IFRS Practical Planning Strategies and Disclosure Requirements Gordon Heard from The Finance Group & Kelly Gorman from Ontario Securities Commission November 18, 2008 1
Presentation Outline Background Information Regulatory considerations for IFRS transition planning Practical strategies for developing an effective IFRS transition plan Questions? 2
Regulatory Considerations For IFRS Transition Planning Key issues: CSA Staff Notice 52-320 MD&A disclosures CEO/CFO certification and corporate governance CSA Staff Notice 52-321 Early adoption Timing considerations
MD&A Disclosures Leading Up to IFRS Changeover CSA Staff Notice 52-320 Disclosure of Expected Changes in Accounting Policies Relating to Changeover to IFRS provides guidance on the application of MD&A requirement 1.13(a) in Form 51-102 F1 covers interim and annual periods for the three years leading up to IFRS changeover incremental approach increased disclosure as you get closer to changeover
MD&A Disclosures Key Elements of IFRS Changeover Plan Key elements of the plan include: Information Technology Internal Controls and Certification ACCOUNTING POLICIES Staff Expertise and Training Business Functions (Treasury, Banking, Compensation, Taxes)
MD&A Disclosures Fiscal Fiscal Fiscal Fiscal 2008 2009 2010 2011 Interim and Annual MD&A Interim MD&A Interim and Annual MD&A Disclose in interim MD&A if available, but no later than the annual MD&A, key elements and timing of IFRS changeover plan: - accounting policies -IT - internal controls, - training - compensation plans, etc. Progress update on changeover plan Annual MD&A Progress update on changeover plan Describe major differences identified in accounting policies Progress update on changeover plan in more detail Key decisions about policy choices under IFRS 1 Quantified information on the impacts, if available IFRS statements are filed with 2010 comparatives
Certification and Corporate Governance NI 52-109 CEO/CFO Certification effective December 15, 2008 only country to convert with certification requirements fair presentation, no misrepresentations in financial statements and MD&A NI 52-110 Audit Committees review of financial information before release only 8 quarters left before release of IFRS financial statements
Early Adoption of IFRS Key considerations: exemptive relief required from the regulators readiness of staff, board, audit committee, auditors, investors transition disclosure required before first IFRS filing (i.e. policy changes and impacts) restate any Canadian GAAP interims in the year of changeover
Key Timing for Calendar Year End Companies 2010 Annual F/S CGAAP Mar 31, 2011 Interim F/S IFRS (with 2010 comparatives restated using IFRS) June 30, 2011 Interim F/S IFRS (with 2010 Comparatives restated using IFRS) Sept 30, 2011 Interim F/S IFRS (with 2010 Comparatives restated using IFRS) 2011 Annual F/S IFRS (with 2010 comparatives restated using IFRS) Year end Dec 31, 2010 Mar 31, 2011 Year end May 15, 2011 Aug 15, 2011 Nov 15, 2011 Dec 31, 2011 March 31, 2012 Issuers have 5.5 months to : 1. Complete 2010 CGAAP audit 2. Restate 2010 to IFRS 3. File Q1 2011 under IFRS with comparatives
Initially MD&A Disclosure Purpose Alert readers to the coming change, and the potential significance Provide confidence management is taking appropriate steps to plan and execute the transition describe your plan Closer to changeover Inform readers of the anticipated effect on the financial statements & business There are many questions about IFRS, but you don t need to answer them definitively now, instead provide the comfort you have a plan to address the issues. The disclosure guidance is asking you to describe this plan Closer to changeover, you will need to talk in more detail about some of the specific effects of IFRS on your financial statements, but without significant analysis, would be irresponsible to attempt this So let s talk about now you have all been told you should have a plan, and the disclosure guidance asks you to describe it so, how do we create this plan? 10
Transition Planning Things should be made as simple as possible, but not any simpler. - Albert Einstein Great advice, but difficult to follow. The most successful transitions will be those where the work effort is successfully focused on the most significant and relevant issues. 11
Transition Planning The sky is not falling While scope of the project is large, the elements remain straightforward: accounting standard research & analysis accounting policy determination managing the change project management Remember, the sky is not falling. We have all dealt with changing or new accounting standards before. The challenge with the transition to IFRS is the number of new standards to deal with at once. 12
Transition Planning Key Plan Elements 1) Timeline & schedule 2) Identification of (potentially) significant changes 3) Accounting standard research & analysis 4) Accounting policy & disclosure determinations 5) Identification of business impacts* 6) Managing business impacts* * impacts beyond external financial reporting 13
Transition Planning Key Plan Elements 1) Timeline & schedule 2) Identification of (potentially) significant changes 3) Accounting standard research & analysis 4) Accounting policy & disclosure determinations 5) Identification of business impacts 6) Managing business impacts 14
1) Timelines Calendar Year But for a moment, back to number 1. Most of you will have seen a version of this, so I won t focus on it, but it is here for reference. Essentially, for calendar year companies there is MD&A disclosures through 2008 and 2009, the closing 2009 balance sheet will be converted to an IFRS opening balance sheet as of January 1, 2010 in accordance with firstime adoption rules, during 2010 you are reporting CGAAP numbers externally, but collecting information for the required comparative information next year, and 2011 interim and annual are the first external IFRS financial statements, which will include application of first-time adoption rules & disclosures. 15
1) Timelines Calendar Year Just to highlight again a critical area of the timeline that Kelly referred to. There will be alot of activity between the end of 2010 and your Q1 2011 filing one more reason for good planning, I ll address this specific issue a bit later. 16
1) Timelines Non-calendar Year For reference, same timeline for non calendar year end. 17
Transition Planning Key Plan Elements 1) Timeline & schedule 2) Identification of (potentially) significant changes 3) Accounting standard research & analysis 4) Accounting policy & disclosure determinations 5) Identification of business impacts 6) Managing business impacts 18
2) Identification of Changes Identify significant differences - current policies vs. IFRS Focus your efforts, make a list: a) Documented differences - some of the work has been done for you b) Your existing complex policies, circumstances or disclosure issues - assume there are differences, this will help capture other devils in the detail, reducing surprises 19
2) Identification of Changes Documented differences Canadian GAAP vs. IFRS Key Resources: more detailed / technical CICA s Guide to IFRS in Canada KPMG IFRS compared to Canadian GAAP: an overview AcSB - IFRS / Canadian GAAP Comparison There are many publications out there but in terms of specifically identifying many of the significant differences between CGAAP and IFRS, these are the best there are of course many publications around specific issues including some from BDO included on the list at the end of the presentation. 20
2) Identification of Changes The target is moving Changes are expected to IFRS prior to (or shortly after) our 2011 changeover. Some examples: Income Taxes Leases Post-employment benefits Revenue recognition Key Resource: AcSB Which IFRSs are Expected to Apply for Canadian Changeover in 2011? 21
3) Accounting Standard Research Research & Analysis Develop a standard analysis template Organize by financial statement line item, not by standard (i.e. Capital Assets, not IAS 16) Yes, you will have to read the standards! Template saves time, and if includes the right elements, the rest of the plan falls out FS line item may include several standards ensures you capture it all, avoids duplication and circular analysis 22
3) Accounting Standard Research Analysis Templates Key Elements a) List IFRS standards related to subject b) Identify IFRS 1 alternatives & exemptions - first-time adoption choices decisions to be made c) Accounting policy alternatives - choices available within the standards d) Expected changes to standards 23
3) Accounting Standard Research Analysis Templates Key Elements e) IFRS differences & impact on the organization key List/table assessing each difference: IFRS requirement (as relevant to difference) your current accounting policy (as relevant to difference) impact on your organization - potential accounting policy/process change - potential for unavailable data - decisions to be made 24
3) Accounting Standard Research Analysis Templates Key Elements f) Significant presentation and note disclosure requirements - can focus on differences to current disclosure g) Policy analysis, recommendations & rationale - judgements applied in interpreting standard for your organization 25
3) Accounting Standard Research Analysis Templates Key Elements h) Implementation Process key Summarize accounting policy and/or process changes Next Steps - decisions to be made - internal control impact - business impact - systems impact - training requirements 26
Transition Planning Key Plan Elements 1) Timeline & schedule 2) Identification of (potentially) significant changes 3) Accounting standard research & analysis 4) Accounting policy & disclosure determinations 5) Identification of business impacts 6) Managing business impacts 27
3) Schedule Summary Example This is of course only an example and a very high-level summary 28
3) Schedule Summary Example 29
The IFRS Q1 Crunch Calendar (non-calendar) year-end Dec 31 2010 (Year-end FY 11) 2010 ( 11) Financial Statement Preparation & Audit 2010 ( 11) Annual Filings Mar 31 2011 (Qtr-end Q1 12) May 15 2011 (filing Q1 12) First IFRS filing Q1 2011 ( 12) Q1 2011 ( 12) Q1 2010 ( 11) comparatives restated to IFRS Q1 2010 ( 11) Reconciliations CGAAP to IFRS Opening IFRS Balance Sheet What level of assurance will you seek for these quarterly comparatives? 30
Planning Reminders Be realistic about available resources Don t forget note disclosure requirements Don t forget internal control implications Monitor changing standards Communicate, and communicate again Leave room for surprises the devil is in the detail Actively manage your plan keep the momentum It s a very unfair characterization, but accountants are not generally known for being excellent communicators 31
Overviews More Resources CICA 20 Questions Directors and Audit Committees Should Ask about IFRS Conversions CICA elearning (free online course) Introduction to IFRS - Implications for Canadian Business AcSB IFRS Exposure Draft Q&A MD&A Disclosure CSA Staff Notice 52-320 Deloitte How to manage a sea change Discussing your IFRS change-over plan in your MD&A CICA & Corporate Performance Reporting Board (CPRB) - Pre-2011 Communication about IFRS Conversions It s a very unfair characterization, but accountants are not generally known for being excellent communicators 32
More Resources IFRS Canadian GAAP Differences BDO IFRS Canadian GAAP Difference Series select topics Changes to IFRS IASB - IASB Workplan www.iasb.org, click on current projects Other CICA IFRS Web Updates www.cica.ca/ifrs Audit Firms industry specific publications 33