The Ontario Securities Commission (OSC) has
published 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 International
Financial Reporting Standards (IFRS) transition
disclosure that issuers have provided in their 2008 annual and 2009
interim management's discussion and analysis
(MD&A). The OSC stated that "[its]
findings suggest that reporting 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
The OSC review revealed that 40% of the issuers that were
reviewed did not provide any IFRS transition disclosure in either
their 2008 annual or 2009 interim MD&A. Of the remaining 60% of
the issuers that discussed an IFRS changeover plan, the OSC
reported that only half of such issuers provided any disclosure
beyond a generic or boilerplate reference to the
transition.1 Further, only half of the issuers that
discussed IFRS transition in their 2008 annual MD&A provided
investors with quarterly progress updates in their 2009 interim
MD&A documents. The OSC emphasized that, in its view, the fact
that an issuer does not provide updated information on the status
of its IFRS changeover plan in its interim MD&A, suggests that
the issuer has not made any progress in relation to its changeover
Guidance on IFRS transition disclosure was previously provided
to issuers on May 9, 2008, in CSA Staff Notice 52-320
Disclosure of Expected Changes in Accounting Policies Relating
to Changeover to International Financial Reporting Standards
(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 progress of transition plans, issuers
were expected to have provided updates in their 2009 interim
MD&A against previously disclosed timelines.
The OSC expects that, in their 2009 annual MD&A, issuers
will provide progress updates on their IFRS transition plans, along
with a description of major identified accounting differences
between the issuer's current accounting policies and those the
issuer expects to apply when preparing its IFRS financial
statements. In 2010, the OSC expects issuers to provide significant
details of their changeover plans and information about key
decisions on policy choices under IFRS 1 First-time Adoption of
International Financial Reporting Standards.
As a general rule, and as set out in SN 52-320, the OSC views
IFRS conversion as something far broader than an accounting
exercise. SN 52-320 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
Increased OSC Scrutiny Going Forward
In reporting the results of its review, the OSC emphasized that
disclosure of an issuer's preparation for the IFRS changeover
is important in order to enable investors to evaluate (i) the
readiness of an issuer's transition plan, and (ii) the impact
of IFRS on its business activities and financial reporting. As the
OSC's focus in the review was raising issuer awareness and
prospective improvement, it did not require any issuers to re-file
their MD&A to improve historical IFRS transition disclosure.
Going forward, however, the OSC noted that it will conduct reviews
of selected 2009 and 2010 annual and interim MD&A filings and
will also follow up on the commitments made by issuers during such
review to improve future MD&A disclosure. The OSC advised
issuers to anticipate staff requests for re-filings of MD&A in
the future if an issuer has not met its disclosure obligations. As
well, the OSC warned, staff may consider other regulatory action as
1. The OSC provided an example of such insufficient
boilerplate disclosure: "Accounting standards in Canada are to
converge with International Financial Reporting Standards (IFRS).
The Company is required to begin reporting under IFRS by the first
quarter of 2011 with comparative data also reported under IFRS. The
Company is assessing the impact on accounting policies, data
systems, internal controls over financial reporting, and business
activities, such as financing and compensation arrangements during
the period leading up to the transition date."
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