Canada: Canada To Adopt International Financial Reporting Standards: An Update

Last Updated: August 8 2008
Article by Cornell Wright

Earlier this year, the Canadian Accounting Standards Board confirmed January 1, 2011 as the date that International Financial Reporting Standards (IFRS) will replace Canadian generally accepted accounting principles (Canadian GAAP) for all Canadian publicly traded companies as well as for non-listed financial institutions, securities dealers and many cooperative enterprises that qualify as "publicly accountable enterprises." Canadian private enterprises will be permitted, but not required, to adopt IFRS.

The adoption of IFRS, which is the collection of financial reporting standards developed by the International Accounting Standards Board, is consistent with a trend toward global convergence of accounting standards. Over 100 countries, including the United Kingdom and other countries in the European Union, Australia, New Zealand and India, either permit or require the use of IFRS for public company reporting. Although the United States has not adopted IFRS, the U.S. SEC recently revised its rules so that foreign private issuers that report under IFRS will no longer have to reconcile financial statements to U.S. generally accepted accounting principles (U.S. GAAP). The SEC has also solicited public comment on whether IFRS should replace U.S. GAAP for domestic U.S. issuers and is expected in the near future to propose a timetable for permitting U.S. issuers to adopt IFRS on a voluntary basis.

Although current Canadian GAAP and IFRS are both principles-based and generally similar, some significant differences between the two sets of standards exist. Issuers can therefore expect to see differences in their reported results of operations and financial position when they transition to IFRS; in some cases, the differences may be material.

Early Adoption

Some issuers may wish to adopt IFRS for financial periods before the mandatory changeover on January 1, 2011. Early adoption may be particularly attractive to (i) issuers in a consolidated group with other entities that are required to use IFRS; (ii) issuers with significant foreign operations that use IFRS; (iii) issuers that want to eliminate U.S. GAAP reconciliations from SEC filings; and (iv) issuers considering an IPO in both Canada and the United States before the mandatory changeover date.

Staff of the Canadian securities regulators have indicated that they are prepared to recommend exemptive relief on a case-by-case basis to permit early adoption of IFRS. A few issuers have applied for relief to adopt IFRS effective January 1, 2009. Issuers applying for relief must demonstrate their overall readiness to transition to IFRS, including the readiness of their staff, board of directors, audit committee, auditors, investors and other market participants to deal with the change. They must also demonstrate that they have considered the implications of early adoption on their obligations under securities legislation, including those relating to CEO and CFO certifications, business acquisition reports, offering documents and previously released material forward-looking information.

Public Disclosure

In May 2008, staff of the Canadian securities regulators published guidance on the disclosure that a reporting issuer should provide regarding its changeover to IFRS. The guidance emphasizes that, given the potential effect on an issuer's reported financial position and results of operations and other aspects of its business, investors and other market participants will need timely and meaningful information leading up to the changeover.

In its management's discussion and analysis (MD&A), an issuer must discuss and analyze any changes in its accounting policies that it has adopted or expects to adopt after year-end, including changes due to a new accounting standard that the issuer does not have to adopt until a future date. Since changes to an issuer's accounting policies relating to the changeover to IFRS will be due to new accounting standards, an issuer must include relevant disclosure in its MD&A.

The guidance indicated that an issuer should begin providing general disclosure about its changeover to IFRS in its MD&A for the interim periods of the financial year beginning three years before its changeover date and provide more detailed information as the changeover date approaches. For most issuers, this will mean including disclosure about the changeover to IFRS in interim MD&A during 2008.

An issuer's MD&A should discuss the status, key elements and timing of its changeover plan and, over time, address the impact of IFRS on

  • accounting policies, including policy and implementation decisions the issuer has made or will have to make;

  • information technology and data systems;

  • internal control over financial reporting;

  • disclosure controls and procedures, including investor relations and external communications plans;

  • financial reporting expertise, including training requirements;

  • business activities, such as foreign currency and hedging activities, as well as matters that may be affected by the changeover, such as debt covenants, capital requirements and compensation arrangements; and

  • key line items presented in the issuer's financial statements (including quantified information when available).

Issuers that wish to adopt IFRS before the mandatory changeover date will be required to provide disclosure on an accelerated timeline.


Many issuers have already begun or will shortly begin to develop their changeover plans. Although responsibility for executing the changeover will rest with management, the audit committee has an important oversight role and should receive regular updates from management on the status and effectiveness of the plan's implementation. The changeover could have many implications beyond financial reporting, including the following:

  • Financial covenants. An issuer should assess how the changeover to IFRS will affect its financial covenants. For example, differences in reported results of operations and financial position arising from the changeover, particularly if they are material, could negatively affect the issuer's financial ratios and even trigger a default. Alternatively, an issuer may find that the changeover will improve its ratios, which may make the prospect of early adoption more attractive. If an issuer's compliance with its covenants is likely to be materially affected by the changeover, consultation with lenders may be appropriate.

  • Reporting obligations. An issuer should assess its financial reporting obligations under contractual arrangements. For example, under a loan agreement with a "frozen GAAP" provision, an issuer would be required, absent a waiver, to maintain records in both Canadian GAAP and IFRS (a frozen GAAP provision is one under which the borrower undertakes to ensure that either all financial statements provided to the lenders apply the same GAAP as were used in the financial statements delivered when the loan agreement was entered into or, if a change in GAAP occurs, to provide the lenders with a reconciliation to the original GAAP).

  • Effect on reported financial results. The adoption of IFRS is expected to lead to increased volatility in reported financial results because more categories of financial instruments (assets and liabilities) will be subject to fair value accounting. An issuer should assess the appropriateness of its existing guidance and other forward-looking disclosures in light of expected changes to results of operations and financial position. Dividend policies that are calculated on the basis of results of operations or financial position should also be reviewed.

  • Compensation metrics. To the extent that adopting IFRS causes changes in earnings and financial position, the performance metrics that an issuer uses to compensate executives and other employees may no longer be appropriate.

  • Controls and certification requirements. Management should consider the impact of the changeover to IFRS on internal control over financial reporting and disclosure controls and procedures, the changes that may be necessary to address new and additional disclosures required under IFRS, and how to maintain adequate controls and the integrity of information disclosed to investors through the transition period. An issuer's control systems may also be affected by the decision of the Auditing and Assurance Standards Board to adopt International Standards on Auditing, which are issued by the International Auditing and Assurance Standards Board. It is currently expected that ISAs will come into effect in Canada for audits of historical financial information for periods beginning on or after December 15, 2009.

  • Financial literacy. Audit committee and other board members will need to be able to read and understand a set of financial statements prepared under IFRS. Audit committee members in particular need to be sufficiently knowledgeable about IFRS so that they can evaluate management's assessments and selection of accounting policies, including the sensitivity analysis that led to management's decisions.

  • Corporate and securities laws. The financial reporting requirements of the Canada Business Corporations Act (CBCA) and Ontario's Business Corporations Act (OBCA) were amended in 2005 to allow for the use of U.S. GAAP by public companies with U.S. reporting obligations as permitted by securities laws. Since the Handbook of the Canadian Institute of Chartered Accountants will contain the full body of IFRS in effect from time to time, both statutes will permit reporting in IFRS when it replaces Canadian GAAP on January 1, 2011. However, companies incorporated under the CBCA will not be able to adopt IFRS earlier without an amendment to the Handbook or an amendment to, or exemptive relief from, the CBCA regulations. Public companies incorporated under the OBCA that adopt IFRS before the mandatory changeover date under an exemption from the securities regulators will comply with the OBCA requirements. Issuers that are subject to laws or professional standards of other jurisdictions, or that have financial reporting obligations under their constating documents (e.g., income funds), should determine whether the changeover to IFRS raises any issues.

  • Canadian securities regulators are in the process of developing necessary changes to securities law rules, policies and guidance that currently require that Canadian issuers use either Canadian GAAP or, in the case of registrants with the SEC, U.S. GAAP.

The changeover to IFRS will present many challenges. Issuers should assess the impact of this change on their organization and external stakeholders, and develop a comprehensive changeover plan with input from their audit committee, auditors and legal advisers. Careful planning will help to avoid negative surprises and ensure a smooth transition.

Further information can be found at the following websites:

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions