In preparation for the changeover in 2011 to International Financial Reporting Standards (IFRS), Canadian securities regulators have proposed revisions to National Instrument 52-107, Acceptable Accounting Principles and Auditing Standards. The proposals, which affect public companies and dealer registrants, are meant to facilitate a smooth transition to IFRS under securities laws. They relate to substantive matters such as the requirement for consistency of accounting principles from period to period, reconciliation requirements and the treatment of acquisition statements, as well as to technical matters such as changes in terminology.
Overview of Proposed NI 52-107 After the Changeover
After the changeover, the Handbook of the Canadian Institute of Chartered Accountants will incorporate IFRS as "Canadian GAAP applicable to publicly accountable enterprises." Correspondingly, the proposed NI 52-107 will require reporting issuers to
- prepare their financial statements in accordance with
"Canadian GAAP applicable to publicly accountable
- report their compliance with IFRS.1
Reporting issuers that are also registrants with the U.S. Securities and Exchange Commission (SEC) will continue to have the option of using U.S. GAAP, and foreign issuers will continue to have the option of using accounting principles currently available to them under NI 52-107, including IFRS, U.S. GAAP or home country GAAP in specified circumstances.2
Consistency of Accounting Principles
The proposed NI 52-107 will include a temporary exemption from the general requirement under securities laws that issuers prepare their financial statements using the same accounting principles for all periods presented.
Requirements for Acquisition Statements
NI 52-107 includes rules for financial statements of acquired businesses (or, in some cases, businesses that are proposed to be acquired) that must be filed in business acquisition reports, prospectuses, takeover bid circulars and other disclosure documents. These acquisition statements must be prepared using accounting principles applicable to public enterprises, even if the acquired company is a private company. In Ontario, it is proposed that NI 52-107 maintain this approach of requiring acquisition statements to be prepared in accordance with public company accounting principles. Outside Ontario, it is proposed that NI 52-107 permit acquisition statements to be prepared in accordance with Canadian GAAP applicable to private enterprises, subject to certain conditions. The regulators are seeking public comment on these divergent approaches and possible compromises such as requiring note reconciliation disclosure.3
Reconciliation from U.S. GAAP
Reporting issuers that are also SEC registrants are currently subject to certain reconciliation and restatement requirements when they switch from Canadian to U.S. GAAP. The proposed rules will eliminate these requirements, with the exception that if an issuer switches to U.S. GAAP in 2010, there will be a one-year reconciliation requirement (but no subsequent requirement to reconcile to IFRS).
Disclosure in Public Filings Leading up to the Changeover
In May 2008, the securities regulators published guidance on the disclosure that reporting issuers should be providing in their public filings in the periods leading up to the changeover to IFRS. The guidance discusses disclosure expectations during 2008, 2009 and 2010, given that the changeover will be a significant undertaking that may materially affect issuers' reported financial position and results of operations. The OSC staff is currently reviewing and commenting on IFRS-related disclosure in issuers' filings and has stated that it will be focusing on this area in 2010. For further information, please see the Canadian Securities Administrators' staff notice and Torys' bulletin discussing these disclosure requirements.
Comments on the proposals are due by December 24, 2009. For further details, please see Proposed National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards.
1.Dealer registrants will be subject to modified IFRS
requirements for the content and presentation
of their financial statements after the changeover. This bulletin focuses on the requirements
applicable to reporting issuers.
2.The proposed new rule eliminates the ability of foreign
issuers to use accounting principles
having "the same core subject matter" as Canadian GAAP.
3.Securities regulators outside Ontario believe that the time and cost to issuers of converting acquired business financial statements from GAAP for private enterprises to IFRS would exceed the benefit to investors, partly because pro forma financial statements, which present a combined presentation of the issuer and the acquired business, would still have to be prepared using principles consistent with the issuer's GAAP. The OSC, on the other hand, believes that GAAP for private enterprises is inappropriate for acquisition statements, partly because audited IFRS acquisition statements would be an important starting point for the development of pro forma statements.
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.