it chooses to bump. The timing of obtaining this valuation is important, as it must be calculated as at the date your business transitions to these new standards. For most businesses, this date will be the first day of its new fiscal year that starts in 2010 (e.g., for a business with a December 31 year-end, the transition date will be January 1, 2010; a January 31 year-end's transition date will be February 1, 2010; and so on). As the date of transition for many businesses has already passed, it is important that you speak with your adviser, as soon as possible, to discuss your options under these new accounting standards. We would be pleased to discuss with you how this bump in value may help your business and/or how these new accounting standards will impact your financial reporting
