Generally Accepted Accounting Principles
In British Columbia, stratas are not required to follow generally accepted accounting principles when preparing their year-end financial statements.
Generally accepted accounting principles are established in Canada by the Canadian Institute of Chartered Accountants. The short form is GAAP.
These principles provide specific guidance regarding acceptable financial statement presentation, the requirement for note disclosure, and the use of accrual accounting.
An audit opinion and a review engagement opinion, given by a qualified professional, CA, CGA, or CMA, will give an opinion as to whether the financial statements are presented in accordance with generally accepted accounting principles.
It is important that generally accepted accounting principles are employed, because these principles ensure, to the best of the accounting profession’s ability, that the true financial position of the corporation is presented as at the fiscal year end, and that the results of operations are presented as fairly as possible to the underlying economic events as they transpired in the year.
For example, suppose at the year-end a significant payable was not recorded in the financial statements. The work had been done by the contractor, but not paid yet. If the payable was not recorded, accrued, the operating surplus for the year presented in the statements would be misleading to the owners. This is only one example.
As auditors, we do from time to time run into situations where the Board tries to manipulate the financial results, and sometimes they will try to record expenses that have not even been incurred yet. However, adherence to generally accepted accounting principle will prevent this.