New Canadian Accounting Standards for Private Enterprises and the Adoption Timing Decision
Sylvain Durocher, Telfer School of Management, University of Ottawa
Anne Fortin, E´cole des Sciences de la Gestion, Universite´ du Que´bec a` Montre´al
Prior research into the adoption timing decision of organisations in relation to newly promulgated accounting standards has focused exclusively on public enterprises and used economic cost–benefit frameworks as a main method of analysis. The current study examines the impact of a broader range of factors, including cost–benefit considerations, on the adoption timing decision of private firms with respect to the new set of Canadian accounting standards for private enterprises released in 2009. These factors were organised into a coherent framework using the theory of planned behaviour. The survey findings reveal that several items related to attitudes towards the behaviour, subjective norms and perceived behavioural control play a significant role in managers’ adoption behaviour. This study provides relevant insights for private enterprise managers, financial statement users, standard setters and academics.
P rior literature on adoption timing in relation to newly promulgated accounting standards has focused on public companies using mainly economic cost–benefit frameworks (e.g., Amir andZiv 1997;
Iatridis and Joseph 2006). In response to numerous calls for further investigation into private firms and the accounting policy issues they face (e.g., Evans et al. 2005;
Nobes 2010), we conducted a study in Canada, where a new set of accounting standards for private enterprises (ASPE) was promulgated in 2009. The objective of our investigation was to examine the impact of a broader range of factors on the adoption timing decision of private firms, including cost–benefit considerations.
To that end, these factors were organised into a coherent framework using Ajzen’s (1991) theory of planned behaviour.
In the Canadian financial reporting environment, private enterprises are defined as profit-oriented entities that are neither publicly accountable enterprises nor entities in the public sector1 (CICA 2013). This type of business represents 99% of Canadian companies,2 employs approximately 55%of theCanadianworkforce and is responsible for 45%ofCanada’s total economic output (AcSB 2004). Similar proportions are found elsewhere around the world (Evans et al. 2005; IFRS Foundation 2013), including in Australia (Walker 2007). Despite the economic importance of private firms, little is known about how they arrive at their policy decisions, let alone how they time their adoption of newly promulgated accounting standards. This study investigates this question in view of its relevance now that many countries around the world are considering adopting a new accounting framework for private enterprises.
By September 2012, 80 countries had adopted or announced plans to adopt the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS forSMEs)publishedby the InternationalAccounting Standards Board (IASB) (IFRS Foundation 2012) or a framework based on this standard. Although the list of ‘adhering’ countries is growing steadily, some countries, including Canada, have developed homegrown standards. In both cases, the promulgation of new accounting standards can involve transition periods of two years or more (Bujaki and McConomy 2007), during which time entities can opt for early adoption of the new recommendations or wait until the latest date for their application.
ASPE became effective in 2011, with early adoption being allowed for fiscal periods beginning in 2009. A better understanding of the factors behind the timing decision will have several practical implications for financial statement users, standard setters and private enterprise managers. While standard setters may have good reasons for including a transition provision in newly promulgated accounting standards, the fact remains that such a provision can affect the comparability
Correspondence: Sylvain Durocher, Telfer School of Management, University of Ottawa, 55 Laurier East, Ottawa, Ontario,
Canada, K1N 6N5. Tel: +1 613 562 5800 (ext. 4734); fax: +1 613 562 5164; email: email@example.com 218 Australian Accounting Review No. 70 Vol. 24 Issue 3 2014 doi: 10.1111/auar.12049
S. Durocher & A. Fortin New Canadian Accounting Standards for Private Enterprises of financial statements prepared during the transition.
This issue can be significant for lenders and venture capitalists, the private sector’s main financial statement users (Paradis et al. 1999), who must grapple with noncomparable financial information during transition periods. In this regard, they would benefit from receiving data on the characteristics of firms that opt for early adoption, as well as on those that defer the application of new accounting standards. For instance, if they learn that late adopters usually expect negative impacts on earnings, they may factor this information into their investment decision.
Standard setters, for their part, may be enlightened if they are better informed about the reasons for early or late adoption. These data may lead them to reconsider their position of allowing transition periods to the benefit of financial statement users who prefer comparable information. For example, if they learn that knowledge of the new standards influences the timing decision, they might devote more effort to educating financial statement preparers before a unique transition date. Finally, private enterprise managers would benefit from understanding the determinants of their peers’ adoption behaviours when they reflect on issues that should be considered in their own timing decision process. For instance, if they learn that the timing decision is affected by the presence of a work group that discusses newly promulgated accounting standards, they might consider implementing such a group in their own organisation.