IFRS Early Adoption Exemption Application — Rationale, Requirements and Process
May 29, 2009
In anearlier issue, we reported on the Canadian Securities Administrators’ (CSA) Staff Notice 52-320 Disclosure of Expected Changes in Accounting Policies Relating to Changeover to International Financial Reporting Standards — to provide our readers advance notice of the mandatory transition of financial reporting standards applicable to Canadian publicly accountable enterprises from Canadian generally accepted accounting principles (Canadian GAAP) to International Financial Reporting Standards (IFRS) for fiscal years beginning on or after January 1, 2011.
CSA Staff Notice 52-320 provides guidance to an issuer on disclosure, in the three years beforethe first year in which the issuer is required to use IFRS, of expected changes in accounting policies relating to an issuer’s changeover toIFRS as the basis for preparing its financial statements. The notice focuses on MD&A disclosure, and recognizes the disclosure willbe incremental and provide more detail as the issuer approaches its changeover date.
Further, in CSA Staff Notice 52-321 Early Adoption of IFRS, Use of US GAAP and Reference to IFRS-IASB, CSA staff recognized that some issuers may wish to prepare their financial statements in accordance with IFRS for periods beginning prior to January 1, 2011, and indicated that staff is prepared to recommend exemptive relief on a case-by-case basis to permit a domestic issuer to do so, despite Section 3.1 of National Instrument 52-107 Acceptable Accounting Principles, Auditing Standards and Reporting Currency, which requires Canadian issuers to prepare financial statements in accordance with Canadian GAAP.
Domestic issuers that would benefit from early adoption include those issuers with joint ventures or subsidiaries already reporting under IFRS (common for issuers with business affiliates operating in Europe, Africa, Australia and New Zealand, regions from which more than 100 countries are already reporting under IFRS), where reporting would be streamlined and related costs reduced by developing a common and consistent reporting system across the group. The same rationale would also apply to domestic issuers that are subsidiaries of a foreign entity reporting under IFRS and domestic issuers undertaking an initial public offering in both Canada and another IFRS jurisdiction before 2011. Use of a single reporting system willalso assist readers of the issuer’s financial statements.
The application for early adoption of IFRS seeks exemptive relief from the requirement to prepare financial statements using Canadian GAAP. In reviewing the application, the regulators will focus on the rationale behindthe application and the issuer’s readiness and changeover plan for its transition to IFRS. To date, exemptions have been granted by the Ontario Securities Commission and the B.C. Securities Commission, acting as principal regulators.