Cross-border accounting requires detailed knowledge of how each country’s tax system works, as well as what structures are in place between those two countries.
Let’s go over the basics of US-Canada cross-border accounting. Before we begin, a word of caution. Cross-border accounting is incredibly complex. We recommend speaking with a cross-border CPA for the most thorough explanation of how accounting works across these two countries.
Accounting Standards: GAAP, ASPE, and IFRS
There are two accounting standards to consider in US-Canada cross-border accounting—GAAP and IFRS.
The United States follows GAAP (Generally Accepted Accounting Principles) for financial reporting. GAAP is a set of accounting rules issues by the Financial Accounting Standards Board and the Governmental Accounting Standards board. These principles standardize the classifications, assumptions, and procedures used in accounting, regardless of industry throughout the US.
Canada follows ASPE (Accounting Standards for Private Enterprises) and IFRS (International Financial Reporting Standards). ASPE is a financial reporting framework developed in Canada and used by most private companies in Canada. IFRS are a set of standards that cover how transactions and financial events should be reported on financial statements, and was developed by the International Accounting Standards Board. Canadian companies typically follow both.
IFRS (International Financial Reporting Standards) is a set of standards used by many countries across the globe (over 120 total countries).
Tax Treaties
The United States and Canada have what’s called a bilateral tax treaty. For income tax, the 1942 Convention set the protocol between Canada and the United States to avoid double taxation and prevent tax fraud, which was amended in June 1950 with additions. How the tax treaty impacts your situation depends heavily on your residency and citizenship status, as well as the country in which you work.
The U.S. determines taxation both on your residence and citizenship, while Canada uses your residency status as the determining factor. As an example, Canada will consider you a resident if you spend 183+ days of the tax year in the country.
The tax treaties focus primarily on rules of residency, citizenship, and how income is generated. There are specific guidelines for dealing with income from property sales, interest, dividends, etc.
It’s difficult to give broad input on this portion of how cross-border account works, because each scenario is unique. We recommend speaking with an international tax CPA to get the most accurate information on how tax treaties will be applied in your case.
Regulations, Compliance, and Reporting
In Canada, companies must adhere to the standards set by the AcSB (the Canadian Accounting Standards Board). The AcSB establishes all accounting standards used by private Canadian companies, as well as determining what is required for reporting. This includes how transactions will be recognized, and disclosure guidelines for financial statements.
In the U.S., companies must follow the FASB (Financial Accounting Standards Board). FASB was established in 1973 and establishes financial accounting and reporting standards for private companies, public companies, and non-profits in line with GAAP.
Canada CPA vs. U.S. CPA
Canada and the United States both certify accounting professionals through rigorous testing and licensing requirements.
Canadian CPAs have completed the CPA Professional Education Program, passed the Common Final Exam, and gained relevant practice experience to receive the certification. Canada CPAs are regulated by CPA Canada and provincial CPA bodies.
United States CPAs have fulfilled education and experience requirements and passed the AICPA’s Uniform CPA Exam. US CPAs are regulated by NASBA, AICPA, and the US State Boards of Accountancy.
In short, both are reliable designations for your accountant.
Questions?
While these are the basic pieces of information you need in order to understand initial framework of cross-border accounting for the U.S. and Canada, most accounting scenarios like this are unique. Please contact us today if you have questions about how cross-border accounting works.
