Adopting International Financial Reporting Standards in Canada The views expressed in this presentation are those of the p...
Agenda <ul><li>The AcSB’s strategic plan </li></ul><ul><li>Planning for IFRS </li></ul><ul><li>IFRS versus Canadian GAAP <...
AcSB Strategic Plan <ul><li>Fundamental changes in direction </li></ul><ul><ul><li>S trategy last formulated in 1996-1998 ...
AcSB Strategic Plan  <ul><li>Adopt IFRS as Canadian GAAP for publicly accountable enterprises following a transitional per...
Agenda <ul><li>The AcSB’s strategic plan </li></ul><ul><li>Planning for IFRS </li></ul><ul><li>IFRS versus Canadian GAAP <...
Planning for IFRS <ul><li>Who does the plan affect? </li></ul><ul><li>When does the plan take effect?  </li></ul><ul><li>T...
Who does the plan affect? <ul><li>Publicly Accountable Enterprises (PAE’s) </li></ul><ul><ul><li>Public companies and some...
When does the plan take effect? <ul><li>One time  AND  Phased-in approach </li></ul><ul><li>Joint convergence projects </l...
Transition Period <ul><li>Global Convergence projects – AcSB will adopt converged standards </li></ul><ul><ul><li>2006 – A...
Transition Period <ul><li>Canadian only projects – AcSB may adopt some IFRS early when it provides a better solution -  In...
Transition Period <ul><li>Canada and U.S. GAAP – changes by FASB only on standards with a high degree of similarity to Can...
Planning - Right now <ul><li>Start gaining IFRS knowledge now </li></ul><ul><ul><li>Attending presentations </li></ul></ul...
Planning <ul><li>Appendix B of the AcSB’s Implementation Plan can help </li></ul><ul><li>Five categories  </li></ul><ul><u...
Planning <ul><li>Train key personnel </li></ul><ul><li>Assess changes to data collection required and the impact on system...
Planning <ul><li>Prepare your enterprise’s implementation plan </li></ul><ul><ul><li>Appoint your implementation team </li...
Planning – Your Future <ul><li>Monitor IASB’s Documents Issued for Comment and respond directly to the IASB – these docume...
Convergence projects in process <ul><li>Fair value measurement </li></ul><ul><li>Financial statement presentation </li></u...
Convergence projects in process <ul><li>Revenue recognition </li></ul><ul><li>Financial instruments </li></ul><ul><li>Dere...
Participating in global convergence <ul><li>Comment on IASB proposals </li></ul><ul><li>Participate in international proje...
Agenda <ul><li>The AcSB’s strategic plan </li></ul><ul><li>Planning for IFRS </li></ul><ul><li>IFRS versus Canadian GAAP <...
Similarities to Canadian GAAP <ul><li>Structure and content of financial statements </li></ul><ul><li>Conceptual framework...
Differences to Canadian GAAP <ul><li>Differences on which a global or other project is currently converging the standard  ...
Differences to Canadian GAAP <ul><li>Differences – project in process </li></ul><ul><li>Impairment </li></ul><ul><ul><li>T...
Differences to Canadian GAAP <ul><li>Differences – project in process </li></ul><ul><li>Business combinations  </li></ul><...
Differences to Canadian GAAP <ul><li>Differences – project in process  </li></ul><ul><li>Employee future benefits </li></u...
Differences to Canadian GAAP <ul><li>Differences – project in process  </li></ul><ul><li>Segment reporting </li></ul><ul><...
Differences to Canadian GAAP <ul><li>Differences – no convergence project </li></ul><ul><li>For example: </li></ul><ul><li...
First-time Adoption <ul><li>Exceptions on applying new basis of accounting </li></ul><ul><li>Prohibits retrospective appli...
Further information www.acsbcanada.org [email_address] [email_address]
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Adopting International Financial Reporting Standards in Canada

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  • Adopting International Financial Reporting Standards in Canada SLIDE 1 (title slide) This presentation provides an overview of some of the considerations to take into account as a result of the Accounting Standards Board’s Strategic Plan to adopt International Financial Reporting Standards for financial reporting by publicly accountable enterprises in Canada. This presentation does not cover all the details found in the Accounting Standards Board’s Strategic Plan or its “Implementation Plan for Incorporating International Financial Reporting Standards into Canadian GAAP”. In addition to the information in this presentation, you may find it useful to read other materials posted on the Accounting Standards Board’s web site in the section on international activities. The web site address is www.acsbcanada.org This presentation was recorded in February 2007. Please consult the Accounting Standards Board’s web site for the most recent developments. NEXT SLIDE: Agenda
  • Agenda SLIDE 2 First I am going to provide an overview of the Board’s strategic plan itself. Then, I will discuss what can be expected during the transitional period and how to plan for it. Ian Hague will then speak about some aspects of the International Accounting Standards Board’s work programme that might well result in new standards by the time Canadian GAAP adopts International Financial Reporting Standards as well as current similarities and differences between IFRS and Canadian GAAP. NEXT SLIDE: AcSB Strategic Plan
  • AcSB Strategic Plan SLIDE 3 The last time the AcSB’s strategic plan was reviewed was from 1996 to 1998. There have been a lot of changes in the world since then - most markedly the global nature of our world . The Enron and Worldcom situations brought into question whether the so-called, rules-based direction being taken in US standard-setting was the right answer. When Canadian constituents were surveyed during the development of the strategic plan they commented on the cost and effort in using U.S. GAAP . Since the last review of the AcSB’s strategic plan, the IASB has gained support internationally . There have been significant enhancements to International Financial Reporting Standards since 2001, which is when the IASB was formed from its predecessor the International Accounting Standards Committee. When the IASB was formed, their first project was to review 14 of the standards passed on to them from their predecessor. To improve the quality of the standards they upgraded the clarity and removed options. The IASB has continued its work in building a reputation for creating globally-accepted high quality standards. IFRSs are now the basis of accounting in over 99 countries worldwide. The growing numbers of countries adopting IFRSs are a tribute to the IASB’s success in building that reputation. Because of these factors, and others, the AcSB has approved a strategy that will replace existing Canadian standards for publicly accountable enterprises with IFRS – requiring adoption after a transitional period. There are still projects ongoing to determine what GAAP NON publicly accountable enterprises (private companies) and Not for Profit Organizations will follow. Yes, FASB is a major standard setter and for Canadian companies the U.S. is our biggest trading partner so many wonder what will happen to that relationship when Canadian GAAP converges with IFRSs. The good news is that the FASB and the IASB are working together to develop a single set of high quality, common accounting standards. Reflecting the support for their commitment to this objective they signed a Memorandum of Understanding in February 2006 in which they agreed to work together to eliminate differences between IFRSs and US GAAP, guided by a ‘road-map’ developed in conjunction with the US Securities and Exchange Commission (SEC) and the Committee of European Securities Regulators (CESR). In addition, the SEC and CESR plan to work together to share information to highlight areas where there appear to be problems in the application of IFRSs and US GAAP. NEXT SLIDE: AcSB Strategic Plan
  • AcSB Strategic Plan SLIDE 4 Adoption of IFRSs will provide easier access to global capital markets – Currently there is an effort to have the reconciliation requirements for filing with the SEC removed for IFRS compliant financial statements by 2009. The AcSB has indicated that its intent is to adopt IFRSs without modification. The only exceptions would be: where IFRSs defer to the practice followed under prior national GAAP, which is presently the case for certain standards for the insurance and extractive industries, and to add certain requirements addressing the applications for not-for-profit organizations AND in rare circumstances where additional temporary interpretations might be needed to deal with issues arising in Canada that cannot be expeditiously dealt with by the IASB’s interpretations committee. This convergence with IFRSs in Canada isn’t happening overnight (although it might feel that way when we get to it in four years)….. The AcSB realized the need to have a transitional period to allow practitioners, academics, enterprises themselves and any other users of the financial statements time to learn IFRSs and start their own implementation. Separate research on users’ needs for private companies is still in process on whether one size fits all. The AcSB hopes to issue an Invitation to Comment on this topic at the end of March 2007. Depending on the results of the research, private companies may or may not have to prepare financial statements under IFRSs. In any case, Non- Publicly Accountable Enterprises are not precluded from using IFRSs. Not for Profit Organizations will continue to apply those elements of GAAP for profit oriented enterprises that are applicable to their circumstances. NEXT SLIDE: Agenda
  • Agenda SLIDE 5 Now, I’d like to address some of the things that you might need to consider in planning for the changeover to IFRS. NEXT SLIDE: Planning for IFRS
  • Planning for IFRS SLIDE 6 In that regard, I’d like to discuss four main areas: Who does the plan affect? How do we get from where we are today to the adoption of IFRS? What will happen during the transition period? and What things you should be doing to prepare yourself. NEXT SLIDE: Who?
  • Who does the plan affect? SLIDE 7 So, who is affected by this strategy - It is publicly accountable enterprises who will have to prepare their financial statements in accordance with IFRS. That includes all public companies and some other classes of enterprises with relatively large or diverse groups of financial statement users. The AcSB presently plans to base its definition of a publicly accountable enterprise on the definition being developed by the International Accounting Standards Board in its project on Small- and Medium-sized Entities. The IASB’s definition states: A “publicly accountable enterprise” is an entity that: files, or is in the process of filing, its financial statements with a securities commission or other regulatory organization for the purpose of issuing any class of instruments in a public market; or holds assets in a fiduciary capacity for a broad group of outsiders, such as a bank, insurance entity, securities broker/dealer, pension fund, mutual fund or investment banking entity. This definition leaves in question the status of co-operative enterprises and pension plans . The AcSB will be considering how these might be treated during 2007. If you have concerns with the proposed definition, we encourage you to advise both the AcSB and the IASB. As previously noted, non-publicly accountable enterprises might also choose to adopt IFRSs. A separate strategy is being developed for not-for-profit organizations. NEXT SLIDE: How do we get there?
  • When does the plan take effect? SLIDE 8 How do we get to IFRS adoption from where we are today? – Is it a “phased-in” approach or is it, as some call it, a “big bang” or “one-time” approach? It isn’t really either - Partially because of the agreements between the FASB and the IASB to work together to eliminate differences between US GAAP and IFRSs. Because of these agreements the FASB and the IASB have a list of projects they are working on jointly. In order not to fall behind globally accepted standards, the AcSB is planning to adopt the standards or any portions thereof whenever a converged solution is reached in a joint project. This means there will be ongoing changes between now and the “CHANGE-OVER” date. By the “ change-over date”, we are referring to the beginning of the period in which enterprises will be required to prepare their first financial statements under the new Canadian GAAP as converged with IFRS. Closer to the change-over date it is envisioned that there will be an omnibus exposure draft of all of the existing, approved IFRSs that have not already been converged (through joint projects or other activities) with Canadian GAAP. Constituent’s comments will be limited to whether there are any UNIQUE Canadian circumstances that would benefit from additional guidance. This reflects the idea of the “ONE-TIME” approach. So you can see it is both a phased-in AND a one-time approach. The AcSB will follow a policy of not imposing a change to standards that would require extensive system changes or information gathering that would then become redundant at the changeover date. Timing – The AcSB concluded that approximately a five-year transition period, commencing when the AcSB approved its plan at the end of March 2006, is needed to allow affected parties enough time to learn IFRSs and understand how they apply to their particular situation. This may seem daunting but keep in mind that the EU and Australia have made the transition in a much shorter time period. Australia announced its strategic plan in July 2002 and adopted IFRS January 1, 2005. Only 2 and a 1/2 years!  Progress review During the transition period the AcSB will assess the progress that constituents are making in preparing for the changeover to IFRSs. It is anticipated that this progress review will be completed by March 31, 2008, at which time the AcSB will set the specific time of the changeover. The progress review is not meant to develop or significantly improve the strategic plan but ONLY to consider any new information or new issues that would affect the plan and which were not available at the time of the initial evaluation. NEXT SLIDE: Transition Period
  • Transition Period SLIDE 9 What will happen to the standards during the transition? GLOBAL CONVERGENCE I have mentioned the joint projects between the IASB and the FASB and that the AcSB intends to adopt converged solutions reached, so this slide lists those global convergence projects expected to result in the issue of standards in Canada in 2006-2008. Accounting Changes – This revised standard is complete and in your Handbooks. The AcSB adopted the converged portions resulting from a joint IASB/FASB project in July 2006. The new Canadian section is formatted so you can cross-reference to the comparable IFRS (IAS 8). Paragraph numbers in the new Canadian standard correspond with those in IAS 8. Business Combinations – Again, this is a joint IASB/FASB project. The AcSB has followed the joint projects’ lead and issued an exposure draft along with the IASB and FASB. This project is in re-deliberations currently at IASB and FASB and a standard is expected to be issued in mid-2007. Earnings per Share – This project is expected to result in a converged exposure draft from the IASB and FASB in early 2007, with a standard issued later in the year. Income Taxes – Will converge existing US and IASB standards on this subject and the AcSB expects to issue an exposure draft at the same time as the IASB and FASB later in 2007, with a standard in 2008. Joint Ventures – Involves change mainly by the IASB. They propose to eliminate the choice of using proportionate consolidation for a joint venture and to require the equity method of accounting. The AcSB plans a similar proposal – a change to Canadian GAAP, which presently requires proportionate consolidation. NEXT SLIDE: Transition Period
  • Transition Period SLIDE 10 CANADIAN ONLY PROJECTS Sometimes when the AcSB feels that IFRSs provide a better solution to a problem then current Canadian GAAP there may be a Canadian only project to adopt a particular IFRS. An example of that is the AcSB’s project on Inventories, planned to be completed during 2007. When there is an IASB only project the AcSB may adopt the IASB standard when it is issued, if no conflict with US GAAP is created. An example of that is the new Financial Instruments-Disclosures standard issued in late 2006. NEXT SLIDE: Transition Period
  • Transition Period SLIDE 11 CANADIAN and U.S.GAAP When there are changes by FASB only, on standards for which the Canadian standard has a high degree of similarity, for example Variable Interest Entities and Qualifying Special Purpose Entities, the AcSB is going to have to consider each one of those cases individually and weigh the enhancement to financial reporting versus the life span of the standard (for example, considering what is likely to happen to the standard at change-over) to assess whether to make changes during the transition period to maintain harmonization with US GAAP. NEXT SLIDE: Planning – Right Now
  • Planning – Right Now SLIDE 12 How can you prepare for the convergence with IFRS? You have started gaining knowledge today by watching this web-based presentation, but you need to keep up the momentum. By 2008 you have to know IFRSs well enough to have started an assessment of your own enterprise’s systems and possibly to meet requirements to disclose the impact of IFRS adoption. There are a number of FREE internet-based learning tools available, offered by the larger accounting firms that include illustrative financial statements, newsletters and webcasts about the IFRS adoption experiences elsewhere in the world and about the individual IFRSs themselves. There are two comparisons on the AcSB website, one is at a very high level, noting the most significant differences between Canadian GAAP and IFRSs. The other, is a detailed comparison that is compiled in the order of the IFRS numbering but still compares the two, including both similarities and differences. NIETHER of these DOCUMENTS is a complete guide They are only a reference to get you started in figuring out which standards you need to drill into in the actual IFRS standards. With the IFRS standards DO NOT overlook the Basis for Conclusions sections that provide valuable insight into the actual standard. The complete set of IFRSs is available from the IASB or in electronic form on Knotia – the CICA’s electronic subscription service. ANOTHER PLANNING TOOL AVAILABLE on the AcSB ‘International Activities’ web page is the “ Implementation Plan for Incorporating IFRSs into Canadian GAAP”. This document is to assist those affected by the AcSB’s strategic plan. One of the common pieces of advice received from countries who have adopted IFRSs already is to plan early and don’t underestimate how much time it will take. So please READ the Implementation plan as soon as possible. The Plan addresses issues of: WHO is affected. WHEN does the plan take effect. This segment of the plan includes an estimated timeline for the various stages for affected enterprises. For example, the timeline emphasizes the dates at which an enterprise has to start collecting data under IFRS requirements so that the information will be available to be included in the comparatives once the enterprise prepares its first financial statements under the new Canadian GAAP as converged with IFRSs. The plan also addresses HOW the standards will be brought into Canadian GAAP, including some things I have already spoken about, such as the omnibus exposure of existing IFRSs. NEXT SLIDE: Planning
  • Planning SLIDE 13 Appendix B to the plan allocates Canadian standards to categories according to when the AcSB anticipates the standard will be converged with IFRSs. For example, the first category groups all those standards that the AcSB expects to be converged with IFRSs before the transition and the second category reflects those standards on which the AcSB expects an IASB project to still be in process at the time of Canada’s convergence with IFRSs. There are five categories in total. The categories will help Canadian constituents exercise judgment on which IFRSs to study first. In many cases there will be no need to spend time and effort studying the current standard when a joint project is underway and a revised standard is anticipated well before Canada’s transition to IFRSs (for example, the joint project to amend the standard on Business Combinations). The categorization table in Appendix B contains comments regarding the significant differences from IFRSs and on what the work in process is and how it will affect the Canadian situation. All of this information should help you in developing an implementation plan for your enterprise. There is contact information in the plan and we would like to hear from you. Any comments and suggestions as to how you think we could make this a more useful document are welcomed. NEXT SLIDE: Planning
  • Planning SLIDE 14 So use these resources and the implementation plan to prepare your own plan now ! Implementation will be more then a technical exercise, more than just accounting – it can be an opportunity as well as a challenge. It is an opportunity to reassess the systems and accounting policies that are in place and determine whether they really are giving management the information they need. As you get to know the individual IFRS standards you will become more aware of some of the possible benefits for your organization. For example, for some enterprises there is an opportunity with the options under IFRSs to revalue property plant &amp; equipment and investment property (Investment property under IFRSs is land &amp;/or buildings held to earn rentals or for capital appreciation), or the opportunity under IFRSs to reverse impairment if fair value has reversed. The challenges (being accountants you have probably already created that list) are that system changes will have to be made and acquiring a thorough knowledge of IFRSs to adequately assess their impact will take time !!!!! The first step is to train your key staff. An enterprise HAS to start early enough to be able to assess the effect of IFRSs on its accounting policies and the need to develop systems to gather necessary data. Those systems will be far more effective if the data collection is embedded in accounting systems, rather than by being done through spreadsheets and calculations outside your accounting systems. You should also consider the impact that the change will have on the values that your existing investors and lenders rely on - the effect on covenants and other agreements with calculations tied to GAAP financial reporting. AND DON’T forget profit sharing employees - they WILL care about how bonus calculations are going to be affected! All of these groups have to be educated on the anticipated changes that will happen to your enterprises’ financial statements. If all the stakeholders understand prior to the change-over, the enterprise will reduce the likelihood of being penalized when there is a change. We heard of an example of an Irish enterprise that had made the changeover to IFRSs but had not spent any effort in educating it’s users and they experienced a loss of five percent of their share value on conversion. Much can be learned from the experiences of adopting IFRSs in other jurisdictions. However, care needs to be taken as the experience in much of Europe, and elsewhere, was quite different than Canada’s will be. This is, in part, because of the joint projects between the FASB and the IASB that the AcSB will be adopting throughout the next four years. The recent changes to Section 1506, Accounting Changes, that converged with large portions of IAS 8, and the introduction of Section 3862, Financial Instruments—Disclosures, that converged with IFRS 7, will be part of the education system in Canada from now on. In addition, Canadian enterprises have a different starting point from that of many international companies because many IFRSs are more similar to Canadian GAAP than they were to less developed bodies of standards in other countries. Often, constituents will find their understanding of current standards will help them in learning IFRSs. NEXT SLIDE: Planning
  • Planning SLIDE 15 So; Appoint your implementation team! Involve your Board of Directors! Talk to your Audit Committee! Do an assessment of the effect IFRSs will have on your company’ numbers and determine how the change in data is going to be collected by your systems as soon as possible! The time spent now will reap benefits in the future! NEXT SLIDE: Planning
  • Planning SLIDE 16 Another aspect of planning for IFRSs is to consider how you can contribute to your own future. IFRSs under development will soon become Canadian GAAP. So, monitor the IASB’s current documents that are Open for Comment and RESPOND to them when you think there is going to be a problem. Well presented and supported arguments will have the most influence. Those documents are your future!!! The next couple of slides identify those major convergence projects that are in process that are likely to result in new IFRSs – and hence, new Canadian GAAP – on or after the date of changeover to IFRSs. Hence these are projects that you should pay attention to. I will turn you over to Ian to outline these and to discuss other aspects of the similarities and differences between IFRSs and Canadian GAAP. NEXT SLIDE: Convergence projects in process
  • Convergence projects in process SLIDE 17 The IASB has a number of active projects that it is undertaking jointly with the FASB in the US to develop global standards. these will become Canadian standards too once adopted as part of IFRS. While most of these standards will not be complete until, on or around the date of Canadian changeover to IFRSs, they are under development now and hence now is the time to influence the outcome of these projects. The first of these is a project to establish a consistent definition and method for determining fair values whenever a standard requires fair value. This project does not propose to change the circumstances in which fair value is required, merely to establish a consistent means of determining fair value. In late 2006, the IASB issued a Discussion Paper based on the FASB’s recently completed Statement 157 on this subject and will be moving to an exposure draft on this subject in 2008. The IASB and FASB are jointly considering the format and content of financial statements. Their financial statement presentation project is looking at the manner in which the balance sheet, income statement and statement of cash flows are presented and includes proposals for significant restructuring of these statements which are expected to be issued in a Discussion Paper in 2007. The FASB is leading work on the distinction between liabilities and equity . A joint Discussion Paper on this topic is expected in mid 2007. Both the IASB and FASB have recently added a project to their agendas to fundamentally rethink lease accounting . This project, while unlikely to be complete until near, or after, the Canadian changeover date, is likely to propose a new approach to lease accounting that does away with the current, unsatisfactory distinction between capital and operating leases. NEXT SLIDE: Convergence projects in process
  • Convergence projects in process SLIDE 18 Revenue recognition is also an area of fundamental reconsideration jointly by the IASB and FASB. IFRSs presently contain limited information about revenue recognition, while US GAAP contains extensive, often contradictory, guidance. A fresh approach is being explored. Neither the IASB nor the FASB is happy with its current standards for accounting for financial instruments . The IASB and FASB also have incompatible models for derecognition of financial assets. Both of these topics are the subject of joint new thinking, on which a Discussion Paper is expected by the end of 2008. Finally, the two Boards are also likely to rethink the accounting for intangible assets . NEXT SLIDE: Participating in global convergence
  • Participating in global convergence SLIDE 19 We encourage you to keep an eye on these projects and comment as you see fit in the same way that you used to comment to the AcSB. The AcSB will also be actively monitoring and participating in IASB projects. The AcSB cannot hope to actively keep pace with all topics. But, it has prioritized topics on the international agenda and selected several key topics which require its active attention. The AcSB and its staff routinely monitor and comment on all IASB proposals. In some cases, the AcSB or its staff are also more directly involved, in particular through providing staff resources to the joint IASB/FASB project to improve and converge their existing conceptual frameworks for financial reporting, participating on IFRS Advisory Groups such as those on Small- and Medium-sized Entities and on Lease Accounting, and undertaking grassroots research on behalf of the IASB on topics such as Measurement on Initial Recognition, Disclosures and Extractive Activities. You might even consider becoming more actively involved in these projects yourself! NEXT SLIDE: Agenda
  • Agenda SLIDE 20 We have focused, so far, on what needs to be done to adopt IFRSs and how to participate in IASB processes. I’d like to conclude with a few comments about similarities and differences between IFRSs and Canadian GAAP. NEXT SLIDE: Similarities to Canadian GAAP
  • Similarities to Canadian GAAP SLIDE 21 In many ways IFRSs will seem familiar to Canadian accountants. The basic structure and content of financial statements is the same, the standards are based on a conceptual framework very similar to that on which Canadian standards are based and many of the individual standards will produce accounting quite similar to that in accordance with Canadian GAAP. Perhaps the most pervasive difference is the greater ability to choose to revalue certain assets and liabilities, such as certain capital assets and intangible assets, investment properties and biological assets, in accordance with IFRSs, when that choice is not available in accordance with Canadian GAAP. NEXT SLIDE: Differences to Canadian GAAP
  • Differences to Canadian GAAP SLIDE 22 We have categorized the major differences between IFRSs and Canadian GAAP into two groups: The first group is differences on which a global or other project is currently converging the standard – and hence might well be eliminated before changeover to IFRSs. On these topics there might be little point in becoming familiar with the existing IFRS standard. The second group includes differences on which no project is anticipated prior to changeover and hence the existing IFRS is likely to remain in place at changeover – resulting in a change to Canadian accounting. NEXT SLIDE: Differences to Canadian GAAP
  • Differences to Canadian GAAP SLIDE 23 Perhaps the most significant difference between IFRSs and Canadian GAAP is that relating to impairment . Canadian GAAP is harmonized with that in the US on this topic and requires that impairment testing be undertaken when indicators of impairment exist based on an evaluation of undiscounted cash flows and that impairment write-downs of assets be recognized when there is ‘other than temporary’ impairment. In contrast, IFRSs assess the need for impairment write-downs based on discounted cash flows and do not include consideration of ‘other than temporary’ impairment. The result is more frequent impairment losses under IFRSs – but, this is compensated for by a requirement to reverse those losses if the circumstances leading to the write down are reversed – something that is not permitted in North American standards. The two models are incompatible with one another and could have a pervasive effect on financial reporting. The IASB and FASB have identified this project as one for convergence, but little work has commenced to date. The AcSB is encouraging progress and has volunteered to assist, but there presently remains some risk that this difference will continue to exist at changeover to IFRSs. NEXT SLIDE: Differences to Canadian GAAP
  • Differences to Canadian GAAP SLIDE 24 New business combinations standards are expected to be in place later in 2007 (probably effective in 2009). This is an area of accounting that should, therefore, be converged between IFRSs, Canada and the US well before changeover and is one on which it is probably not worth spending time becoming familiar with existing IFRSs. The IASB is taking the lead on a joint project with the FASB to reconsider consolidations . This includes developing a principles-based standard that would not only deal with parent and subsidiary relationships, but also hopes to establish principles that would replace those presently in Canadian and US GAAP for variable interest entities (for which there are no equivalent requirements in IFRSs). This project is expected to result in a Discussion Paper in 2007, followed by an Exposure Draft in 2008 and holds prospects of being complete before changeover of Canadian GAAP to IFRSs. NEXT SLIDE: Differences to Canadian GAAP
  • Differences to Canadian GAAP SLIDE 25 Both the IASB and FASB are working on projects dealing with employee future benefits – at different speeds! The basic underlying standards are not fundamentally different – however, there are differences in the details. Present AcSB changes in process to reflect pension assets and obligations on the sponsor’s balance sheet are directionally consistent with IFRSs. However, the IASB and FASB are undertaking a more fundamental review of employee benefit accounting, which will probably result in elimination of the existing ‘smoothing’ mechanisms that affect when changes in employee benefit obligations are recognized in net income. It is unclear at the present time whether this work will be complete before changeover to IFRSs. The IASB and FASB are presently converging their standards on Income Taxes . The changes being made are not expected to affect the basic tax accounting model, but rather are expected to deal with its application to certain situations - including uncertain tax positions. The AcSB plans to proceed with an exposure draft to adopt the proposed IASB changes at the same time as the IASB and FASB – expected in 2007. Hence, we expect that accounting for income taxes will be converged between the IASB and FASB well before the Canadian changeover. Earnings per share is a topic on which there are some relatively minor calculation differences, which are being addressed by the IASB and FASB and on which the AcSB expects to adopt a converged standard in 2008 (or possibly late 2007). NEXT SLIDE: Differences to Canadian GAAP
  • Differences to Canadian GAAP SLIDE 26 The IASB has recently amended its standards on segment reporting to bring them in line with those in Canada and the US. Accordingly, differences on this topic have recently been eliminated. The Canadian standard on Inventories is one of the oldest in the Handbook. The AcSB is already well advanced on a project to adopt the IASB’s standards on this subject – standards that are expected to be effective well before the Canadian changeover and, thus, will be converged before that time. The IASB is undertaking a major project on accounting for insurance contracts . This is an area where IFRSs are presently less well-developed than Canadian standards. A Discussion Paper in 2007 is expected to lead to standards on or around the Canadian changeover date. However, it is unlikely that those standards will be the same as those presently applied in Canada. Thus, change can be expected on this topic. While not of prime interest to publicly accountable enterprises, it is also notable that the IASB presently has a major project underway to develop standards for small- and medium-sized entities . These standards are being reviewed in conjunction with the AcSB’s strategy for such entities. NEXT SLIDE: Differences to Canadian GAAP
  • Differences to Canadian GAAP SLIDE 27 The previous slides have focused only on major differences between IFRSs and Canadian GAAP. There are numerous other differences in the details, many of which are unlikely to be eliminated by the date of the Canadian adoption of IFRSs. These include fundamentally different models for accounting for transfers of receivables and securitization transactions , different recognition and measurement requirements for non-financial liabilities , including provisions for legal claims, asset retirement obligations and the like, and a more rigid approach to classifying debt with covenant breaches as current liabilities in accordance with IFRSs. Many of these detailed differences are laid out in the IFRS/Canada GAAP comparison available from the AcSB web site. I encourage you to refer to that to identify those differences that are most likely to affect your organization and are likely to remain at changeover to IFRSs. NEXT SLIDE: First-time Adoption
  • First-time Adoption SLIDE 28 One final topic worthy of mention is the existence of IFRS 1, dealing with First-time adoption of IFRSs. This provides certain accommodations on adopting IFRSs for the first time – but can only be applied once – the first time that an entity fully adopts IFRSs. In summary terms, it provides some alleviation from retrospective application of IFRSs that would be particularly onerous to apply and prohibits retrospective application of standards when that application would involve judgment with the benefit of hindsight – for instance in retroactively determining fair value measurements. It also requires certain disclosures on transition. This standard does provide some one-time opportunities to reconsider certain accounting aspects, including the ability to revalue certain assets. You should consider reviewing this standard to understand how it will apply on IFRS adoption and consider how you might plan to use it at the changeover to IFRSs. NEXT SLIDE: Further information
  • Further Information SLIDE 29 Further information about the adoption of IFRSs is available from the AcSB web site by referring to the “international activities” pages. You are also welcome to contact Karen or I at the e-mail addresses provided on the slide. Thank you for taking the time to view this presentation. I hope that it is helpful to you in understanding the Board’s strategy for adopting IFRSs and will help you in your planning for this challenging move to the new world of global accounting standards. END
  • Adopting International Financial Reporting Standards in Canada

    1. 1. Adopting International Financial Reporting Standards in Canada The views expressed in this presentation are those of the presenters, and not necessarily those of the AcSB or other staff
    2. 2. Agenda <ul><li>The AcSB’s strategic plan </li></ul><ul><li>Planning for IFRS </li></ul><ul><li>IFRS versus Canadian GAAP </li></ul>
    3. 3. AcSB Strategic Plan <ul><li>Fundamental changes in direction </li></ul><ul><ul><li>S trategy last formulated in 1996-1998 -changing needs in changing times </li></ul></ul><ul><ul><li>Motivated by changes in the financial reporting environment </li></ul></ul><ul><ul><ul><li>Effects of Enron et al </li></ul></ul></ul><ul><ul><ul><li>Experiences with US GAAP in Canada </li></ul></ul></ul><ul><ul><ul><li>IASB and acceptance of IFRSs globally </li></ul></ul></ul><ul><ul><ul><li>IASB and FASB working closely together – road-map </li></ul></ul></ul>
    4. 4. AcSB Strategic Plan <ul><li>Adopt IFRS as Canadian GAAP for publicly accountable enterprises following a transitional period </li></ul><ul><li>Private companies and Not for Profit Organizations </li></ul>
    5. 5. Agenda <ul><li>The AcSB’s strategic plan </li></ul><ul><li>Planning for IFRS </li></ul><ul><li>IFRS versus Canadian GAAP </li></ul>
    6. 6. Planning for IFRS <ul><li>Who does the plan affect? </li></ul><ul><li>When does the plan take effect? </li></ul><ul><li>The transition period </li></ul><ul><li>Planning </li></ul>
    7. 7. Who does the plan affect? <ul><li>Publicly Accountable Enterprises (PAE’s) </li></ul><ul><ul><li>Public companies and some other relatively large or diverse classes of financial statement users </li></ul></ul><ul><li>Non-PAE’s may choose </li></ul><ul><li>Not for Profit Organizations </li></ul>
    8. 8. When does the plan take effect? <ul><li>One time AND Phased-in approach </li></ul><ul><li>Joint convergence projects </li></ul><ul><li>Omnibus exposure draft </li></ul><ul><li>Change-over timing </li></ul><ul><li>Progress review – complete by March 31, 2008 </li></ul>
    9. 9. Transition Period <ul><li>Global Convergence projects – AcSB will adopt converged standards </li></ul><ul><ul><li>2006 – Accounting Changes </li></ul></ul><ul><ul><li>2007 – Business Combinations, Earnings Per Share </li></ul></ul><ul><ul><li>2008 – Income Taxes, Joint Ventures </li></ul></ul>
    10. 10. Transition Period <ul><li>Canadian only projects – AcSB may adopt some IFRS early when it provides a better solution - Inventories </li></ul><ul><li>IASB only projects – AcSB may adopt at the same time if a conflict with U.S. GAAP is not created – Financial Instruments–Disclosure </li></ul>
    11. 11. Transition Period <ul><li>Canada and U.S. GAAP – changes by FASB only on standards with a high degree of similarity to Canadian GAAP (case-by-case) </li></ul><ul><ul><li>Variable Interest Entities and QSPEs </li></ul></ul><ul><li>Factors – enhancement versus lifespan </li></ul>
    12. 12. Planning - Right now <ul><li>Start gaining IFRS knowledge now </li></ul><ul><ul><li>Attending presentations </li></ul></ul><ul><ul><li>Internet learning modules, illustrative financial statements, newsletters, webcasts </li></ul></ul><ul><ul><li>AcSB’s comparisons of IFRS to Canadian GAAP </li></ul></ul><ul><ul><li>IFRS on Knotia </li></ul></ul><ul><li>AcSB – ‘Implementation Plan for Incorporating IFRSs into Canadian GAAP’ </li></ul>
    13. 13. Planning <ul><li>Appendix B of the AcSB’s Implementation Plan can help </li></ul><ul><li>Five categories </li></ul><ul><ul><li>Convergence before changeover </li></ul></ul><ul><ul><li>Project in process at changeover </li></ul></ul><ul><ul><li>IFRS adoption at changeover </li></ul></ul><ul><ul><li>No Canadian counterpart </li></ul></ul><ul><ul><li>No comparable IFRS </li></ul></ul>
    14. 14. Planning <ul><li>Train key personnel </li></ul><ul><li>Assess changes to data collection required and the impact on systems needed – embedding!!! </li></ul><ul><li>Educate users of your statements on the anticipated affects – profit sharing employees, audit committees, investors and anyone providing financing </li></ul><ul><li>Learn from experiences of others </li></ul>
    15. 15. Planning <ul><li>Prepare your enterprise’s implementation plan </li></ul><ul><ul><li>Appoint your implementation team </li></ul></ul><ul><ul><li>Board of Directors / Audit Committee involvement at the beginning </li></ul></ul><ul><ul><li>Assess the effect of IFRSs on your company </li></ul></ul>
    16. 16. Planning – Your Future <ul><li>Monitor IASB’s Documents Issued for Comment and respond directly to the IASB – these documents are your future!!!!! </li></ul>
    17. 17. Convergence projects in process <ul><li>Fair value measurement </li></ul><ul><li>Financial statement presentation </li></ul><ul><li>Liabilities and equity </li></ul><ul><li>Leases </li></ul>
    18. 18. Convergence projects in process <ul><li>Revenue recognition </li></ul><ul><li>Financial instruments </li></ul><ul><li>Derecognition </li></ul><ul><li>Intangible assets </li></ul>
    19. 19. Participating in global convergence <ul><li>Comment on IASB proposals </li></ul><ul><li>Participate in international projects </li></ul><ul><ul><li>Conceptual Framework </li></ul></ul><ul><li>IFRS Advisory Groups </li></ul><ul><ul><li>Leases, Small- and Medium-sized Entities </li></ul></ul><ul><li>Undertake research </li></ul><ul><ul><li>Measurement Objectives – Initial Measurement </li></ul></ul><ul><ul><li>Disclosure Framework </li></ul></ul><ul><ul><li>Extractive Activities </li></ul></ul>
    20. 20. Agenda <ul><li>The AcSB’s strategic plan </li></ul><ul><li>Planning for IFRS </li></ul><ul><li>IFRS versus Canadian GAAP </li></ul>
    21. 21. Similarities to Canadian GAAP <ul><li>Structure and content of financial statements </li></ul><ul><li>Conceptual framework </li></ul><ul><li>Many similarities of approach and specific content </li></ul><ul><li>More ability for revaluation in IFRSs </li></ul>
    22. 22. Differences to Canadian GAAP <ul><li>Differences on which a global or other project is currently converging the standard </li></ul><ul><li>Differences on which no project is anticipated prior to ‘changeover’ </li></ul>
    23. 23. Differences to Canadian GAAP <ul><li>Differences – project in process </li></ul><ul><li>Impairment </li></ul><ul><ul><li>Two incompatible models </li></ul></ul><ul><ul><li>N. America – undiscounted cash flows, other than temporary impairment, no reversals </li></ul></ul><ul><ul><li>IFRS – discounted cash flows, faster write-down, reversals </li></ul></ul>
    24. 24. Differences to Canadian GAAP <ul><li>Differences – project in process </li></ul><ul><li>Business combinations </li></ul><ul><li>Consolidations </li></ul><ul><li>Special purpose entities (VIE’S) </li></ul>
    25. 25. Differences to Canadian GAAP <ul><li>Differences – project in process </li></ul><ul><li>Employee future benefits </li></ul><ul><li>Income taxes </li></ul><ul><li>Earnings per share </li></ul>
    26. 26. Differences to Canadian GAAP <ul><li>Differences – project in process </li></ul><ul><li>Segment reporting </li></ul><ul><li>Inventories </li></ul><ul><li>Insurance contracts </li></ul><ul><li>Differential Reporting Options/SMEs </li></ul>
    27. 27. Differences to Canadian GAAP <ul><li>Differences – no convergence project </li></ul><ul><li>For example: </li></ul><ul><li>Transfer of receivables/securitization </li></ul><ul><li>Non-financial liabilities </li></ul><ul><li>Debt breach at year end </li></ul>
    28. 28. First-time Adoption <ul><li>Exceptions on applying new basis of accounting </li></ul><ul><li>Prohibits retrospective application when judgment with benefit of hindsight </li></ul><ul><li>Transitional disclosures </li></ul><ul><li>Only applies on full adoption of IFRSs </li></ul>
    29. 29. Further information www.acsbcanada.org [email_address] [email_address]

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