Accounting Standards

Section 2.4
 Generally Accepted Accounting
Principles
• In accounting, there are rules or standards that
all accountants MUST follow
• These rules or standards are called GAAPs
(Generally Accepted Accounting Principles)
• Originally, countries around the world
developed their own GAAP; they were similar
but did differ in varying degrees from country
to country
• Canadian GAAP, Australian GAAP, etc.
 The AcSB and the IASB
• The ‘rule maker’ in Canada is the Accounting
Standards Board (AcSB), an independent
standard-setting body created by CPA Canada
• The AcSB makes its decisions after consulting
with the International Accounting Standards
Board (IASB); an organization whose goal is to
globalize accounting standards.
• The AcSB in Canada recognizes that ‘one size
does not necessarily fit all’ and has developed
separate standards for public enterprises (i.e.
shares traded on a stock exchange) and for
 IFRS and ASPE
• Canadian publicly-traded companies must
follow International Financial Reporting
Standards (IFRS), a set of global standards
which has many financial reporting
requirements
• Privately-owned companies have the choice to
follow IFRS or Accounting Standards for
Private Enterprises (ASPE), which requires less
info in financial reporting
 IFRS and ASPE
(International
Accounting Standards
Board)

Canadian GAAP
(Accounting Standards Board)

ASPE
(Accounting Standards for
Private Enterprises)
- less info required on
financial reports
IFRS
(International Financial
Reporting Standards)
- more info required for
financial reports
 Intro to Accounting Standards:

1. Are Grace Cho’s PERSONAL assets listed on this balance sheet?

2. Why not?
3. Are Grace Cho’s PERSONAL liabilities listed on this balance sheet? C/P
4. Why not?
 Accounting Standards:
The Business Entity Concept
• A long-standing principle that keeps the accounting for
a business organization separate from the personal
affairs of its owner, or from any other business or
organization.
• The balance sheet of a business must reflect the
financial position of the business alone.
• This concept is important in ASPE and IFRS, just as it
was in Canadian GAAP.
• We don’t know anything else about the personal affairs
of the business owner other than their claim on the
business assets, (i.e. personal house, car, furniture are
not listed)
Accounting Standards:
The Cost Principle
• How much did Pacioli Designs PAY for their
supplies?
• Must record the value of assets at their historical
cost price. (The price actually paid)
• Called the Cost Principle (required for both
ASPE and GAAP)

B/S
Accounting Standards:
The Continuing Concern Principle
• Assumes that a business will continue to operate
unless it is known that it will not
• This principle makes market values of assets
unimportant (no need to liquidate anything)
• Continue to list everything at historical cost
(therefore related to the cost principle)
• Makes clear when debts are due
Accounting Standards:
The Revaluation Model
• Part of IFRS; not ASPE
• allows for modifications to the cost principle
• Outlines accounting procedure that allows
accountants to change the value of particular
assets based on market conditions
• See explanation, page 35
 The Balance Sheet:
Account Form vs. Report Form
1. Standard Account Form 2. Report Form
- (side-by-side) - (stacked or vertical)
Assets Liabilities

Total Liabilities

Owner’s Equity

Total Assets Total Liab. & OE

- report form is a better

format to show details of
the change to equity

- also, better for comparing

 Classified Balance Sheets
• Allow readers to quickly reach conclusions that lead
to good business decisions.
• Follows the order of liquidity (as previously
discussed).
• Ordering the B/S into classifications (groups) helps
the reader gain meaning and insight.
• The five classifications are shown below:
An Example of a Classified Balance Sheet
(in Report Form)
1. The Heading gives:
- name of business
- name of statement
- date on which the balance is taken
2. Current assets: assets that will be
converted into cash (or used up) during the
next year.
3. Fixed assets (or plant & equipment): Long-
term assets held for their usefulness in
producing goods and services.
4. Current Liabilities: short-term debts,
payment of which is expected to occur
within one year of the date of the balance
Taxes Payable sheet.
5. Long-term liabilities: debts of the business
that are not due within one year.
6. Capital: the owner’s claim to the assets.
Note: Do not worry about the details in this
section as we will learn about it later on .
 IFRS: Statement of Financial Position
• IFRS uses term ‘Statement of Financial Position’ instead of Balance
Sheet
• Many businesses using IFRS invert the order of the balance sheet!

• Why?
• The left side of B/S reflects an emphasis on the long term productive
assets of a business, such as property, buildings and equipment
• Sources of funds (right side of the B/S) begins with equity, then
creditors
• Most private businesses in Canada follow ASPE, and create Balance Sheets
in the order we have learned, but they also have the option of following
IFRS.
 An Example of a Statement of
Financial Position
(in Account Form)

NOTE: Pacioli Designs does not currently have any Long-Term

…………Liabilities, but if they did, it would appear here.