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How would International Financial Reporting Standards affect the quality of Canadian
accounting information?
LIMING TONG
INTRODUCTION
Globalization has a great impact on today economy. The differences of accounting
regulations and practices in various countries have become a noteworthy obstacle to
globalization and economic development. International Financial Reporting Standards
(IFRS) mitigates global business barriers. In order to adapt to the increasingly global
business environment, public companies in Canada will move to IFRS by 2011. This
movement will have a significant influence on Canadian business such as capital markets,
financial statement preparers, the accounting profession, and even accounting students.
Investors are eager to understand the differences between IFRS and Canadian GAAP. The
public companies should be ready to follow IFRS in January, 2011. Even private
companies should fit their businesses into the new environment. Therefore, most Canadian
companies care about what issues IFRS deals with.
In our report, we will only focus on how IFRS affects the four qualitative characteristics of
Canadian accounting information*ƒ²*ƒ"€šrelevance, reliability, comparability and
consistency. The discussion will help investors to better understand accounting
information. Generally, IFRS and Canadian GAAP have the same objective: providing
useful information for decision making. Both of them are principles based and have the
same conceptual frameworks. However, there are still some significant changes from
Canadian GAAP to IFRS: the implementation of fair value, going concern exposure,
revenue recognition, disclosure of "extraordinary items"“, costing techniques, and segment
reporting. (See Appendix)
This change from IFRS to Canadian GAAP will benefit investors because increasing
relevance allows them to better evaluate the firm future prospects. On the other hand, it
may bring disadvantages to the management since decreasing reliability may make income
statement more volatile.
1. COMPARABILITY
1.1 Definition of comparability
According to Canadian GAAP, the definition of comparability is "Financial information
measured and reported in a similar manner among different companies. Comparability
allows analysts to identify real economic similarities and differences among companies,
because those differences and similarities are not obscured by changes in accounting
methods or disclosure practices."“
In September 2007, the IASB issued a revised IAS 1 "Presentation of Financial
Statements"“, in which the definition of comparability was expanded to include
consistency with regard of the definition of Canadian GAAP. The definition of
comparability in IAS 1 is "Users need to be able to identify differences between the
accounting policies for like transactions and other events used by the same entity from
period to period and by different entities."“ In this paper, we focus on the real economic
