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Staff of the Ontario Securities Commission (OSC) recently
conducted a review of the quality of public companies'
disclosures in their MD&A (management's discussion and
analysis) about the impact of the upcoming transition to
International Financial Reporting Standards (IFRS). In Staff Notice 52-718
(http://tinyurl.com/ya9mpdr), IFRS Transition Disclosure
Review, staff expressed concern that many issuers'
IFRS-related disclosures in MD&A during 2009 failed to provide
investors with meaningful information about the issuer's
preparedness for the transition and its expected impact.
Overall Findings
Of the 106 issuers reviewed, staff found that 40% provided no
IFRS-related disclosure, and of the 60% that did, approximately
half provided generic rather than issuer-specific information. In
light of these inadequacies, staff stated that it will conduct
further reviews of IFRS-related disclosures during 2010. Issuers
that fail to provide adequate disclosure may be requested to amend
and refile their MD&A.
Regulators' Expectations for Disclosure
Issuers drafting IFRS-related disclosures should consult Staff Notice 52-320, Disclosure of Expected
Changes in Accounting Policies Relating to Changeover to
International Financial Reporting Standards
(http://tinyurl.com/yesz9pc). That notice outlines securities
regulators' expectations regarding IFRS disclosures for the
three-year period leading up to the changeover in 2011. Issuers
should be disclosing significant milestones and anticipated
timelines associated with each key element of their plan, including
specific discussion and analysis of the impact of IFRS on the
following:
accounting policies;
business activities that rely on financial information or
otherwise might be affected by the changeover, such as
risk-management practices, foreign currency and hedging activities,
capital requirements, compensation arrangements and compliance with
debt covenants and other contractual commitments;
financial reporting expertise, including training requirements
for the board, management and employees;
information technology and data systems;
internal control over financial reporting; and
disclosure controls and procedures, including investor
relations and external communications plans.
In their annual MD&A for 2009, issuers should provide a
progress update on their changeover plans (including in relation to
the six elements above) and describe the major differences between
their current accounting policies and those they expect to apply
under IFRS.
In their interim MD&A during 2010, issuers should provide
significant details about their changeover plan, including key
policy choices under IFRS 1 First-time Adoption of
International Financial Reporting Standards. If an issuer has
quantified information about the impact of IFRS on key financial
statement line items, this information should be included in
MD&A.
Transition for Cross-Border Issuers
The foregoing disclosure requirements pertain to reporting
issuers under Canadian securities laws. As an accommodation to
cross-border issuers that also file reports with the SEC, issuers
that use U.S. GAAP will, after the transition, continue to have
that option and will not have to reconcile their financial
statements to IFRS. Cross-border issuers will not, after the
transition to IFRS, need to reconcile their financial statements to
U.S. GAAP.
Footnote
1.There is an exception if the issuer switches from
Canadian GAAP to U.S. GAAP in 2010, in which case the interim and
annual financial statements for 2010 (but not thereafter) will need
to be reconciled from U.S. GAAP to Canadian GAAP.
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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