Public companies in Canada are set to change the way they report their financial information by switching from Canadian accounting rules to globally accepted reporting standards.

The move will facilitate easier comparison of the financial information issued by public companies in an increasing number of countries that are adopting global reporting standards in place of domestic accounting rules.

“The change will allow greater comparability of financial information issued by companies in countries that use international financial reporting standards,” says Doug Cameron, professional practice director at Ernst & Young Canada in Toronto. “Financial statements will be more compatible.”

The proposed change was announced Jan. 10 by Canada’s Accounting Standards Board, which ratified a new plan that proposes to phase out the use of generally accepted accounting principles for financial reporting by public companies and introduce international financial reporting standards established by the London-based International Accounting Standards Board.

The AcSB’s plan also addresses reporting for private businesses and not-for-profit organizations, but these entities will probably not be affected by the change. “Our fundamental premise and experience is that one size does not necessarily fit all when it comes to meeting the divergent needs of the full range of Canadian reporting entities and stakeholders,” Paul Cherry, chair of the AcSB, said in a press release. “Developments in global markets are important for public companies and their investors, but not so important for private businesses and not-for-profit organizations.”

The announcement followed an extensive consultative process that started in March 2004, culminating in the publication of Accounting Standards in Canada: Draft strategic plan. A final version of the plan is expected to be available by March 31.

Once finalized, the rules will be implemented over five years.

The foundation of accounting typically consists of a set of accepted accounting principles that are usually followed by most companies, although they are not legally obliged to do so. But public companies are audited by professionals who must adhere to GAAP or IFRS, and they are obliged to report incidences in which the rules are not followed. This catch-22 situation forces companies to adhere to the accepted accounting standards and, therefore, out of necessity they would have to implement IFRS.

“The announcement by the AcSB to adopt IFRS for public companies is a step in the right direction for organizations such as ours that work with international clientele,” says Sharad Mistry, a chartered accountant and a partner at Delta Street Inc. , a Toronto-based strategic capital and business development firm with a global clientele. “Analysis and presentation of financial information on a basis comparable with global organizations is an important step. We would, however, like to see the U.S. align its standards to IFRS.”

The U.S. Securities and Exchange Commission requires all firms listed on a national stock exchange or traded over the counter to file accounting reports that conform to U.S. GAAP standards. Canadian companies with significant exposure to the U.S. market currently use U.S. GAAP and will probably continue to do so in spite of the rule change. The Canadian Securities Administrators currently allows Canadian public companies that are SEC registrants to use U.S. instead of Canadian GAAP.

Whether Canadian standards should been have aligned to U.S. GAAP instead of the IFRS has been the subject of much debate. However, according to the AcSB press release: “The vast majority of Canadian companies … have little or no interest in copying the detailed, rules-oriented U.S. GAAP.”

Cameron says there’ve been discussions with the SEC about the IFRS, but no decision has been made. IE