Canadian GAAP vs. IAS 16

Attribute	Canadian GAAP	IAS 16
Recognition criteria for property, plant, and equipment	Cost model or revaluation model	Cost model
Measurement basis	Historical cost or fair value	Historical cost
Depreciation method	Straight-line method or declining balance method	Straight-line method or units of production method
Revaluation of assets	Allowed	Allowed
Impairment testing	Required	Required

Introduction

Canadian Generally Accepted Accounting Principles (GAAP) and International Accounting Standard 16 (IAS 16) both provide guidelines for accounting for property, plant, and equipment. While they have similar objectives, there are some key differences between the two sets of standards that companies need to be aware of when preparing their financial statements.

Scope and Definition

Canadian GAAP defines property, plant, and equipment as tangible assets that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes. IAS 16 has a similar definition, but it also includes assets that are held for future use or are under construction. This broader scope under IAS 16 means that some assets may be classified differently under the two sets of standards.

Recognition and Measurement

Under Canadian GAAP, property, plant, and equipment are initially recorded at cost, which includes all costs necessary to bring the asset to its intended use. Subsequent to initial recognition, assets are carried at cost less accumulated depreciation and any impairment losses. IAS 16 also requires assets to be initially measured at cost, but it allows for revaluation to fair value less any accumulated depreciation and impairment losses. This difference in measurement basis can result in different carrying amounts for the same asset under the two sets of standards.

Depreciation

Both Canadian GAAP and IAS 16 require depreciation to be recognized on property, plant, and equipment to allocate the cost of the asset over its useful life. Canadian GAAP allows for a choice of depreciation methods, such as straight-line or declining balance, while IAS 16 requires the use of the straight-line method as a default. Companies following Canadian GAAP may need to carefully consider their choice of depreciation method to ensure consistency and comparability with other companies.

Impairment

Impairment of property, plant, and equipment is another important consideration under both Canadian GAAP and IAS 16. Canadian GAAP requires impairment testing when there are indicators of impairment, with impairment losses recognized if the carrying amount of the asset exceeds its recoverable amount. IAS 16 also requires impairment testing, but it uses the term "recoverable amount" instead of "fair value less costs to sell" as under Canadian GAAP. This difference in terminology may lead to different impairment assessments under the two sets of standards.

Disclosure

Both Canadian GAAP and IAS 16 require extensive disclosures related to property, plant, and equipment in the financial statements. Canadian GAAP provides specific guidance on the information that needs to be disclosed, such as the carrying amount of each class of property, plant, and equipment, the depreciation method used, and any restrictions on title. IAS 16 also requires similar disclosures, but it includes additional requirements such as the existence and carrying amount of property, plant, and equipment held under finance leases. Companies need to ensure compliance with the disclosure requirements of both sets of standards to provide users of the financial statements with relevant information.

Conclusion

In conclusion, while Canadian GAAP and IAS 16 both provide guidance on accounting for property, plant, and equipment, there are significant differences between the two sets of standards. Companies need to carefully consider these differences when preparing their financial statements to ensure compliance with the relevant accounting standards and to provide users of the financial statements with accurate and reliable information.