Comparing Accounting Principles in the US and Canada
- Certification of Accountants
- Auditor Reporting Standards
- Issuing Financial Statements
- Reporting of Assets and Liabilities
- Optional Selection of Accounting Standards
There is plenty of common ground between accounting standards in Canada and the United States, but there are also a few key differences that prevent seamless transition between the two. The generally accepted accounting principles (GAAP) of the U.S. are often used by Canadian companies that frequently conduct international transactions or want to attract investors. Likewise, US companies that operate in Canada may need to accommodate differences in local GAAP when reporting income there.
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1. Certification of Accountants
Just as the two nations have their own national standards and requirements regarding accounting, both also follow their own process for certifying professionals. A certified public accountants (CPA) in the United States is comparable to a chartered professional accountant (CPA) in Canada. These certifications can’t be used interchangeably, although businesses that operate in both nations may benefit from having both types of professionals on their staff.
2. Auditor Reporting Standards
The auditor reporting standards approved by the U.S. Public Company Accounting Oversight Board (PCAOB) have some significant differences with comparable Canadian standards, according to Chartered Professional Accountants of Canada (CPA Canada). Among other differences, the US standards require disclosing of the auditor’s tenure and mandate alternative effective dates for reporting. Recent changes in US auditor reporting standards also have a potential impact on the ability of companies to submit combined reports that accommodate the GAAP of both nations.
3. Issuing Financial Statements
Income statements are a basic component of accounting and financial reporting in general, and companies spanning both nations often issue separate statements for each jurisdiction. U.S. accounting standards allow for itemization alongside net income, while the International Financial Reporting Standards (IFRS) used by Canada does not require such a format. The IFRS requires income statements to include information about method, finance costs and periodical loss or profit among other items. In the US, statements follow a single or multi-step format to show either pre-tax income or gross profit.
4. Reporting of Assets and Liabilities
Canadian and U.S. accounting standards also differ on matters related to reporting assets and liabilities on company balance sheets. The Canadian GAAP follows the same protocols as the IFRS. These rules allow assets to be recorded as either date of trade or date of settlement, while US companies can only record as date of trade. US companies also follow slightly different reporting rules when reporting subsidiaries, while Canadian companies can only account for them through full consolidation or equity method accounting.
5. Optional Selection of Accounting Standards
Another key differences between accounting standards in Canada and the United States is the Canadian option to report according to the US GAAP. Canadian businesses registered with the Securities Exchange Commission (SEC) can file statements in Canada according to US rules. However, these companies must present the certification and ability to follow these standards accurately and completely.
The United States and Canada are among the most integrated trading partners around the globe, with massive amounts of international commerce conducted on a daily basis. Many companies throughout North America readily serve customers in both nations, so it’s essential for accounting professionals to understand the difference in Canadian and U.S. accountingstandards..