IFRS Implementation in Canada - February 2008

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An overview on impacts, project plan and proposed methodology for the IFRS adoption in a Canadian enterprise

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IFRS Implementation in Canada - February 2008

  1. 1. IFRS Implementation Plan for a Canadian Enterprise Antonello Dessanti Senior Business Consultant February 2008
  2. 2. Why IFRS now • In January 2006 the Canadian Accounting Standards Board (AcSB) announced its decision to replace Canadian GAAP with International Financial Reporting Standards for all Canadian Publicly Accountable Enterprises (PAEs). • Effective January 1, 2011 enterprises issuing financial statements under standards other than IFRS must demonstrate that they are not publicly accountable. • Over the last few years, over 100 countries, including European Union, Australia and New Zealand, have adopted IFRS. US standard setter (FASB) is also working with the International Accounting Standards Board (IASB) to develop converged standards. Effective September 2007, any enterprise in compliance with IFRS is no more required to prepare a set of reconciliation tables with US GAAP. Copying and reproduction strictly 2 prohibited unless authorized
  3. 3. Timeline for the change March 31, 2008 AcSB confirming changeover timing December 31, 2008 Disclosure of an enterprise’ plan for convergence and what effects the enterprise anticipates with the change to IFRS December 31, 2009 Same disclosure as required in 2008, but with greater degree of quantification of the effects January 1, 2010 First year of collection of comparative information for inclusion in 2011 financial statements in accordance with IFRS December 31, 2010 Last year of Canadian GAAP reporting January 1, 2011 Changeover. First year of IFRS reporting March 31, 2011 First interim IFRS based financial statement December 31, 2011 End of first annual reporting in accordance with IFRS Copying and reproduction strictly 3 prohibited unless authorized
  4. 4. IFRS Impact The adoption of IFRS is not solely a change in the accounting principles IFRS require an on-going mechanism to maintain full compliance It is a multidisciplinary process with both internal and external implications. The adoption involves: accounting systems, financial and management reporting organizational and operational issues legal and compliance issues analyst and investor relations performance measurement tools processes and systems to gather and manage information Copying and reproduction strictly 4 prohibited unless authorized
  5. 5. IFRS Implications Risk Capital IFRS framework Financial Results External Significant Impacts Management and Organizational Capital Allocation Control Reporting Internal Significant Impacts Copying and reproduction strictly 5 prohibited unless authorized
  6. 6. IFRS Implementation ACCOUNTING AND REPORTING SYSTEMS Classification criteria for assets and liabilities Measurement criteria: from cost model to the fair value model Need for highly reliable and well developed risk management systems Greater volatility of financial statements figures and fewer possibilities of “managing earnings” Measurement of impaired assets (individual assessment and pooling of impaired assets) Need to review the internal reporting and the performance measurement systems Changes in the measurement of impaired assets (tangible and intangible) Capitalization of pre-operating expenses not allowed Not allowed the presentation of extraordinary items in the income statement Significant changes in the consolidation framework (e.g. negative goodwill, acquisition date, impairment, SPV vs VEI) Copying and reproduction strictly 6 prohibited unless authorized
  7. 7. IFRS Implementation Organizational Processes and Information Technology IFRS implementation requires organizational obligations with regard to the management of financial instruments The most commonly used financial instruments to be measured generate an increase in the workload of the relevant units; consequently, some internal organizational processes may have to be revised Exploration for and evaluation of mineral resources with full cost accounting only during exploration and evaluation phases (applicable to oil & gas enterprises) Guidance in dealing with agriculture enterprises Changes in the standards for inventories (e.g. LIFO prohibited) Completed contract method not allowed (applicable to construction enterprises) During the transition period, it will be necessary to manage two sets of different accounting systems and, possibly, a variety of information flows IFRS Project may overlaps with other priorities (e.g. reorganization and standardization projects) Copying and reproduction strictly 7 prohibited unless authorized
  8. 8. IFRS Implementation Impacts on other departments Organizational and IT decisions should be approved by the front office operating units and by the administrative and control units Front office units should be aware of the consequences of their operations on financial statements and understand the impact of the new standards on the customers’ business The greater volatility of financial statements should be managed in terms of both internal and external financial reporting Management of the operations pertaining to the period preceding the adoption of IFRS, budgets and strategic plans should consider the changes occurred (reinstatement of historical data) Consolidation process must strictly follow the coherence approach, i.e. each consolidated subsidiary must be in compliance with IFRS Compliance with Sarbanes-Oxley Act shall include compliance with IFRS Copying and reproduction strictly 8 prohibited unless authorized
  9. 9. IFRS Master Plan IFRS implementation may follow two different options 1. A throughout implementation across the organization, recommended when there has been no previous IFRS reporting. It requires a larger scale project team but provides a more effective enhancement in the reporting system post- implementation 2. The implementation of the standards for specific areas, which could be used for an initial testing of the project team capacity. It might also produce redundancy in subsequent stages. Both options share the same methodology: AS IS – TO BE Definition of objectives Definition of objectives CHECK Carrying out Carrying out Impact Analysis Design and Implementation IFRS Analysis assessment development Post-implementation Program Management & Project Office Program Management & Project Office Copying and reproduction strictly 9 prohibited unless authorized
  10. 10. IFRS Implementation: 1° Phase AS IS Definition of objectives Definition of objectives Kick-off meeting Examination of each standard: applicable – not applicable IFRS Analysis Preliminary analysis of the potential impact Macro planning of the project Design of the project structure Analysis of the existing accounting process Identification of the gaps between CICA and IFRS Establishment of new accounting rules Impact Identification of the processes to be changed or of new processes assessment Identification of the information procedures to be implemented or of new information procedures Identification of the application / macro architecture Updating the project plan Recommended model: PERT (program evaluation and review technique) with three estimates to complete the activity (longest time, most likely time and earliest time). Completion date: September 30, 2008 Copying and reproduction strictly 10 prohibited unless authorized
  11. 11. IFRS Implementation: 2° Phase TO BE Carrying out Carrying out Detailed revision of information processes and applications Identification of new software packages Analysis Definition of new organizational responsibilities Decision to opt for coexistence or migration Definition of technical and functional specifications Design and System and process implementation development Presentation to Audit Committee for preliminary review Compliance test Process tests Implementation Accounting manuals and risk management chapters Post-implementation Training and identification of gaps in human resources Board of Directors’ approval On-going maintenance Recommended model: CPM (critical path method) Completion date: September 30, 2009 Copying and reproduction strictly 11 prohibited unless authorized
  12. 12. IFRS Post Implementation • IFRS have experienced a two years grace but likely many standards shall be amended in specific areas with on-going CICA convergence • A post-implementation stage shall require therefore a constant maintenance with a specific team capable to promptly identify any subsequent change in the accounting standards • The post-implementation stage shall however benefit from the tools and methodology used for the first time adoption of the standards • This on-going mechanism comprises: Gap matrix: it identifies gaps emerging from the adoption of an IAS with regard to the area of analysis; this is the starting point for reading matrices. Accounting matrix: it describes the gap analysis and the impact on the accounting model and treatment of the adoption of an IAS with regard to the area of analysis. System matrix: it describes the gap analysis and the impact on the information system procedures following the adoption of an IAS with regard to the area of analysis. Process matrix: it describes the gap analysis and the impact on operating processes following the adoption of an IAS with regard to the area of analysis. Business matrix: it describes the gap analysis and the impact on the Group business following the adoption of an IAS with regard to the area of analysis. People matrix: it investigates the gap analysis and the impact on the bank's resources for optimal management of the change resulting from the adoption of an IAS. Copying and reproduction strictly 12 prohibited unless authorized
  13. 13. Preparing for the transition Time to begin is now! Appoint a project team Assessing, developing and implementing the transition Learning about IFRS Attending to courses, seminars, conferences Installing eIFRS© (www.iasb.org) in your organization Assess the impact of IFRS in your enterprise Financial impacts Organizational impacts Assess your options under IFRS 1 First time adoption of IFRS allows one-time changes in equity Draft a project plan Assign responsibilities, awareness of the changes in your organization Communication, communication, communication Within your organization, with external auditors, with investors, with lenders, and any other stakeholder Copying and reproduction strictly 13 prohibited unless authorized

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