Canada’s Move To International Financial Reporting Standards: Impact On Public Companies

Oct. 27, 2009

FEI Summary

The following information regarding Canada's scheduled move to require public companies to report under International Financial Reporting Standards as of Jan. 1, 2011 is based on our questions posed to, and our understanding of responses received from, a spokesperson at the Ontario Securities Commission.

Q1: What government or private sector agency is authorized in Canada to establish accounting standards for public companies?

A1: Canadian Securities Administrators (CSA) National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards (NI 52-107) prescribes the accounting standards that public companies must use when filing financial statements with securities regulators. Proposed amendments to NI 52-107 indicate that Canadian public companies will be required to file financial statements with the Canadian Securities OSC that are prepared in accordance with "Canadian GAAP for publically accountable enterprises" as determined in accordance with the Canadian Institute of Chartered Accountants (CICA) Handbook (which will be IFRS in 2011)

The CSA has indicated its support of Canada's move to adopting IFRS as Canadian GAAP, which is why the general requirement in the proposals are that financial statements be prepared in accordance with Canadian GAAP (i.e. IFRS). However, the CSA has not delegated its authority to the AcSB. The CSA has made an explicit decision to require that public companies use specific accounting standards that it believes are the appropriate standards for public companies in Canada.

Q2: If public companies are headquartered in Canada, but are dual registered with the U.S. SEC (e.g. shares listed on NYSE-Euronext or Amex) and also file with the U.S. Securities and Exchange Commission under U.S. generally accepted accounting principles, will those companies be required to adopt IFRS as of 1.1.11 for purposes of fulfilling their reporting requirements with CSA or Canadian stock exchanges or will such companies be permitted to continue filing in U.S. GAAP in Canada?

A2: A public company that is headquartered in Canada, and is registered with or required to file reports with the U.S. SEC, may prepare its financial statements in accordance with U.S. GAAP. The public company would not be required to adopt IFRS on the date of transition.

Q3: If public companies are headquartered in the U.S., and dual registered in Canada, will those companies be able to continue reporting to Canadian authorities in U.S. GAAP? If so, will they indefinitely be able to report to Canadian authorities under U.S. GAAP, or has any cutoff or transition to IFRS for those companies been established at this point, or is one currently under consideration?

A3: A public company that is headquartered in the U.S., and is dual registered in Canada, may prepare its financial statements in accordance with U.S. GAAP. There is no cut-off or transition to IFRS requirement in the proposals for these issuers.

Q4: If public companies are domiciled (headquartered) outside Canada and outside the U.S., but have shares listed in Canada, will they be required to adopt IFRS for purposes of reporting to CSA/OSC/TSX etc., or will they be permitted to continue reporting in Canada in U.S. GAAP?

A4: A public company that is domiciled outside Canada and the U.S. (and is not registered with, or required to file reports with, the U.S. SEC) would be required to prepare their financial statements in accordance with IFRS in most instances for purposes of reporting to the Canadian Securities Authorities.

However, if the public company is domiciled in one of the 17 designated foreign jurisdictions defined in the proposal, they would continue to be permitted to prepare their financial statements using the accounting principles required by their jurisdiction. For most of these "designated foreign jurisdictions", financial statements are already required to be in compliance with IFRS as issued by the IASB.

Prepared Oct. 27, 2009 by Edith Orenstein, director, Accounting Policy Analysis & Communications, Financial Executives International. This summary does not represent FEI opinion unless specifically noted above.