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1. What are IFRSs?
International Financial Reporting Standards (IFRSs) are the collection of financial reporting standards issued by the International Accounting Standards Board (IASB), an independent, international standard setting organization. The aim of IFRSs is to provide "a single set of high-quality, global accounting standards that require transparent and comparable information in general purpose financial statements" (IFRS Handbook, Introduction). January 1, 2011, IFRSs replaced Canadian generally accepted accounting principles (GAAP) as the financial reporting framework for publicly accountable enterprises and government business enterprises.
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2. Why did the AcSB adopt IFRSs?
The Accounting Standards Board made the decision to adopt IFRSs for publicly accountable enterprises following extensive consultation with stakeholders. Investors, preparers and others indicated that businesses operating and competing in global capital markets cannot afford to retain "made in Canada" reporting standards.
Because Canada comprises less than four per cent of world capital markets, IFRSs now provide more opportunities for Canadian businesses and investors by reducing the cost of capital, increasing access to international capital markets and reducing costs by eliminating the need for reconciliations.
Rapidly becoming the global language of accounting, IFRSs have been adopted by over 100 countries, including all those of the European Union and much of the Pacific Rim. In the US, the debate over whether to adopt IFRSs continues, but foreign private issuers who prepare their financial statements in accordance with IFRSs are no longer required to file reconciliations to US GAAP.
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3. Who was affected by the adoption of IFRSs?
PRIVATE SECTOR:
IFRSs are required for publicly accountable enterprises (PAE) and optional for private enterprises and non-for-profit-organizations.
PAE: Generally speaking, a PAE is an entity other than a not-for- profit organization that: - Has issued, or is in the process of issuing, debt or equity instruments that are, or will be, outstanding and traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets); or
- Holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses.
In some cases, determining whether an entity is a PAE requires professional judgment. Click here for the full definition of PAE. There are about 4,500 such entities in Canada. The adoption of IFRSs will also affect their stakeholders: shareholders, employees, lenders, auditors and advisors.
Pension Plans: When PAEs adopted IFRSs, the standards applicable to pension plans were based on the new accounting standards for pension plans issued by the Accounting Standards Board (AcSB) rather than the IAS 26 Accounting and Reporting by Retirement Benefit Plans. The new Section 4600, Pension Plans, found in Part IV of the CICA Handbook – Accounting, is based on Section 4100, Pension Plans. Modifications include: a requirement to present pension obligations together with the net assets available for benefits and the resulting surplus or deficit on the face of the statement of financial position; a requirement to measure investment assets at fair value, not on an actuarial asset value basis; and more extensive disclosures.
Investment Companies, Segregated Accounts of Life Insurance Enterprises and Rate Regulated Entities Exemption: Recent projects of the International Accounting Standards Board (IASB) have affected investment companies, segregated accounts of life insurance enterprises and entities with rate-regulated activities. The pace and outcome of the IASB’s activities put each of the groups of publicly accountable enterprises at a significant disadvantage in terms of their ability to adopt IFRSs by January 1, 2011. The Accounting Standard Board provided qualifying entities in these groups with the option to defer their changeover to IFRSs by one year to January 1, 2012 for investment companies and segregated accounts of life insurance enterprises and by one year to January 1, 2012 for rate-regulated entities. However, in January 2011, the AcSB agreed, that for investment companies and segregated accounts of life insurance enterprises, the option to defer would be extended to January 1, 2013 because of a delay in the timing of IASB’s project. This change by the AcSB is expected to be issued into the CICA Handbook – Accounting in March 2011. Private enterprises were given the option of adopting IFRSs or the new Canadian standards designed to address issues specific to private business. The new accounting standards for private enterprises are available in Part II of the CICA Handbook – Accounting.
PUBLIC SECTOR: Public sector entities that are government business enterprises (GBEs) adopted IFRSs following the same transitional provisions as PAEs in the private sector. The classification of government business-type organizations (GBTOs) has been eliminated. Some of these government organizations would now be categorized as other government organization (OGOs) and can follow IFRSs if it is determined to be more appropriate considering their objectives and circumstances.
NOT-FOR-PROFIT: Effective January 1, 2012, Canadian private not-for-profit organizations will have a new financial reporting framework. These mandatory standards will be available as of December 1, 2010, as Part III of the CICA Handbook – Accounting. Early adoption is permitted. Given the diversity of the private sector, not-for-profit organizations will also have the option of choosing International Financial Reporting Standards (IFRSs) for a January 1, 2012, changeover. Until transitioning to a new financial reporting framework, not-for-profit organizations should continue to follow the existing accounting standards in the CICA Handbook – Accounting (now called Part V). Government Not-for-Profit Organizations
Effective January 1, 2012, Canadian government not-for-profit organizations will be directed to follow the CICA Public Sector Accounting Handbook (PSA Handbook), which will now include the 4400 series as taken from the CICA Handbook –Accounting substantially as it is. The transition to the PSA Handbook will be mandatory for all government not-for-profit organizations, with standards becoming available as of December 1, 2010. Until transitioning to a new financial reporting framework, government not-for-profit organizations should continue to follow their existing accounting standards in the CICA Handbook – Accounting (now called Part V).
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4. When did the changeover to IFRSs take place?
The changeover to IFRSs occurred in 2011, but affected entities were required to gather data in accordance with IFRSs at the beginning of their 2010 fiscal year.
IFRSs replaced Canadian GAAP for publicly accountable enterprises and government business enterprises for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. Therefore, affected entities with fiscal period ending on October 31, 2011, for example, will prepare their first IFRS financial statements with the interim statement ending January 31, 2012.
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5. Some resources make reference to the “changeover date” and the “transition date”. What is the difference?
The term “changeover date” is used by the Canadian Accounting Standards Board when referring to January 1, 2011, the date when IFRSs replaced current Canadian standards and interpretations as GAAP for publicly accountable enterprises and government business enterprises. The term “transition date” is defined in Appendix A of IFRS 1, First-time Adoption of International Financial Reporting Standards as follows: “The beginning of the earliest period for which an entity presents full comparative information under IFRS in its first IFRS financial statements.”
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6. How closely does the AcSB intend to follow IFRSs? Will there be adaptations and modifications?
The Accounting Standards Board intends to adopt IFRSs with no modifications. It retains the ability to modify the standards or interpretations; however, this would be exercised in rare circumstances, such as if there were compelling arguments that a standard or interpretation would lead to inappropriate results if applied in Canada.
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7. How did the changeover to IFRSs affect publicly accountable enterprises?
In the long term, if all internationally traded companies and companies with international operations report under IFRSs, the need for reconciliations between national GAAPs is eliminated. The financial information they report will be consistent and comparable, creating new opportunities in international financial markets, with increased access to capital.
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8. How do IFRSs compare with pre-changeover Canadian GAAP?
Similarities: - The two sets of standards are based on a similar conceptual framework, and the style and form of the individual standards are similar.
- A number of standards are substantially the same including inventories, segmented reporting and accounting changes.
- The Accounting Standards Board (AcSB) adopted converged standards issued jointly by the International Accounting Standards Board and the US Financial Accounting Standards Board. The new business combinations standard is an example, which is mandatorily effective January 1, 2011, allowed for early adoption.
Differences:
The most pervasive differences that may have affected a company depending on its circumstances were: - Impairment – Under IFRSs impairments are generally triggered more often; unlike under pre-changeover Canadian GAAP, however, impairments under IFRSs can be reversed.
- Securitization – IFRSs are fundamentally different in this area.
- Revaluations – Some IFRSs including Property, Plant and Equipment, Investment Property and Intangibles allow the re-valuation of assets under certain circumstances.
- IFRS 1, First-time Adoption of International Financial Reporting Standards. There is no pre-changeover Canadian GAAP equivalent for IFRS 1, which provides special one-time options for enterprises converting to IFRSs from their national GAAP. Some items within IFRS 1 are optional and some are required.
- Oil and gas companies and rate-regulated companies in particular, were significantly affected by the change to IFRSs. Recent amendments to IFRS 1 assisted entities with oil and gas assets in their transition to IFRSs. The amendments were made as a result of issues identified by the Canadian oil and gas sector and considerable involvement of the AcSB.
The CICA’s Guide to IFRS in Canada includes the AcSB’s summary comparison of current Canadian GAAP to IFRS. The AcSB’s detailed comparison is also available.
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9. When should affected entities start preparing for the change to IFRSs and when should they start gathering data under IFRSs?
Publicly accountable enterprises that have not already started preparing for the 2011 adoption date now require aggressive strategies to catch up – it is vital to assess the impact of IFRSs immediately.
Collecting appropriate financial information must begin in fiscal year 2010, the year prior to adoption, to allow affected entities to provide comparative information when the first statement is prepared in accordance with IFRSs. For example, a company whose fiscal year ends on December 31, 2011 should have started collecting information in accordance with IFRSs requirements on January 1, 2010. If existing data collection systems require changes to collect different data required by IFRSs, sufficient time must be allotted for development and testing.
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10. Are disclosures regarding the pending changes resulting from an enterprise’s transition to IFRSs required before 2011?
CICA Handbook – Accounting, Section 1506, Accounting Changes, requires disclosure of the possible effect on a company of a new standard or revised standard that is not yet effective but has been issued and has not been applied in the company’s financial statements. However, 1506 was amended to exclude accounting changes resulting from the complete replacement of an entity’s primary source of GAAP, such as the change from current Canadian GAAP to IFRSs.
That does not mean disclosures are not required before 2011. The Canadian Securities Administrators (CSA) Staff Notice 52-320 provides guidance to issuers on the disclosures, expected in the Managements Discussion & Analysis (Form 51-102F), of the changes in accounting policies regarding an enterprise’s changeover to IFRSs. This guidance is applicable for the three years before the first year for which financial statements will be prepared in accordance with IFRSs. Therefore if your fiscal year is December 31, you should have been reporting under these guidelines beginning for your interim and annual statements in 2008.
The CSA Staff Notice above is looking for a description of an entity’s plan for transition to IFRSs, the key elements of that plan and its timing.
Click here for more information and resources regarding IFRS-related regulatory requirements
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11. How widespread is the use of IFRSs internationally?
IFRSs are now required or permitted in over 120 countries, including the European Union and much of the Pacific Rim. The US has not adopted IFRSs, but is working with the International Accounting Standards Board (IASB) to align standards, with the long-term goal of a single set of high-quality standards.
In December 2007, the US Securities and Exchange Commission eliminated the requirement for the reconciliations to US GAAP by foreign private issuers who prepare their financial statements in accordance with IFRSs as issued by the IASB.
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12. Did it make sense to transition to IFRSs when the United States has not?
The US position on the adoption of IFRSs was never a factor in the Accounting Standard Board’s (AcSB) decision to adopt IFRSs for Canada. During the AcSB’s consultations with Canadians on the strategy, the majority of Canadian public companies indicated that they were not interested in the expense and effort required to adopt the detailed and extensive US GAAP. Further, the adoption of IFRSs provides access to global markets, as well as the US market.
The US does not have an IFRS transition strategy at this time, however following a 2007 decision by the US Securities and Exchange Commission, foreign private issuers who prepare their financial statements in accordance with IFRSs are no longer required to file reconciliations to US GAAP.
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13. How will the transition to IFRSs affect standard setting in Canada?
Accounting standards in Canada, Canadian GAAP, are now set by the Accounting Standards Board (AcSB), a body with the authority to develop and establish standards and guidance governing financial accounting and reporting in Canada. IFRSs are set by the International Accounting Standards Board (IASB), an independent, international body dedicated exclusively to the development of international standards in accounting. From January 1, 2011 onward, accounting standards for Canadian publicly accountable enterprises (PAEs) are set by the IASB.
The AcSB maintain its standard-setting capability. While its role in setting standards for PAEs has changed, it continues its vital role of influencing the future directions of financial reporting standards to ensure that the Canadian point of view is strongly presented. The AcSB continues to set accounting standards for Canadian private enterprises and not-for-profit organizations.
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14. How can Canadian CAs have input into the IFRS standard-setting process?
Canada plays a prominent role in the development of IFRSs.
It is important that Canadian CAs continue to provide input to proposed changes in standards. Two avenues of communication are in place. - International Accounting Standards Board (IASB) discussion papers and exposure drafts: Canadian CAs are encouraged to inform themselves of the issues and be prepared to respond. You can register on this website to receive updates. Send responses to the Accounting Standards Board (AcSB) or directly to the IASB.
- IFRS Discussion Group (IDG): The Accounting Standards Board (AcSB) established the IDG as a public forum for discussion of IFRS-related issues in Canada. The IDG considers issues relating to the application of IFRSs in Canada and makes recommendations on whether particular issues should be referred to the IASB or IFRS Interpretations Committee. Click here for more information on the IDG.
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15. Is there education support for accounting academics and students?
The CICA provides a range of resources to help the academic community develop teaching strategies to prepare CA students for the IFRS environment.
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16. As a CA, what do I need to know about IFRSs?
All CAs need to have a basic awareness of the new standards and their implications; many require detailed knowledge and expertise. The CICA is committed to supporting members of the profession to help them achieve the level of expertise their professional responsibilities require.
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17. How can I learn more?
As the recognized leaders in providing guidance and education in applying standards, the CICA, along with the Provincial Institutes/Ordre, is uniquely positioned to support members and the wider business community. Our dedicated IFRS website www.cica.ca/IFRS provides a full range of information and learning opportunities:
Planning and implementation resources
Professional development opportunities
Information from standards-setters
Canadian and international developments
Support materials for academics and students
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