The Canadian Securities Administrators recently released for comment proposals that confirm the earlier public statements of the CSA that all Canadian registrants and investment funds will be required to follow IFRS starting on January 1, 20111. The proposals are set out in
- Proposed National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards and Companion Policy 52-107CP Acceptable Accounting Principles and Auditing Standards (proposed NI 52-107). Proposed NI 52-107 will apply to public issuers, other than investment funds, and registrants in Canada. Comments on proposed NI 52-107 must be provided by December 24, 2009. It is available [here].
- Proposed amendments to National Instrument 31-103 Registration Requirements and Exemptions (proposed NI 31-103 amendments). The proposed NI 31-103 amendments primarily provide for additional transition for registrants in filing financial statements that must be prepared in accordance with IFRS, as well as change the language used in NI 31-103 to be consistent with IFRS terminology. Comments on the proposed NI 31-103 amendments must be provided by January 21, 2010. It is available [here].
- Proposed amendments to National Instrument 81-106 Investment Fund Continuous Disclosure (proposed NI 81-106 amendments). The proposed NI 81-106 amendments apply to investment funds – mutual funds and nonredeemable investment funds and include public and privately offered funds. Comments on the proposed NI 81-106 amendments must be provided by January 14, 2010. It is available [here].
For financial years beginning on or after January 1, 2011, IFRS will be incorporated into the Handbook of the Canadian Institute of Chartered Accountants (the CICA Handbook) as Canadian Generally Accepted Accounting Principles for publicly accountable entities (Canadian GAAP).
Canadian registrants will be required to file their audited annual financial statements with the applicable CSA members in accordance with Canadian GAAP, but on a non-consolidated basis. Registrants will also have to disclose that the financial statements comply with IFRS except that they have been prepared on a non-consolidated basis. Due to non-consolidation, the auditor's report on a registrant's financial statements will contain a modification of opinion, which will be acceptable to the regulators.
As a transition exemption, annual and interim financial statements of a registrant for a financial year beginning in 2011 that comply with Canadian GAAP and IFRS may exclude comparative information for the preceding year or period. In addition, according to the proposed NI 31-103 amendments, registrants will have a 15-day extension to the deadline for filing the first interim financial information and completed Form 31-103F1 that are required to be filed in the first year of adopting IFRS for the first interim financial period beginning on or after January 1, 2011.
Financial statements of registrants that are not based in Canada may be prepared in accordance with
- U.S. Generally Accepted Accounting Principles (U.S. GAAP)
- Accounting principles that meet the disclosure requirements of the applicable foreign regulatory authority governing the registrant in its home country or
- Accounting principles that cover substantially the same core subject matter as Canadian GAAP.
However, U.S. GAAP financial statements , IFRS financial statements , and financial statements whose accounting principles cover substantially the same core subject matter as Canadian GAAP must be prepared on a non-consolidated basis.
Proposed NI 52-107 also details acceptable auditing standards for domestic and foreign registrants.
The proposed NI 81-106 amendments are intended to require that all investment funds subject to National Instrument 81-106 prepare their financial statements as required by that instrument in accordance with Canadian GAAP for publicly accountable entities and report compliance with IFRS. Note that investment funds will be required to file a comparative statement of cash flows as required by IFRS, as well as an opening IFRS statement of financial position, for financial years beginning on or after January 1, 2011. No filing extensions for the first year are proposed for investment funds.
The CSA ask for feedback on two significant issues for investment funds that arise with the adoption of IFRS.
- Treatment of redeemable securities issued by investment funds as puttable instruments under IFRS.
- The application to investment funds of the "consolidation" standard required by IFRS. The CSA point out that this standard is under review in connection with investment funds by the International Accounting Standards Board and propose rules that accommodate consolidation if IFRS so requires it for investment funds. However, certain financial statements for investment funds, such as the statement of investment portfolio, will be required by the proposed NI 81-106 amendments to be prepared on a non-consolidated basis.
The rule proposals discussed in this Advisory were accompanied by amendments to other instruments, such as National Instrument 81-102, National Instrument 41-101 and National Instrument 81-101 – these latter amendments primarily ensure consistent use of IFRS terminology.
The CSA intend that all applicable instruments will come into effect on January 1, 2011.
1. Please see CSA Will Require All Registrants to use International Financial Reporting Standards Investment Management Advisory July 2009 Borden Ladner Gervais LLP [available here].
Barry Myers joined BLG in August 2008 after three decades of professional senior management experience with PricewaterhouseCoopers. Mr. Myers is a Chartered Accountant in both Canada and South Africa and was elected as a Fellow of the Institute of Chartered Financial Accountants of Ontario in 2000. Mr. Myers currently sits on an IFIC sub-committee looking at IFRS-related issues.
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