ADVICE & TIPS
September / October 2008
Canada Goes Global with IFRS
By Scott Stoppler, President
Executrade
Like a train going at full speed without any brakes, globalization is an unstoppable force. Today, globalization continues to be the driving force behind numerous changes which are affecting how the world does business. One of these changes is happening in Canadian accounting. On January 1, 2011, the current standards for publicly accountable enterprises used in Canada will be phased out and replaced by the International Financial Reporting Standards (IFRS). For many Canadian companies, the impact will be significant and the preparation required to adopt IFRS will take several years. For others, the impact and preparation will be minimal. Regardless of size, all companies affected by IFRS will be preparing, in one way or another, to catch the (globalization) train.
In February 2006, the Canadian Accounting Standards Board (AcSB) made the pivotal decision to adopt IFRS for publicly accountable enterprises. According to an article posted on the Certified General Accountants website, this means that between February, 2006 and January 1, 2011, all Canadian publicly accountable enterprises (PAEs) must begin assessing the impact of applying IFRS in their financial reporting and, by 2011, be ready to present “financial statements in accordance with IFRS.” In an article released by PricewaterhouseCoopers, it states, “Companies will be required to have comparative figures and an opening balance sheet at the beginning of 2010.” In an article by Karine Benzacar in CMA Management Magazine, typical companies that will be affected by these new standards include “Public and crown corporations as well as other entities, such as government business enterprise and government business-type organizations…”
This nationwide transition to more global accounting standards will affect those who prepare a company’s financial reporting information (e.g., accounting departments and accountants) and those who use these financial statements such as “investors, profit-sharing employees, audit committees, and anyone providing financing” (AcSB Implementation Plan, pg. 12).
Peter Norwood, instructor and Chair of Accounting at the Langara School of Management in Vancouver, provides insight from the user’s perspective: “The way that a company reports its financial position will change. IFRS changes the way that income is calculated. A company’s fair value can be determined more precisely, and its future value can be predicted more accurately.” He adds, “Statements become more comparative in the global arena. This, in turn, will help external investors, regulators, and the public to better gauge a company’s position both economically and financially.”
Companies affected by IFRS have a lot of work ahead of them,” states Bruce Byford, partner at Grant Thornton LLP in Canada. “They must compare their current accounting policies against IFRS standards and determine the magnitude of the differences between them. Companies may have to track new sets of data, and they may need significant revisions to their accounting systems to support IFRS accounting. With regard to company stakeholders, including bankers, communication will be important to ensure they are prepared for the impact of IFRS on financial statements and key performance indicators (KPIs).”
Companies will need accounting professionals on their teams who are knowledgeable and well-trained in IFRS and its potential affect on financial reporting. These IFRS experts will be providing executive decision-makers with financial reports that affect how overall business decisions are made. “Accounting departments may be under intense strain preparing for 2011,” warns Norwood.
To help alleviate this “strain,” Byford suggests developing a project plan, setting milestones, and setting up an implementation team. “Some companies have hired or will hire third parties, such as consultants or auditors, to scope the impact of IFRS for them and to assist with implementation. Many are also hiring accounting professionals or shuffling responsibilities to support the implementation of IFRS standards.” Byford adds, “Companies lacking internal IFRS expertise may also need to hire specific experts such as certified business valuators (CBVs) to help them with the valuation of certain assets. The key is not to wait to hire staff or contract consultants. There may be a shortage of these qualified professionals the closer it gets to 2011.
The bottom line is that IFRS’s overall impact will be beneficial for Canadian accounting, especially from a global perspective. In Benzacar’s CMA Management article, she further states that IFRS will “harmonize accounting between countries which should ultimately make it easier to conduct business internationally and raise funds in global capital markets.” She also quotes Paul Cherry saying “It will also provide more opportunities for Canadian businesses and investors by reducing the cost of capital, increasing access to international capital markets, and reducing costs, mainly by eliminating the need for reconciliations.”
Overall, IFRS standards are beneficial because they help fuel the globalization train. Their adoption will give Canadian businesses more presence in the global market and create more opportunities for better business communication with other countries. To take advantage of these global opportunities, Canadian businesses affected by IFRS should prepare and prepare early. By embracing IFRS, this will secure them a spot on the train as true global players.Materials Sourced:
“About IFRS.” Certified General Accountants Association of Canada (www.cga-canada.org), March 28, 2008
“IFRS – the next accounting revolution.” Karine Benzacar, Certified Management Accountants Magazine, Management Magazine (www.managementmag.com)
“Getting Started with IFRS.” PricewaterhouseCoopers LLP (www.pwc.com)
“Accounting Standards in Canada: Implementation Plan for Incorporating IFRSs into Canadian GAAP.” Accounting Standards Board (www.acsbcanada.org), March 31, 2007
