The Ontario Securities Commission (OSC) recently released the
results of its review of the quality of International Financial
Reporting Standards (IFRS) transition disclosure provided by
certain randomly selected issuers in their 2008 annual and 2009
interim management discussion and analysis (MD&A). Guidance on
IFRS transition disclosure was provided to issuers in May 2008 in
Canadian Securities Administrators (CSA) Staff Notice 52-320
Disclosure of Expected Changes in Accounting Policies Relating
to Changeover to International Financial Reporting
In its Staff Notice 52-718 – IFRS Transition
Disclosure Review (Staff Notice), the OSC noted that many
issuers have not been adequately disclosing information relating to
their IFRS transition plans. Of the 106 issuers reviewed, 40 per
cent did not provide any IFRS transition disclosure. Of the
remaining 60 per cent:
approximately 50 per cent provided boilerplate disclosure
without applying entity-specific information;
80 per cent did not describe significant milestones and
anticipated timelines associated with each of the key elements of
the plan; and
48 per cent did not provide quarterly updates on progress
relating to their changeover plan.
As IFRS adoption is expected to affect a wide variety of an
issuer's business activities, the development and
implementation of an IFRS conversion plan is more than an
accounting exercise. As outlined in CSA Staff Notice 52-320, key
elements of a transition plan include assessing the impact of IFRS
on each of the following: accounting policies, internal controls
over financial reporting, disclosure controls and procedures
(DC&P), financial reporting expertise, business activities and
IT systems (collectively, Key Elements).
In the Staff Notice, the OSC noted that in most cases, issuers
have not been providing a comprehensive discussion of the impact of
IFRS on each of the Key Elements. The OSC also expressed particular
concern that DC&P were disclosed in the issuers' MD&A
less frequently than any of the other Key Elements. The Staff
Notice reviews in detail each of the Key Elements of an IFRS
transition plan and the extent to which they were addressed. As
well, it provides examples of entity-specific disclosures to assist
issuers in filing future MD&A.
It is important to remember that this recent review examines
only the quality of disclosure of an issuer's IFRS transition
plan and does not examine the actual preparedness of the issuer.
Since the disclosure assists investors in evaluating an
issuer's preparedness for the transition, deficient disclosure
can create an environment of investor uncertainty.
From the perspective of the OSC:
if an issuer does not provide disclosure about an IFRS
transition plan, it implies that it has not begun to prepare for
boilerplate disclosure does not allow an investor to
effectively assess the readiness of the issuer to transition to
IFRS and the possible impact that IFRS may have on the issuer;
failing to provide quarterly updates on the status of IFRS
transition suggests the issuer has not made any progress.
Accordingly, issuers should ensure that, if they are not already
doing so, they include disclosure regarding their IFRS transition
plans in their MD&A, including status updates. While the
disclosure of other issuers may serve as a useful example,
boilerplate should be avoided and disclosure should be specific to
each particular issuer.
The OSC will continue to conduct reviews of select 2009 and 2010
annual and interim MD&A filings and follow up with those
issuers whose disclosure was reviewed. The OSC has not requested
that issuers re-file their MD&A to improve the quality of their
IFRS disclosure, as the main objective of the review was to raise
awareness about OSC disclosure expectations related to transition.
Going forward, however, the OSC has indicated that re-filing
requests will be made and other regulatory action may be taken in
cases where issuers have not met their disclosure obligations.
Issuers should carefully review their own IFRS transition
disclosure and the suggestions offered in this Staff Notice when
filing their 2010 interim MD&A.
To learn additional detail about the review, click here
to be taken to the Staff Notice.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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