Over the next three weeks, we will discuss the changeover to International Financial Reporting Standards (IFRS) in Canada from an investor’s perspective.
These posts are a starting point for investors, to increase awareness that some companies are now reporting in IFRS. Our goal is to point out a few things to be aware of, so that you can investigate further on your own, or ask your advisor questions.
We’ll start in this post by answering a few general questions about IFRS to give you some background on the changeover.
Who issues IFRS standards?
The International Accounting Standards Board (IASB) develops and issues IFRS standards. The board consults with interested individuals and organizations around the world through an ongoing consultation process.
What are IFRS standards?
IFRS standards are global accounting standards that are now required or permitted in over 100 countries, including the European Union, and much of the Pacific Rim. Their purpose is to provide transparent and comparable information in financial statements.
India, Japan and Brazil have announced plans to adopt or converge with IFRS. The SEC has indicated that it will be in a position to make a decision in 2011 about incorporating IFRS into the financial reporting system for US issuers.
Canada’s move from GAAP to IFRS
Canadian Generally Accepted Accounting Principles (Canadian GAAP) for public companies transitioned to IFRS beginning January 1, 2011.
IFRS will apply to most Canadian public companies for financial years beginning on or after January 1, 2011. You will see changes from the conversion to IFRS in first quarter statements of these companies. You may have also seen discussion of expected changes in the MD&A of these companies over the past few years.
The Canadian Securities Administrators amended securities legislation to reflect Canada’s changeover to IFRS.
What does the changeover mean to investors?
While the principles are very similar between Canadian GAAP and IFRS, there are differences in detail that may affect a company’s recognition, measurement, presentation or disclosure of financial information. IFRS often requires more disclosure of assumptions and estimates than Canadian GAAP.
Investors need to know that some Canadian issuers are now using IFRS, and they should familiarize themselves with new terminology and the potential impact IFRS may have on financial statements.
What if you don’t understand IFRS?
If you do not feel you have sufficient information or you do not understand the information in the financial statements, you have options:
- Ask your advisor to discuss your questions with you
- Ask another trusted professional (your accountant, for example) to discuss your questions with you
- Submit your question in writing to the company
- Ask your question(s) at the company’s annual general meeting