C&CM 2008-15 August 7, 2008
Canada to Adopt International Financial Reporting Standards: An Update
By Cornell Wright To discuss these issues, please contact the author.
Earlier this year, the Canadian Accounting Standards Board confirmed January 1, 2011 as the date that International Financial Reporting Standards (IFRS) will replace Canadian generally accepted accounting principles (Canadian GAAP) for all Canadian publicly traded companies as well as for non-listed financial institutions, securities dealers and many cooperative enterprises that qualify as “publicly accountable enterprises.” Canadian private enterprises will be permitted, but not required, to adopt IFRS. The adoption of IFRS, which is the collection of financial reporting standards developed by the International Accounting Standards Board, is consistent with a trend toward global convergence of accounting standards. Over 100 countries, including the United Kingdom and other countries in the European Union, Australia, New Zealand and India, either permit or require the use of IFRS for public company reporting. Although the United States has not adopted IFRS, the U.S. SEC recently revised its rules so that foreign private issuers that report under IFRS will no longer have to reconcile financial statements to U.S. generally accepted accounting principles (U.S. GAAP). The SEC has also solicited public comment on whether IFRS should replace U.S. GAAP for domestic U.S. issuers and is expected in the near future to propose a timetable for permitting U.S. issuers to adopt IFRS on a voluntary basis. Although current Canadian GAAP and IFRS are both principles-based and generally similar, some significant differences between the two sets of standards exist. Issuers can therefore expect to see differences in their reported results of operations and financial position when they transition to IFRS; in some cases, the differences may be material.
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Some issuers may wish to adopt IFRS for financial periods before the mandatory changeover on January 1, 2011. Early adoption may be particularly attractive to (i) issuers in a consolidated group with other entities that are required to use IFRS; (ii) issuers with significant foreign operations that use IFRS; (iii) issuers that want to eliminate U.S. GAAP reconciliations from SEC filings; and (iv) issuers considering an IPO in both Canada and the United States before the mandatory changeover date. Staff of the Canadian securities regulators have indicated that they are prepared to recommend exemptive relief on a case-by-case basis to permit early adoption of IFRS. A few issuers have applied for relief to adopt IFRS effective January 1, 2009. Issuers applying for relief must demonstrate their overall readiness to transition to IFRS, including the readiness of their staff, board of directors, audit committee, auditors, investors and other market participants to deal with the change. They must also demonstrate that they have considered the implications of early adoption on their
This bulletin is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss with you the issues raised here in the context of your particular circumstances. © 2008 by Torys LLP. All rights reserved.
Canada to Adopt IFRS Page 2
obligations under securities legislation, including those relating to CEO and CFO certifications, business acquisition reports, offering documents and previously released material forward-looking information.
In May 2008, staff of the Canadian securities regulators published