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Canada’s Experience in Converting to IFRS

Merrill Disclosure Solutions | March 12, 2013

To maximize access to global capital, Canada chose IFRS. In an increasingly globalized world, investors and companies benefit from countries having mutually comprehensible accounting systems, which give them access to world capital markets and allow investors to engage in cross-border investment strategies. Beginning in 2011, most Canadian companies switched to International Financial Reporting Standards (IFRS) after a five-year transition period. Before that, Canada had used Canadian Generally Accepted Accounting Standards (Canadian GAAP). Researchers Kaitlyn Pfeffer, Anne Jacobs, Cari DeLong, and Prof. Roger Tang (Western Michigan University) report on how the transition impacted Canadian investors and businesses and changed the way financial information is reported in Canada.

Why not US GAAP? Canadian regulators initially considered adopting US GAAP, the authors note, so as to more readily access American capital. The United States buys 73% of Canada's exports and provides 63% of its imports, so close financial coordination of businesses in the two jurisdictions is often important. In 2007, the US Securities and Exchange Commission decided not to require foreign companies using IFRS to translate their financial statements into US GAAP before they could operate and list in America. Being less rule-bound than US GAAP, IFRS is easier and cheaper for companies, particularly now that they do not also have to convert to US GAAP for activities in America.

IFRS implementation varies by type of company. Publicly accountable enterprises (PAEs), private enterprises, and not-forprofit enterprises were treated differently in the conversion process and have different timelines. PAEs had to prepare plans in 2008, publish expected differences between Canadian GAAP and IFRS in 2009, and report in both GAAP and IFRS in 2010. The final transition to IFRS occurred at the beginning of 2011 for most PAEs. Government business enterprises (GBEs) also transitioned in 2011. Rate-regulated PAEs were originally scheduled to change in 2012, the authors indicate, but that has been extended to 2013. Life insurance companies must switch by 2014 because of anticipated IFRS actions related to these types of accounts. Private enterprises may choose to use IFRS or Canadian GAAP, and companies with major business in the United States may use US GAAP if they prefer. Non-profits will have the choice of using either IFRS or Canadian standards for nonprofits as established by the Canadian Accounting and Standards Board.

Transition thus far has been fairly smooth. The long planning and phase-in period has facilitated the conversion to IFRS, the authors observe. Certainly IFRS makes it much easier to access foreign capital and to list and operate in foreign jurisdictions. On the other hand, Canadians have some difficulty keeping current on IFRS regulations and changes, since this is under the purview of a foreign body, the International Accounting Standards Board (IASB). Divergent calculations and definitions between Canadian GAAP and IFRS impact several major accounting categories, including asset valuations, asset impairments, revaluations of assets, impairment losses, unit level for analysis of particular figures, and treatment of intangible assets. Testing methods and frequency also vary. Accountants and auditors both require a mental shift to the new system. The gradual and staggered conversion process has minimized difficulties, however, and most Canadian accountants and companies report that the benefits have outweighed the costs of conversion.

The referenced working paper, Journal of Corporate Accounting & Finance, was published by Wiley-Blackwell, 350 Main Street, Malden MA 02148 (USA); and PO Box 808, 1-7 Oldlands Way, Bognor Regis PO21 9FF (England). To subscribe, call (800) 835-6770 or 44 (0) 1865-778315; or visit A column by Robert Herz, former chair of the FASB, appears in the November 2012 issue of Compliance Week (Vol. 9, Issue 106, Pg. 32) with additional commentary on the transition of Canadian companies to IFRS.

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