With Canada’s private companies preparing adopt either International Financial Reporting Standards (IFRS) or the proposed private company reporting framework by 2011, the anticipated standards are generally supported by finance executives, according to a recent study conducted by KPMG Enterprise and the Canadian Financial Executives Research Foundation (CFERF).

According to the study, one in four of Canada’s leading private companies plans to adopt IFRS.

Canada’s Accounting Standards Board (AcSB) plans to release its proposals for a “made in Canada” private company financial reporting framework (GAAP) by April 30.

Private company executives caution, however, that differences between private company GAAP and IFRS, which will be adopted by public companies by 2011, may present challenges in accessing equity and debt financing if there is inadequate comparability of financial reporting under the two standards.

“Private companies operate in a unique set of circumstances,” says Bob Young, partner, national assurance & professional practice at KPMG Enterprise. “We need to understand the impact of the proposed changes on those companies, the implications to peer comparison, and the overall perception of transparency so that expectations can be managed.”

The study also showed that smaller companies were more concerned about the costs of adopting IFRS than about comparability, and will ultimately rely on a thorough assessment of the costs and benefits before making a decision to adopt the international standard or the new Canadian standard. For companies planning an IPO, IFRS will be required.

“It will depend on each individual business case,” says Ramona Dzinkowski, executive director of CFERF, “whether or not to adopt IFRS. There are pros and cons either way that will be unique in each circumstance.”

The study also showed that CFOs were concerned that the simplifications incorporated in Canadian private company GAAP may result in a perception that private company CFOs will not have the same level of technical accounting skills as their public company counterparts, which could impact the ability of private businesses to attract and retain financial accounting resources.

The KPMG Enterprise-CFERF Research Study was conducted from Thursday, January 15 to Friday, February 6, and an Executive Research Forum was held in Toronto on February 24.

CFERF is the research institute of FEI Canada.

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