March 10, 2010

IFRS: Regulators shine spotlight on disclosure

A recent Ontario Securities Commission (OSC) review is a wake-up call for IFRS adopters. Communication with investors is critical.

The findings of an OSC review suggest that reporting issuers are not adequately discussing in their MD&A the key elements of their IFRS changeover plan or their progress towards achieving this plan. 

Of the 106 files reviewed, 40% failed to provide any transition disclosure, often citing resource constraints and a lack of complexity of business operations. Of the 60% that discussed an IFRS changeover in their 2008 annual MD&A, approximately half simply provided a generic description, 80% did not include significant milestones and anticipated timelines associated with each of the key elements of the plan, and 48% did not provide quarterly progress updates in 2009 MD&As. 

The report underlines the need for good IFRS disclosure in maintaining investor confidence: “Issuers that provide sufficient information about their conversion process and its effects prior to the changeover will reduce the level of investor uncertainty.” This benefits both issuers and their investors. 

The OSC may request MD&A re-filings in the future if IFRS disclosure obligations are not met; all the more reason why companies should ask themselves if they are communicating effectively with the capital markets. 

Some excellent (and free) resources that are available include: 

• Canadian Securities Administrators Staff Notice 52-320 explains what regulators are expecting 
• OSC Staff Notice 52-718 sets out several examples of disclosure for various aspects of the transition 

The Canadian Performance Reporting Board, of the CICA, has issued two helpful publications: 

• Pre-2011 Communications about IFRS Conversions recommends best practices and provides a template that summarizes the disclosures 
• Transition to IFRSs – Communicating the Impact of the Changeover suggests ways for the MD&A to summarize the changes between IFRSs and Canadian GAAP 

Link to all of these resources, as well as examples of how a number of companies have prepared IFRS-related disclosures, through the CICA’s IFRS web site. You may be interested in other transition resources on the site as well.

Now you’re in the loop.