Implications of moving to IFRS

Will convergence of Canadian standards with IFRS eliminate existing differences between Canadian and US GAAP or will it create new differences? The document Implications of Moving to IFRS for Existing Canada/US GAAP Differences provides high-level summary information about the extent to which a move to IFRS would reduce or increase conflicts with US GAAP compared with those that currently exist. The summary covers significant conflicts only and does not include all of the differences that might arise in a particular entity’s circumstances.

How will Canada make the transition?

Canada’s general approach to achieving convergence with IFRS will include:

• adopting standards newly developed by the International Accounting Standards Board (IASB) that are converged with standards issued by the US Financial Accounting Standards Board (FASB), as these new global standards are issued;
• replacing other Canadian standards with corresponding IFRS already issued, in accordance with a separate convergence implementation plan to be developed in consultation with affected stakeholders;
• working with both the IASB and the FASB to ensure that the Canadian perspective is taken into account in their deliberations; and
• working to promote the further convergence of IASB and FASB standards.

In taking on a role in the development of global standards, Canada has prepared a Comparison of IFRS and Canadian GAAP, as well as a Survey of Reported Canadian/US GAAP Differences.

When is Canada making the transition?

Given the increasing globalization of capital markets and other recent developments, Canada’s Accounting Standards Board (AcSB) has concluded that it is timely for publicly accountable Canadian enterprises to adopt globally accepted, high quality accounting standards. The AcSB believes that by providing reasonable lead time and a clear transition plan, the costs and disruption to affected stakeholders will be minimized. Its recently approved strategic plan, Accounting Standards in Canada: New Directions, will have fundamental and pervasive effects on Canadian financial reporting practices. Canadian GAAP will converge with International Financial Reporting Standards (IFRS) over a five-year transitional period.

Why adopt IFRS?

Given the significant effort and costs to change from domestic standards to IFRS, there needs to be some benefit. According to a telephone survey of 187 professional investment fund managers in seven EU countries, there are several key benefits. They include improved transparency and management information, together with consistency of reporting across jurisdictions and sectors. Improved transparency provides better insight into corporate performance, which affects the perception of value and has an unmistakeable impact on investment decisions. Improved management information helps clarify financial risk and operational risk, directly influencing investment decision-making. The February 2006 survey, called IFRS: The European Investors’ View, was undertaken by PricewaterhouseCoopers and Ipsos Mori.

Who follows IFRS?

IFRS has been adopted by more than 70 countries worldwide. Starting in 2005, companies (about 8,000) listed in the European Union (EU) are required to prepare their consolidated accounts according to IFRS, although public companies from the United States and Japan have been given a one-year reprieve. Australian reporting entities are now required to adopt the Australian equivalents to IFRS. Recently, Canada announced its intention to migrate to IFRS as the basis of reporting for publicly accountable entities. Deloitte & Touche maintains a list of countries currently following IFRS (http://www.iasplus.com/country/useias.htm).