Latest from the IASB

Delay in finalization for certain IFRS standards
At its June 2008 meeting, the IASB discussed the timetable for its technical plan, which shows the current best estimate of publication dates for discussion papers, exposure drafts and the issuance of new standards or amendments to current standards. The technical plan is of more importance this year than in most because of the implications for the countries adopting IFRS in 2011 and shortly thereafter. The objective of the IASB at its June meeting was to agree to which projects were of priority for completion in 2011 and the extent to which projects should be simplified or abandoned.

Most notably, in the review of the technical plan, the IASB expects to issue a number of new or amended standards that will have effective dates in 2012 or 2013. Some of these changes include major revisions to IAS 19, Employee Benefits, IAS 37, Provisions, Contingent Liabilities and Contingent Assets and IAS 12, Income Taxes.

The proposed amendments to IAS 37 and 19 will create additional differences between IFRS and Canadian GAAP, while the amendments to IAS 12 are expected to eliminate a number of differences that exist currently between Canadian GAAP and IFRS. The issuance or delay in the issuance of these standards may have a significant impact on an entity’s conversion efforts.

An entity will need to evaluate whether to prepare its first IFRS financial statements in accordance with current version of these standards, and then face an additional accounting change in 2012. Alternatively, it may want to consider early adoption of the new or amended standard in its first IFRS financial statements (assuming that early adoption is permitted), thereby eliminating the need to change its accounting policies within a relatively short timeframe after changeover to IFRS.

With a number of significant projects on the IASB’s agenda extending into 2012, IFRS conversion project plans for Canadian publicly accountable enterprises should contemplate a continuation of their projects beyond 2011 to deal with these new standards.

Click here for a summary of the June 2008 IASB meeting.

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Recent International Developments

Significant Proposed Changes to Accounting for Employee Benefits
The IASB is proposing to make significant amendments to the classification, recognition, and measurement of post-employment benefits, in accordance with IAS 19, Employee Benefits. Currently under IAS 19, entities have an accounting policy choice of recognition of actuarial gains and losses:

• In profit or loss using the corridor method
• In a systematic method that results in faster recognition through profit or loss than the corridor method
• Immediately in equity.

One key change proposed in the discussion paper would remove any deferral mechanisms for recognition of actuarial gains and losses. Under the proposal, all changes in the value of plan assets and post-employment benefit obligations would be recognized immediately. The discussion paper considers possible options for where such changes are recognized; being through the profit or loss or a combination of the profit or loss and comprehensive income.

Impact on conversion plans…
The final standard is expected to be published in 2011. Although a possible effective date has not been set, the effective date of amendments and new standards is usually no earlier than 12 months after publication. Therefore, it is unlikely that these proposed amendments will come into effect when Canadian companies transition to IFRS in 2011. Depending on the timing of the release of the final standard, entities may not be able to early adopt the amendments to IAS 19 and consider them in preparing their opening IFRS balance sheet (assuming that early adoption is permitted when issued), to avoid another round of changes to accounting policies after the IFRS go-live date.

Click here for more details on the preliminary views on changes to accounting for employee benefits.

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Less Complex Standards on Financial Instruments Accounting Proposed
The IASB recently released two discussion papers (DPs) on the accounting for financial instruments. These DPs have the overall objective to develop less complex and more principle-based standards on the accounting for financial instruments and, as such, propose significant changes to the accounting for financial instruments.

Financial Instruments with Characteristics of Equity
This DP proposes to improve and simplify the requirements of IAS 32, Financial Instruments: Presentation on the distinction between liabilities and equity. The proposals are in response to criticisms that the principles in IAS 32 are difficult to consistently apply in practice and may not faithfully represent the characteristics of the instruments. The proposal sets out three possible approaches to distinguishing between liabilities and equity instruments.

Click here for more details on the proposed possible approaches.

Reducing Complexity in Reporting Financial Instruments
This DP analyzes the complexity in reporting financial instruments due to the multiple methods used to measure them and the associated rules. The DP acknowledges that the long-term solution is to measure all financial instruments at fair value, and it proposes possible intermediate approaches to address some of the existing complexities in this area. The immediate proposals would see a reduction in the number of categories of financial instruments, make fair value through profit or loss a default measurement requirement and simplify hedge accounting requirements.

Click here for more details on proposed changes to financial instrument reporting.

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IASB Approves 35 Amendments to IFRS
The issuance of the IASB’s first annual improvements project (AIP) resulted in 35 amendments to some 20 different IFRS standards:

• 24 amendments resulted in accounting changes for presentation, recognition or measurement purposes
• 11 amendments resulted in terminology or editorial amendments that are expected to have either no or only minimal effects on accounting.

The effective date for most of these amendments is January 1, 2009. Remember that when adopting IFRS for the first-time an enterprise must adopt those standards that will be effective for the 2011 IFRS financial statements. Therefore, these amendments will need to be factored into the opening IFRS balance sheet in 2010.

Some of the major areas of accounting change include: advertising and promotional activities, plans to sell controlling interest in a subsidiary and the current/non-current classification of derivatives.

More amendments to come…
Six proposals included in the original exposure draft were not included in the final amendments. For five of those initially proposed changes, the IASB did not specify the approach to which or the timing of when those five issues would be addressed.

Click here for more details on the 35 amendments.

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Recent Canadian Activities

CSA Update on Adoption of IFRS in Canada
CSA staff updated its views on an issued concept paper that sets out possible changes to securities rules on acceptable accounting principles for financial reporting as a result of Canada’s transition to IFRS. As a result of the views expressed in the 42 comment letters received, the Staff have further developed their proposed views that:

• Early adoption of IFRS for financial years beginning on or after January 1, 2009, will be permitted by domestic issuers on a case-by-case basis
• The existing option in NI 52-107 that an issuer who is also a US registrant could prepare full US GAAP financial statements will be retained.

Click here for the notice on the Staff’s updated views.

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MD&A Disclosures of Progress towards Conversion Now Required
With the release of CSA Concept Paper 52-320 with immediate effect, all publicly traded companies will be required to develop and provide interim and annual MD&A disclosure of their IFRS changeover plans commencing 3 years prior to adoption (for 2011 adopters, these disclosure requirements commence in 2008). The level of detail in the required disclosures is intended to increase as changeover plans are developed and refined. Where such plans already exist, key elements should be disclosed in the interim MD&A; this could be as early as quarterly filings in 2008.

Specific requirements for disclosures by investment funds are also included in the CSA Staff Notice.

Although, the CSA requirements only apply to Federally Regulated Financial Institutions (FRFIs) subject to securities regulation, the Office of the Superintendent of Financial Institutions (OSFI) expects all FRFIs to apply the CSA disclosure requirements in their financial statements that are provided to OSFI, and may ask for additional disclosures for regulatory reporting purposes.

Communication beyond the MD&A…
While the Staff Notice focuses on disclosure in MD&A, it encourages issuers to consider whether additional disclosure beyond MD&A might contribute to informing investors about how the issuer expects it will be affected by changeover to IFRS. An issuer should also consider whether requirements in other securities legislation might also require specific information about the broader implications of its changeover to IFRS.

Click here for the notice on MD&A disclosures.

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IFRS Publications

IFRS compared to Canadian GAAP
A necessary first step in managing this transition to IFRS is developing an understanding of the effect IFRS will have on the organization—which standards will have the most impact on the entity’s reported financial results and which ones will be the most challenging to implement. A good place to start is by understanding differences between International Financial Reporting Standards (IFRS) and Canadian Generally Accepted Accounting Principles (Canadian GAAP), which is the aim of this publication.

An overview version of this publication is free for download by clicking here.

If you would like a print copy of the publication, please speak with your usual KPMG contact or click here to order it online.

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