On November 26, 2010, the Ontario Securities Commission (OSC) published a guide to assist public companies with filing their first interim financial reports under new International Financial Reporting Standards (IFRS) in 2011. The changeover to IFRS in Canada begins on January 1, 2011.
The guide highlights the key rule changes and IFRS requirements that issuers and advisors need to be aware of prior to the filing of the first IFRS interim financial report. The guide also includes some best practices for the presentation of IFRS transition items in an issuer’s first IFRS interim financial report that the OSC believes will assist with an investor’s understanding of how changing to IFRS has affected the issuer’s financial results and other business functions, such as debt covenants and treasury activities.
The topics covered in the guide include matters related to:
- Changes to acceptable accounting principles
Issuers will be adopting IFRS on varied timelines through 2011 depending on their year-end, meaning that financial information may be presented using frameworks other than IFRS. As such, it is important that issuers clearly articulate the accounting principles used to prepare all financial information that is publicly released, including earnings press releases, so that investors understand whether the financial information has been prepared under IFRS or old Canadian GAAP.
- Auditor involvement with regulatory filings
Audit committee members should consider whether auditor involvement is warranted in the issuer's particular circumstances as it is important that investors be provided with IFRS financial information for the first three quarters in 2011 that will not be subject to correction as a result of the annual audit.
- Q1 filing extension for first time IFRS filers
The filing deadline for an issuer's first IFRS interim financial report has been extended by an additional 30 days. This extension is intended to assist management with its CEO and CFO certification process in the first quarter and to provide boards of directors and audit.
- Consequences of missing financial statement filing deadlines
Failure by an issuer to file its first IFRS interim financial report by the extended deadline may subject the issuer to a cease trade order. Furthermore, the OSC is of the view that, if an issuer determines that it will not be able to prepare IFRS financial statements by the required deadlines after the changeover date, this will often represent a material change that the issuer should immediately communicate by way of a news release and material change report. The guide indicates that the OSC expects issuers required to transition to IFRS to take the necessary steps to prepare for this transition.
- Key financial statement notes in the first IFRS interim financial report
The guide reflects the OSC's belief that first time adopter's first IFRS interim financial report should include disclosure that exceeds the minimum disclosure requirements so that financial statements users are better able to understand how the transition to IFRS affected previously reported annual and interim results.
- Required reconciliations under IFRS
IFRS requires disclosures that explain how the transition from Canadian GAAP to IFRS affected the issuer's reported financial position, financial performance and cash flows. These disclosures are to be presented as reconciliations from Canadian GAAP to IFRS for both equity and total comprehensive income for relevant periods. IFRS also requires that material adjustments in the presentation of the statement of cash flows between Canadian GAAP and IFRS be explained. These adjustments can be described either qualitatively or quantitatively.
- Management's discussion and analysis (MD&A)
As required by the MD&A form, an issuer should discuss how expected changes in accounting policies will affect its financial statements or provide a statement that the effect cannot be reasonably estimated. The MD&A filed in the first interim period after the transition to IFRS should include a detailed discussion of the transition from management's point of view. This includes a discussion of the impact of significant accounting policy choices and the selection of IFRS 1 elections and exemptions used by the issuer. Issuers should also discuss changes that result from IFRS requirements that differ from Canadian GAAP. Issuers should clearly discuss whether reported changes in financial performance relate to the adoption of different accounting standards or relate to a change in the issuer's business.
- CEO/CFO certification
The standard certification form has been revised to include IFRS terminology, so issuers should ensure they are filing the most recent form with their first IFRS filings.