Canada: CSA Staff Notice 52-326: IFRS Transition Disclosure Review

Last Updated: November 18 2010
Article by Michael Shour and Bradley A. Freelan

On July 23, 2010, the Canadian Securities Administrators (CSA) published Staff Notice 52-326 IFRS Transition Disclosure Review (SN 52-326), which provides an assessment of disclosure regarding transition to International Financial Reporting Standards (IFRS) made by issuers in their 2009 annual Management Discussion & Analysis (MD&A).1 Overall, while the CSA generally note an improvement in quantity and quality of disclosure by issuers in relation to the upcoming transition to IFRS, they also suggest areas for further enhancement. In conducting their review, the CSA compared the IFRS transition disclosure of 196 calendar year-end issuers to the disclosure guidance previously provided in their May 9, 2008 Staff Notice 52-320 Disclosure of Expected Changes in Accounting Policies Relating to Changeover to International Financial Reporting Standards (SN 52-320).

SN 52-320 generally advises issuers to consider how the transition to IFRS will affect all business functions that rely on financial information and to effectively disclose such impact to investors. According to SN 52-320, in their 2008 annual MD&A, issuers were expected to have already discussed the status of the key elements and timing of their IFRS changeover plans. To allow investors to readily assess the progress of changeover plans, in 2009 annual MD&A issuers were expected to have provided the following: a status update on their IFRS changeover plan against previously disclosed timelines, including a detailed discussion of each of the key elements of the plan; a discussion of the major identified differences between their current accounting policies and those the issuer expects to apply in preparing IFRS financial statements; a description of the impact that such differences may have on the issuer's reported financial statements and results; and a discussion regarding whether the IFRS transition has resulted, or is anticipated to result in a change to the issuer's business functions and activities. The CSA emphasize that this level of disclosure is essential as it is intended to inform investors about the potential for volatility in future reported results and therefore facilitate a less disruptive transition to IFRS, something which is in the interest of both issuers and investors alike.

Based on these expectations, the CSA's review revealed the following:

  • 95% of issuers reviewed disclosed their IFRS changeover plan in their 2009 MD&A
  • 60% of issuers reviewed described milestones and anticipated timelines associated with key elements of their changeover plan
  • 82% of issuers reviewed identified significant accounting policy differences between the current Canadian GAAP and IFRS
  • 80% of issuers provided an update of IFRS transition information from disclosure in 2008 annual MD&A and 2009 interim MD&A


Despite these relatively positive results, the CSA note areas for improvement.

Changeover Plan

With respect to the disclosure of a changeover plan, the CSA note that issuers should have described each key element of their IFRS changeover plan—accounting policies, internal control over financial reporting, disclosure controls and procedures, financial reporting expertise, business activities, and information technology systems—along with significant milestones and anticipated timelines. Where issuers concluded that a specific element of the changeover plan would not be impacted as result of the IFRS changeover, and therefore chose not to discuss such element, the CSA requested that a comprehensive discussion of such assessment and related conclusion be included in such issuers' upcoming MD&A filing.

As for the disclosure of key milestones and anticipated timelines associated with changeover plans, the CSA note that issuers should have discussed conclusions reached as these milestones were completed.

Identified Differences between Canadian GAAP and IFRS

With respect to identifying key accounting policy differences, the CSA emphasize that rather than merely listing and providing a boilerplate description of the IFRS accounting standards to be adopted upon transition, enhanced entity-specific disclosure should have been provided. Such enhanced entity-specific disclosure should include a discussion regarding the potential impact of IFRS accounting policy differences on the issuer's future balance sheet, income statement, and key performance metrics.

The CSA explain that there are two key types of accounting differences: those that are common across various industries and those that are entity specific. To guide issuers, in SN 52-326 the CSA provide examples of entity-specific disclosure with respect to common accounting differences—impairment of assets, revenue recognition, and property, plant, and equipment—along with examples of entity-specific disclosure with respect to different industries, including mining, oil and gas, and real estate.

Key Issues Going Forward

SN 52-326 provides that the CSA will continue to review IFRS transition disclosure as part of the broader continuous disclosure review program. Issuers that have not met disclosure obligations should anticipate requests from CSA staff for MD&A re-filings. As IFRS will be implemented in the first quarter of 2011, the CSA expect issuers to provide detailed disclosure regarding their changeover plan and, to the extent such disclosure was not provided in 2009 MD&A, information regarding policy choices under IFRS 1 and other standards. As many issuers are beginning to prepare quantitative information for the opening IFRS statement of financial position, the CSA suggest that issuers should consider when they can disclose certain quantitative information prior to approval of IFRS balances, such as an indication of how significant asset and liability balances may change as a result of accounting policy decisions or estimates of balances on the changeover date balance sheet.

In addition to discussing disclosure issues, the CSA warn that if issuers continue filing financial statements using Canadian GAAP after the January 1, 2011 changeover date, the issuer's principal regulator may issue a cease trade order that will prohibit the trading of such issuer's securities. Further, if an issuer determines that it will not be able to prepare IFRS financial statements after the changeover date, this may be viewed as a material change that the issuer will be required to disclose to the marketplace through a news release and a material change report.


1. The Ontario Securities Commission (OSC) previously published its own Staff Notice 52-718 IFRS Transition Disclosure Review (SN 52-718), which sets out the results of its review of the extent and quality of IFRS transition disclosure that issuers have provided in their 2008 annual and 2009 interim MD&A. The OSC stated that "[its] findings suggest that issuers are not adequately discussing, in [their] MD&A, the key elements of their IFRS changeover plan or their progress towards achieving this plan." While the OSC did not request that issuers that were the subject of the review re-file their MD&A to improve the quality of their historical IFRS transition disclosure, SN 52-718 provided guidance regarding IFRS-related disclosure for upcoming MD&A filings.

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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