In our May 2008 issue, we reported on the push in Canada for the transition from the use of Canadian generally accepted accounting principles (GAAP) to the use of International Financial Reporting Standards (IFRS), and we discussed the Canadian Securities Administrators’ (CSA) Concept Paper 52-402 Possible Changes to Securities Rules Relating to International Financial Reporting Standards and CSA Staff Notice 52-320 Disclosure of Expected Changes in Accounting Policies Relating to Changeover to International Financial Reporting Standards.
In our May 2009 issue, we reported on CSA Staff Notice 52-321 Early adoption of International Financial Reporting Standards, use of US GAAP and reference to IFRS-IASB and we discussed exemptive relief applications to permit early adoption of IFRS.
On May 21, 2009, the CSA issued CSA Staff Notice 52-324 Issues relating to changeover to International Financial Reporting Standards, which provided an update on several issues related to the changeover to IFRS in Canada, including:
- more on the use of IFRS by a domestic issuer for periods beginning prior to January 1, 2011;
- requirements for interim financial statements in the year of IFRS adoption; and
- reference to IFRS and Canadian GAAP.
In CSA Staff Notice 52-324, the CSA said that it expected to publish, later in 2009, details of the proposals discussed in the Notice. Some of these proposals are described briefly in this article.
Exemptive Relief for Early Adoption of IFRS
In CSA Staff Notice 52-321, the CSA had indicated that CSA staff were prepared to recommend exemptive relief to permit a domestic issuer to prepare its financial statements in accordance with IFRS for periods beginning prior to January 1, 2011. In CSA Staff Notice 52-324, the CSA reports that several exemption orders have been issued with the condition that the issuer file revised interim financial statements prepared in accordance with IFRS, revised interim management discussion and analysis, and new interim certificates.
CSA Staff Notice 52-324 also describes the Accounting Standards Board (AcSB) publication Adopting IFRSs in Canada, II, which disclosed the expectation that IFRS for publicly accountable enterprises will be incorporated into Part I of the CICA Accounting Handbook in the second half of 2009 and the standards constituting Canadian GAAP before the mandatory effective date of January 1, 2011 will be contained in Part IV of the Handbook. Because securities legislation refers to Canadian GAAP as applicable to public enterprises, and defines Canadian GAAP as generally accepted accounting principles determined with reference to the Handbook, CSA staff consider the standards in Part IV to be Canadian GAAP as applicable under securities legislation until January 1, 2011, so the use of IFRS in Part I prior to that date will continue to require exemptive relief. Part IV will eventually be removed from the Handbook.
Interim Financial Statements in the Year of IFRS Adoption
CSA Staff Notice 52-324 proposes that the CSA require the issuer to disclose compliance with International Accounting Standard 34 Interim Financial Reporting in its interim financial statements, commencing with the first interim financial statement in the financial year in which it adopts IFRS. The CSA also proposes to require a domestic issuer to include a balance sheet that complies with IFRS as at the issuer’s "transition date" in its first interim financial statements in the first financial year that the issuer adopts IFRS. An issuer’s transition date is the beginning of the earliest comparative period presented in the financial statements. So, an issuer that has a calendar year-end and that elects not to "early adopt" IFRS will be required to include, along with its quarterly financial statements for the period ended March 31, 2011, a balance sheet that complies with IFRS as at January 1, 2010. If the interim financial statements for the period ending March 31, 2011 have not been the subject of auditor review, those statements must be accompanied by a notice indicating that fact. The issuer’s audited financial statements for the year ended December 31, 2011 will be required to be presented with an auditor’s report for the balance sheet dated January 1, 2010.
Reference to IFRS in Canadian GAAP
In CSA Staff Notice 52-321, the CSA had stated that it preferred that reference be made to IFRS issued by the IASB, rather than to Canadian GAAP, in financial statements and audit reports for domestic issuers after the mandatory effective date. Based on input from stakeholders and the Canadian Accounting Standards Board, the CSA now proposes to allow an issuer to choose between referring:
- only to IFRS in the notes to the financial statements and in the auditor’s report; or
- to both IFRS and Canadian GAAP in the notes to the financial statements and in the auditor’s report.
The CSA now proposes that these two options be implemented by requiring domestic issuers to prepare annual and interim financial statements for the financial years beginning on and after January 1, 2011 as follows:
- the annual and interim financial statements must be prepared in accordance with Canadian GAAP for publicly accountable enterprises;
- an explicit and unreserved statement of compliance with IFRS (as issued by the IASB) must be made in the notes to the financial statements and disclosure of compliance with International Accounting Standards 34 be made in the interim financial statements; and
- the auditor’s report must refer to IFRS and be in the form specified by Canadian generally accepted auditing standards for financial statements prepared in accordance with a fair presentation framework.
This will enable issuers to continue to refer to Canadian GAAP to satisfy existing contractual obligations, such as definitions in credit agreements, and to comply with other laws, rules and regulations that require Canadian GAAP.