Canadian GAAP vs. US GAAP

Attribute	Canadian GAAP	US GAAP
Standard Setting Body	AcSB (Accounting Standards Board)	FASB (Financial Accounting Standards Board)
Framework	PE GAAP (Private Enterprise GAAP)	ASC (Accounting Standards Codification)
Revenue Recognition	IAS 18	ASC 606
Inventory Valuation	Lower of cost or market	Lower of cost or net realizable value
Goodwill Impairment	Impairment test annually	Impairment test annually or when indicators of impairment exist

Introduction

Canadian Generally Accepted Accounting Principles (GAAP) and US GAAP are two sets of accounting standards used by companies in Canada and the United States, respectively. While both sets of standards aim to provide a framework for financial reporting, there are some key differences between Canadian GAAP and US GAAP that companies need to be aware of when preparing their financial statements.

Regulatory Bodies

One of the main differences between Canadian GAAP and US GAAP is the regulatory bodies that oversee the standards. In Canada, the Accounting Standards Board (AcSB) is responsible for setting accounting standards, while in the US, the Financial Accounting Standards Board (FASB) is the governing body. The AcSB follows a principles-based approach to standard-setting, while the FASB tends to be more rules-based in its approach.

Revenue Recognition

Another key difference between Canadian GAAP and US GAAP is the treatment of revenue recognition. Under Canadian GAAP, revenue recognition is generally more conservative, with specific guidelines for recognizing revenue in different industries. In contrast, US GAAP allows for more flexibility in revenue recognition, with principles such as the percentage-of-completion method and completed-contract method.

Inventory Valuation

Inventory valuation is another area where Canadian GAAP and US GAAP differ. Under Canadian GAAP, inventory is typically valued at the lower of cost or net realizable value, while under US GAAP, inventory can be valued using the lower of cost or market value. This difference in valuation methods can impact a company's reported financial results and profitability.

Financial Statement Presentation

The presentation of financial statements is another area where Canadian GAAP and US GAAP differ. Canadian GAAP requires companies to present their financial statements in a specific format, with separate line items for items such as comprehensive income and changes in equity. In contrast, US GAAP allows for more flexibility in financial statement presentation, with fewer specific requirements for how financial information should be presented.

Consolidation of Financial Statements

Consolidation of financial statements is another area where Canadian GAAP and US GAAP differ. Under Canadian GAAP, the control model is used to determine when a company should consolidate its financial statements with those of its subsidiaries. In contrast, US GAAP uses a risks and rewards model to determine consolidation, which can lead to different consolidation decisions for companies operating in both countries.

Leases

Leases are another area where Canadian GAAP and US GAAP differ. Under Canadian GAAP, leases are classified as either operating leases or finance leases, with specific criteria for determining the classification. In contrast, US GAAP has historically allowed for off-balance sheet treatment of operating leases, although this is changing with the new lease accounting standard, ASC 842.

Conclusion

In conclusion, while Canadian GAAP and US GAAP share many similarities, there are also some key differences between the two sets of accounting standards. Companies operating in both Canada and the United States need to be aware of these differences in order to ensure compliance with the relevant accounting standards and to accurately report their financial results. By understanding the differences between Canadian GAAP and US GAAP, companies can make informed decisions about their financial reporting practices and improve transparency for investors and other stakeholders.