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IFRS Transition and Regulatory Compliance

NASAA 2011 Corporation Finance Training Seminar July 7-8, 2011. IFRS Transition and Regulatory Compliance. Kelly Gorman, Deputy Director Corporate Finance Branch.

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IFRS Transition and Regulatory Compliance

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  1. NASAA 2011 Corporation Finance Training Seminar July 7-8, 2011 IFRS Transition and Regulatory Compliance Kelly Gorman, Deputy Director Corporate Finance Branch

  2. Disclaimer:“The views that I am going to express today are my own and do not necessarily represent those of the Commission or my colleagues.”

  3. Presentation Outline • Summary of Corporate Finance’s IFRS Initiatives • Top 10 Tips for filing the First IFRS Interim Report • OSC IFRS Releases No. 1 and No. 2 • Q2/Q3 Filing Tips • Questions

  4. Corporate Finance’s IFRS Initiatives • Revised rules published in October 2010 to accommodate IFRS transition – terminology changes and transitional issues • Two targeted reviews of public companies’ IFRS transition disclosure (OSC Staff Notice 52-718 and CSA Staff Notice 52-326) • OSC Issuer Guide Top 10 Tips for Public Companies Filing their First IFRS Interim Financial Report issued November 2010 (www.osc.gov.on.ca/IFRSGuide) • In-house seminars for public companies continuing throughout 2011 • OSC IFRS Release No. 1 – Filing Deficiencies in Issuers’ First IFRS Interim Financial Reports (www.osc.gov.on.ca/IFRSRelease1) • OSC IFRS Release No. 2 – A Reminder Before You File Your First IFRSInterim Financial Report(www.osc.gov.on.ca/IFRSRelease2)

  5. Top 10 Tips Summary of tips included in OSC Issuer Guide: • Acceptable accounting principles • Auditor involvement • Q1 filing extension • Financial statement defaults • IFRS financial statement presentation • Q1 financial statement notes • IFRS reconciliations • Management’s discussion and analysis (MD&A) • CEO/CFO certification • Prospectus and other offering issues

  6. Tip #1 – Acceptable Accounting Principles • Revised rules published in October 2010 to accommodate transition to IFRS • Website address www.osc.gov.on.ca/IFRSRelatedRuleAmendments • Domestic issuers will be required to prepare financial statements in accordance with IFRS as issued by the International Accounting Standards Board (IASB) for fiscal years beginning on or after January 1, 2011 Companies will adopt IFRS on varied timelines through 2011 – avoid investor confusion by clearly identifying accounting principles used in all financial information released.

  7. Tip #2 – Auditor Involvement • First IFRS interim financial report is not required to be audited or reviewed under securities law • When an auditor is involved, the review would include: • current and comparative period results • opening IFRS statement of financial position • notes, including IFRS 1 reconciliations • Auditor involvement with the first IFRS interim financial report remains a decision of the company and its Board A notice to reader is required to be disclosed when an auditor did not review the interim financial report.

  8. Tip #2 – continued • OSC Staff Notice 51-718 - Key Considerations Relating to an Auditor’s Involvement • Notice to reader required when: • Review is not completed for all of the periods presented • Auditors are unable to complete their review • Auditors express a reservation of opinion in their review report • We noted a significant level of non-compliance with this requirement • In these cases, issuers were requested to re-file their interim financial statements with the required disclosure

  9. Tip #2 – continued • Corporate governance guidelines suggest that Boards should be responsible for identifying business risk and ensuring that appropriate systems are implemented to manage these risks • The interim filing responsibility of audit committees under NI 52-110 includes a review of: • interim financial report • related MD&A • interim earnings press release Companies should ensure that the financial information released in the first three quarters of 2011 is accurate and will not require restatement after the annual audit.

  10. Tip #3 – Q1 Filing Extension • Filing deadline for Q1 extended by 30 days as follows: • Intended to assist management with CEO/CFO certification process and timing of meetings of boards of directors and audit committees * Since May 15, 2011 is a Sunday, the actual filing deadline in Ontario would be Monday, May 16, 2011. Companies should note that subsequent quarter and annual filing deadlines have not been extended.

  11. Tip #3 – continued Timing for calendar year-end companies: Mar 31, 2011 First IFRS Interim Report (with 2010 comparatives restated using IFRS) 2010 Annual Financial Statements CGAAP 2011 Annual Financial Statements IFRS (with 2010 comparatives restated using IFRS) Non-venture Year end Dec 31, 2010 March 31, 2011 Filing deadline Year end Dec 31, 2011 June 14, 2011 Filing deadline March 30, 2012 Filing deadline April 30, 2011 Filing deadline* June 29, 2011 Filing deadline April 29, 2012 Filing deadline* 2011 Annual Financial Statements IFRS (with 2010 comparatives restated using IFRS) 2010 Annual Financial Statements CGAAP Mar 31, 2011 First IFRS Interim Report (with 2010 comparatives restated using IFRS) Venture *Since these days fall on a weekend, the actual filing deadline in Ontario will be the first following business day.

  12. Tip #4 – Financial Statement Defaults • It is the fundamental responsibility of every public company to meet its reporting obligations • In meeting our investor protection mandate we will generally respond with a cease trade order (National Policy 12-203) • Companies that determine they will not be able to file IFRS financial statements should inform the market on a timely basis Not filing IFRS financial statements by the deadline is a significant breach of securities law.

  13. Tip #5 – IFRS Financial Statement Presentation • The first IFRS interim financial report must have the following: • opening IFRS statement of financial position (January 1, 2010 for a calendar year-end company) • the statement of comprehensive income immediately following the income statement, when presenting the statement of total comprehensive income as two statements • presentation currency must be displayed on the face of the financial statements • Going forward – the statement of cash flows is only presented for the year-to-date period Failure to file the opening IFRS statement of financial position in the first IFRS interim financial report will be considered a significant financial statement filing default.

  14. Tip #5 – continued Example of first IFRS interim statement of financial position:

  15. Tip #6 – Q1 Financial Statement Notes First IFRS interim report should contain sufficient information to enable users to understand how the transition to IFRS affected previously reported results. • IAS 34 Interim Financial Reporting: purpose of interim financial reporting is to update from latest annuals • hence, less note disclosures are generally required in interims • However, we believe a first time adopter’s first IFRS interim financial report should include disclosure that exceeds the minimum disclosure requirements under IAS 34 to provide meaningful information to investors

  16. Tip #6 – continued The first IFRS interim financial report must include the following: • A statement of unreserved compliance with IAS 34 Interim Financial Reporting required by NI 52-107 • Separate disclosure of Canadian GAAP errors identified during the transition to IFRS (consider whether previous CGAAP filings need to be restated and re-filed) • Appropriate headings and subtotals in financial statements as required by IFRS

  17. Tip #6 – continued The first IFRS interim financial report should include the following to provide meaningful disclosure to investors: • All significant accounting policies under IFRS • A summary of IFRS 1 exemptions & elections taken by the company • January 1, 2010 balances in comparative information in the financial statement notes • Appropriate explanatory note disclosure that may exceed the minimum disclosure requirements in IAS 34 to sufficiently explain transition

  18. Tip #7 – IFRS 1 Reconciliations • IFRS requires reconciliations that help explain how the transition from Canadian GAAP to IFRS affected the company’s results • The reconciliations are required to be disclosed in the first interim financial report notes as follows (for calendar year-end companies): • Any material adjustments to the statement of cash flow resulting from transition must also be described qualitatively or quantitatively

  19. Tip #7 – continued • IFRS does not mandate a specific format for the reconciliations • Give sufficient detail to enable investors to understand the material adjustments • If errors are identified, the reconciliations must distinguish correction of errors from changes in accounting policies • Starting point of total comprehensive income reconciliation should be total comprehensive income in accordance with previous GAAP • Explanatory notes are needed to explain individual reconciling items • Reclassification adjustments on the statements

  20. Tip #7 – continued • Example of equity reconciliation: Reconciliations also required as at December 31, 2010 and March 31, 2010 in first IFRS interim financial report

  21. Tip #7 – continued • Example of total comprehensive income reconciliation: Reconciliations also required for the three months ended March 31, 2010 in the first IFRS interim financial report.

  22. Tip #8 – MD&A • Pre-IFRS transition MD&A disclosure should include: • a detailed status update of the company’s IFRS changeover plan • key decisions about accounting policy choices under IFRS 1 and other relevant IFRS standards • a discussion of the impact of accounting policy choices on each line item in the financial statements (quantification if available) As required by our MD&A form, disclosure of expected changes in accounting policies should include a discussion of the expected effect on the company’s financial statements or a statement that the company cannot reasonably estimate the effect.

  23. Tip #8 – continued • Post-IFRS transition MD&A disclosure should include a comprehensive discussion of the transition to IFRS from management’s point of view • 1.13(b) of 51-102F1 does not apply • Where securities rules require pre-IFRS transition financial information the issuer can present this information in accordance with Canadian GAAP • for example, selected annual information for three years and the summary of quarterly results for eight quarters

  24. Tip #9 – CEO/CFO Certification • The CEO and CFO must certify the first IFRS interim financial report and related MD&A • To address the risk of material misstatement of financial information prepared in accordance with IFRS, companies need to establish or modify existing ICFR and DC&P • Non-venture issuers need to disclose any changes made to ICFR relating to IFRS in the first quarter MD&A filed in 2011 Companies should be aware that the wording in the standard form has been revised to align with IFRS. CFO and CEO should ensure they are completing the most recent forms in 2011.

  25. Tip #10 – Prospectus and Other Offering Issues Overview of issues: • Timing considerations • Auditor involvement • No extension for financial statements included in an IPO prospectus • Use of mixed GAAPs allowed (pre-transition date info required can be CGAAP)

  26. Tip #10 – continued Timing Considerations: • Auditor involvement in offering documents • no securities law changes to audit and review requirements for financial statements in a prospectus • auditors may be required to perform selected audit procedures on the opening IFRS statement of financial position to complete their review and provide consent • such procedures may require additional time to complete We urge companies and their advisors to consider these matters well in advance of filing a preliminary prospectus to avoid delays in filing and obtaining a receipt from securities regulators for offering documents.

  27. Q1 2011 – First IFRS Interim Financial Reports • OSC IFRS Release No. 1 – Filing Deficiencies in Issuers’ First IFRS Interim Financial Reports • IFRS 1 Reconciliations • opening IFRS statement of financial position • statement of changes in equity • OSC IFRS Release No. 2 – A Reminder Before You File Your First IFRS Interim Financial Report • includes tip sheet Ensure that your interim financial report meets the requirements of IFRS and securities legislation.

  28. Q2/Q3 Filing Tips - Financial Statements For calendar year-end companies, the required financial statements for Q2 are as follows:

  29. Q2/Q3 Filing Tips - IFRS 1 Reconciliations For calendar year-end companies, the required reconciliations for Q2, Q3 and year end are as follows: • Q2: • Q3: • Year end:

  30. Q2/Q3 Filing Tips - Disclosure Expectations • IAS 34.15: disclose any events or transactions that are material to an understanding of the current interim period • IFRS 1.33: if a first-time adopter did not disclose information material to an understanding of the current interim period in the most recent annual financial statements: • Disclose that information in the current interim financial report; or • Include a cross-reference to another published document that includes it • The other published document that includes the information can be the Q1 2011 interim financial report

  31. Questions?

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