As a business owner or investor, it’s crucial to understand the value of your business. A business valuation is an essential process to determine the economic value of a company or a business interest. However, business valuation can be affected by various factors, including changes in accounting standards. In this blog post, we will discuss the impact of changes in accounting standards on business valuation.

In Canada, the Canadian Accounting Standards Board (AcSB) establishes accounting standards for publicly accountable enterprises and private entities. The board’s objective is to provide high-quality financial reporting standards that meet the needs of users of financial statements and the public interest.

Changes in accounting standards can affect business valuation in various ways. The most significant impact of accounting standards is on the financial statements of a company. When accounting standards change, the financial statements may reflect different values for assets and liabilities, which will ultimately affect the company’s valuation.

For example, in 2018, the International Accounting Standards Board (IASB) introduced IFRS 16, which changed the way companies account for leases. The new standard requires companies to recognize most leases on their balance sheet, which can significantly affect a company’s leverage ratio and financial performance.

Changes in accounting standards can also affect the way that valuations are performed. For instance, when accounting standards change, the valuation professional may need to consider different valuation approaches or assumptions.

Furthermore, changes in accounting standards may affect how companies present financial statements, which could impact the comparability of financial statements between companies. This, in turn, can affect the reliability of financial information used in the valuation process.

It is crucial for business owners, investors, and valuation professionals to stay updated on changes in accounting standards that could impact business valuation. Additionally, it is important to work with a professional valuation firm that has experience in navigating changes in accounting standards and can provide accurate and reliable valuations.

In conclusion, changes in accounting standards can have a significant impact on business valuation. It is important for business owners and investors to understand the impact of accounting standards on financial statements, valuation approaches, and comparability of financial statements. At JTT Accounting, we have a team of experienced valuation professionals who can help you navigate changes in accounting standards and provide accurate and reliable valuations. Contact us today to learn more about our accounting business valuation services.