Stephen Warden, CPA, CA
Public Company Group
Private Capital Markets
Association of Canada
As we grow wiser, we tend to see more grey
in two places: the mirror, and the world around us.
As your enterprise evolves, you would be wise to
recognize that there is plenty of grey in the criteria to
be used when deciding whether you should report as a
private company or a publicly accountable entity (PAE).
Like life itself perhaps, it seems like it used to
be more black and white. That’s because it was,
at least before 2011. That’s when the Chartered
Professional Accountants of Canada adopted the
International Financial Reporting Standard (IFRS). It
doesn’t draw lines in the sand as much as it points
you to a qualified auditor for advice because it
demands a lot more professional judgment.
Yes, it has been a few years that this has been
in place. But I still meet sophisticated business
leaders who are under the impression that you need
only have more than 150 unit holders/shareholders
to be considered a public company for financial
For income tax purposes, that may be true
in some cases. Ditto for mutual fund trusts,
which have a similar “bright line” that divides
private from public.
But for financial reporting purposes, there is
no one simple dividing line. Many people default to
using the 150-unit holder level as a proxy. But like
most assumptions – in a grey world – it is fraught
with risk and differing views.
If you’re wrong, you can be on the wrong side
of regulators. And in a hyper competitive world,
damage to your reputation can make the difference
between success and failure, which of course isn’t
a grey area at all.
Deciding whether to follow the IFRS for publicly
accountable entities, or Accounting Stands for Private
Entities (ASPE), can be a big deal for another reason.
For many private funds, under IFRS they will
apply fair value accounting (and related disclosures)
for their investments. Under ASPE, they can
account for investments at cost which is a big deal
if there are subsidiaries or affiliates which need not
be consolidated for example. So what are some of
the factors at play in this field of grey?
The CPA Canada Handbook defines a publicly
accountable entity as: “An entity, other than a
not-for-profit organization that:
a. Has issued or is in the process of issuing, debt or
equity instruments that are, or will be, outstanding
and traded in a public market (domestic or foreign
stock exchange or an over-the-counter market,
including local and regional markets); or,
b. Holds assets in a fiduciary capacity to a
broad range of outsiders as one of its primary
For many entities, their particular circumstance
is a “no-brainer”. For example, if a mutual fund is
sold by prospectus and all documents and financial
reports are filed on SEDAR, IFRS has to be applied.
Similarly, NI 31-103 requires that exempt market
dealers, investment fund managers and portfolio
managers follow IFRS. Similar IFRS reporting
requirements are also in place for other regulated
financial institutions. They are considered to be
publicly accountable entities. Others will adopt
IFRS in anticipation of a go-public transaction down
This issue of what is a PAE becomes a far
more difficult judgment call when a fund is sold by
offering memorandum or sold “over-the-counter”
say through an issuer’s website (such as with many
mortgage investment entities) or perhaps through a
debt or equity offering on crowdfunding portal. It is
often overlooked that just because an entity’s debt
or shares are not listed on a recognized exchange,
that it does mean that it is not publicly accountable.
Management needs to assess the particular
facts and circumstances, consult with its Board,
stakeholders, advisors and auditors.
Many groups have decided not to implement
an explicit bright line threshold to determine
whether they are a publicly accountable entity
and thus should apply ASPE or IFRS. Rather, the
assessment is made on a case by case basis. So
what can you do if you are in the grey zone?
A possible framework could look at the following
• Whether there are laws or regulations which
prescribe the applicable financial reporting
framework (IFRS or ASPE)? Is the entity
regulated and if so, does their regulator prescribe
the accounting standards that must be applied?
As noted above, this is the case for example,
for EMDs and other regulated entities who are
required to follow IFRS under NI 31-103.
• What is the nature of the entity? Does the
investment entity hold and manage financial
resources entrusted to them by clients,
customers or members not involved in the
management of the entity?
In the IFRS Corner: When is a Private Entity Publicly Accountable?
By Stephen Warden