52-326 - IFRS Transition Disclosure Review [CSA Staff Notice]

Introduction

Canadian Securities Administrators (CSA) staff conducted a review to assess the extent and quality of International Financial Reporting Standards (IFRS) transition disclosure made by issuers in 2009 annual Management’s Discussion & Analysis (MD&A).  We compared the IFRS transition disclosure of 196 calendar year-end issuers to the disclosure guidance provided in CSA Staff Notice 52-320 Disclosure of Expected Changes in Accounting Policies Relating to Changeover to International Financial Reporting Standards (SN 52-320). SN 52-320 provides guidance on the requirement in Form 51-102F1 Management’s Discussion & Analysis (Form 51-102F1) for an issuer’s disclosure of expected changes in accounting policies related to IFRS changeover for the three year period prior to financial years beginning on or after January 1, 2011 (the changeover date).

We expected issuers to have provided in their 2009 annual MD&A a progress update on their IFRS changeover plans.  In addition, issuers should have described the major identified differences between their current accounting policies and those they will be required to apply, or expect to apply, in preparing their IFRS financial statements.

Based on these expectations, our review focused on the disclosure of an issuer’s IFRS changeover plan and the related discussion of the accounting policy effects of IFRS on the issuer’s financial reporting.  Overall, we found improvement in the amount and quality of IFRS transition disclosure provided by issuers.  Issuers recognized the importance of this disclosure to their stakeholders and demonstrated a willingness to provide disclosure consistent with the guidance in SN 52-320.  However, we identified areas where disclosure could be improved and consequently we asked, when appropriate, that these issuers confirm future MD&A filings would contain enhanced IFRS transition disclosure.

This notice summarizes the results of our review and provides additional guidance for issuers preparing their MD&A.  We did not assess an issuer’s preparedness for IFRS transition.  That assessment is best done by an issuer’s management, board of directors and external advisors.   Issuers and their directors and advisors, should take this notice into account when assessing the extent to which future MD&A disclosure meets the requirements of securities legislation and their investors’ need for meaningful IFRS disclosure.

It is critical that issuers communicate the potential impact of the IFRS changeover.  Investors need to be properly informed during the IFRS transition on whether reported changes in financial performance relate to the adoption of different accounting standards or relate to a change in the issuer’s business.  Changes in accounting policies necessitated by transition to IFRS may result in greater volatility in reported results depending upon the issuer’s industry and its entity-specific circumstances. 

As discussed in SN 52-320, issuers should provide detailed information about the impacts of adopting IFRS in their 2010 interim and annual filings.  Staff will continue to review IFRS transition disclosure provided by issuers as part of our continuous disclosure review program.