Maria Alano Laset September 2010 Session 3 of 6 Webinar IFRS. Amendments to Form 1

Transcription

1 Maria Alano Laset September 2010 Session 3 of 6 Webinar IFRS Amendments to Form 1

2 This session Session 3 will cover Statement A - the balance sheet. Session # Overview of the changes to Form 1 Planning for the changeover Opening IFRS balance sheet Prescribed IFRS departures and prescribed accounting treatments Changes to Statement A balance sheet Changes to Statement E income statement Changes to Statement F equity Other Coverage 2

3 A word of caution The discussion on Statement A has general application to the dealer membership. Quotes: The devil is in the details. While IFRSs do not change the economics of the business, they may present the organization s story in a different way This session is intended to highlight the changes affecting the balance sheet from a regulatory accounting and reporting perspective. Due to the potential complexity of the changeover to IFRS, you may want to consult with professional accounting advisors, starting with your external auditors. 3

4 4 #1 - Changes to Statement A The changes are primarily to conform with the IFRS presentation standard.

5 #2 - Housekeeping changes to Statement A There are non-ifrs-related changes. A few of these are housekeeping changes. Housekeeping changes are as follows: In one of the past revisions to Form 1, Schedule 3 was deleted. In this revision, we deleted the corresponding asset and liability Syndicate and joint trading accounts. These were the old lines 9 and 53 respectively. Canadian stock exchanges have undergone organizational structural changes. The old line 25 stock exchange seats has been deleted. The old line 27 Investments in and advances to subsidiaries and affiliates included both the investment in a subsidiary, as well as any non-trading receivable from a subsidiary, an affiliate or parent. We have created a new line item for non-trading intercompany receivables. In the past, we made a distinction between a subloan from a non-industry investor and from an industry investor on the old lines 69 and 70 respectively. We no longer make that distinction. There will only be one line item for subloans. 5

6 #3 Other balance sheet implications Although the economics have remained unchanged, the change in accounting standards may have operational and audit implications. Valuation of securities, including inventory and client positions Operational and audit implication The challenge is for Dealer Members to obtain the ability to use the appropriate valuation technique for securities that are traded in an inactive market or where no secondary market exists. Under the CSA proposal, the expectation is that a registrant must attempt to value positions by following the IFRS fair value hierarchy. Regulatory capital implication None Valuation of client and broker trading balances Dealer Members and their panel auditors must assess whether non-compliance with IFRS in the valuation of receivables and payables will materially affect the financial statement as a whole. Expectation: Not significant and not material Valuation of intercompany nontrading balances Dealer Members and their panel auditors must assess whether non-compliance with IFRS in the valuation of receivables and payables will materially affect the financial statement as a whole. Expectation: Not significant and not material 6

7 #4 Other balance sheet implications Although the economics have remained unchanged, the change in accounting standards may have regulatory implications. Presentation of intercompany non-trading balances Operational and audit implication Change in accounting process to separately report receivables from and payables to the same related counterparty Regulatory capital implication When the grossing up of a balance sheet item increases non-allowable assets, such as intercompany non-trading receivables, there is an adverse RAC impact that is equal to the increased amount in non-allowable assets. Classification of finance leases Dealer Members to maintain documentation for finance (formerly known as capitalized) lease accounting Dealer Members will likely account some of their leases as finance leases (as opposed to operating leases). To resolve the issue of potential adverse RAC implication, any lease-related asset will not be considered as a non-allowable asset and therefore will be capital neutral. Presentation of subloans IIROC will no longer make a distinction between a subloan from a non-industry investor and from an industry investor (old Statement A lines 69 and 70 respectively). All subloans will be presented on one line. This is a presentation issue with no regulatory capital implication. 7

8 #5 Other balance sheet implications Although the economics have remained unchanged, the change in accounting standards may have regulatory implications. Operational and audit implication Regulatory capital implication Classification of subloans Currently, subloans are classified as part of a Dealer Member s financial capital. IIROC recognizes that is a prescribed CGAAP departure. To be in compliance with IFRS, there will be no prescribed departure. Subloans will be properly classified as liabilities. None. In order to retain the regulatory capital treatment, a format change was made to Statement B. Classification of the non-current liability for capitalized lease inducement Currently, the non-current liability for capitalized lease inducement is classified as part of a Dealer Member s financial capital. IIROC recognizes that is a prescribed CGAAP departure. To be in compliance with IFRS, there will be no prescribed departure. This will be properly classified as a liability. Dealer Members to maintain documentation for finance (formerly known as capitalized) lease accounting None. In order to retain the regulatory capital treatment, a format change was made to Statement B. 8

9 9 Changes to Statement A Under IFRS, there are required format changes. In addition, there are housekeeping changes.

10 10 Changes to Statement A - deferred tax asset Under IFRS, deferred tax asset must be separately disclosed.

11 11 Changes to Statement A - deferred tax liability Under IFRS, deferred tax liability is classified as non-current.

12 12 Other changes to Statement A Under IFRS, intangible assets have to be separately disclosed. The term fixed assets has been replaced by plant, property & equipment.

13 Other changes to Statement A Non-allowable assets RAC implication There may be an adverse capital implication due to the gross-up requirement. General rule Prescribed IFRS departure from the gross-up requirement Potential adverse RAC implication for non-allowable assets Trade date balances must be presented on a gross basis, unless the netting criteria are met or unless specifically allowed by an IFRS standard. For client and broker trading balances, IIROC will allow the netting of receivables and payables to the same counterparty on a trade date basis. For example, the gross-up requirement for intercompany balances and principal-agent balances with the same counterparty may result in an adverse RAC implication equal to the increased amount in non-allowable assets. 13

14 Changes to Statement A leases Any lease-related asset will not attract regulatory capital. Current operating leases may have to be reclassified as finance (capitalized) leases. With the revision of Form 1, IIROC will not treat the capitalized lease asset as a non-allowable asset. Any lease-related asset will be capital neutral. 14

15 15 Changes to Statement A provisions A liability item for specific identified legal and constructive obligations

16 16 Changes to Statement A Capital and reserves To meet IFRS presentation requirements

17 Next session Session 4 will be on Statement E - the income statement. Session # Overview of the changes to Form 1 Planning for the changeover Opening IFRS balance sheet Prescribed IFRS departures and prescribed accounting treatments Changes to Statement A balance sheet Changes to Statement E income statement Changes to Statement F equity Other Coverage 17