On September 12, 2008, the Canadian Securities Administrators (CSA) released Staff Notice 33-313 International Financial Reporting Standards (IFRS) and Registrants reminding registrants that international financial reporting standards (IFRS) will be effective on January 1, 2011 and will apply to certain registrants. The Staff Notice is directed to registrants that are not members of the Investment Industry Regulatory Association of Canada (IIROC) or the Mutual Fund Dealers Association of Canada (the MFDA), since both IIROC and the MFDA will be providing guidance to their members separately on adoption of IFRS.
Non-SRO registrants such as those entities currently registered as investment counsel and portfolio managers, limited market dealers, scholarship plan dealers and mutual fund dealers (in Quebec) may be required to change over to IFRS. Entities that are not registered under today’s laws, but that will be required to be registered under proposed National Instrument 31-103, such as exempt market dealers and investment fund managers, may also be affected by IFRS.
IFRS will replace Canadian Generally Accepted Accounting Principles (Canadian GAAP) for "publicly accountable enterprises" (PAEs) on January 1, 2011. Once IFRS becomes effective, Canadian GAAP will cease to exist for PAEs.
The Canadian Accounting Standards Board’s definition of PAEs excludes "for profit" entities that:
- have not issued (and are not in the process of issuing) debt or equity instruments in a public market; and
- do not hold assets in a fiduciary capacity for a broad group of outsiders.
Entities with fiduciary responsibilities, such as banks, credit unions, insurance companies, securities brokers/dealers, mutual funds and investment banks, are considered to stand ready to hold and manage financial resources entrusted to them by clients, customers or members not involved in the management of the entity and as such are specifically included in the definition of PAEs.
CSA Staff Position on Registrants
The Notice clarifies CSA staff’s position that any non-SRO member registrant that holds or has access to client assets will be required to prepare and file its financial statements in accordance with IFRS for fiscal years commencing on or after January 1, 2011. CSA staff have not finalized their views on whether non-SRO registrants that do not hold or have access to client assets should be required to adopt IFRS and, if so, the date of the changeover. Assuming the CSA believes it is appropriate, the CSA can be expected to mandate adoption of IFRS by these registrants.
Implications for Registrants
Those registrants that will be required to change over to IFRS as of January 1, 2011, must include comparative financial statements that have been prepared in accordance with IFRS. This means that if a registrant’s year end is December 31, the registrant will be required to not only prepare its financial statements in accordance with IFRS for the year ending December 31, 2011, but will also be required to include comparative financial statements in accordance with IFRS for the year ending December 31, 2010.
The change to IFRS may also affect certain business and technology functions and therefore planning is imperative to ensure problem-free implementation. CSA staff suggest that planning for the change to IFRS should have already begun and recommend that registrants discuss the changeover to IFRS with their auditors.
CSA Staff Notice 52-320 Disclosure of Expected Changes in Accounting Policies Relating to Changeover to International Financial Reporting Standards released in May 2008 contains guidance on the changeover to IFRS by issuers, including publicly offered investment funds. This Notice may provide some further guidance for registrants when planning for the change to IFRS. Managers of investment funds will want to review CSA Staff Notice 52-320 carefully in connection with the change to IFRS standards for the funds’ financial reporting.