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.

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