IFRS + C-SOX Certifications – Regulatory

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International Financial Reporting Standards (IFRS) will replace Canadian generally accepted accounting principles (GAAP) for fiscal years beginning on or after January 1, 2011. As Canadian companies transition to IFRS during 2011, CEOs and CFOs must continue to provide their control certifications throughout this period.

Most Canadian-listed domestic issuers will be required to report their first set of IFRS financial statements in the first quarter of 2011. At the same time, certifying officers of non-venture issuers will also need to certify on the design and implementation of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR). How will companies maintain effective control throughout the IFRS conversion and beyond?

This blog is one in a series of 3 blogs, which addresses the following important considerations with regards to IFRS and NI-52-109 CEO and CFO Certifications:

• Regulatory (Part 1 of 3).
• Initial reporting under IFRS (Part 2 of 3).
• Ongoing certifications (Part 3 of 3).

A portion of this information is based on my personal observations and opinions. This has been augmented with information publicly available from KPMG. Therefore, acknowledgements are hereby made to KPMG.
 
Regulatory
CSA staff, in Notice 52-320 have outlined the disclosures expected in the three years preceding an issuer’s IFRS changeover date, and suggest that the key elements of a changeover plan would include addressing the impact of IFRS on:

• Accounting policies, including choices among policies permitted under IFRS, and implementation decisions such as whether certain changes will be applied on a retrospective or a prospective basis;
• Information technology and data systems,
• Internal control over financial reporting (ICFR),
• Design and implementation of disclosure controls and procedures (DC&P), including investor relations and external communication plans,
• Robustness of financial reporting expertise, including training requirements,
• Business activities, such as foreign currency and hedging activities, as well as areas that may be influenced by GAAP measures, such as debt covenants, capital requirements and compensation arrangements.

As indicated above, 2 of the considerations noted within Notice 52-320 directly impact the certification process. Therefore, it is extremely important that the impact of the IFRS transition on the certification process is well understood and managed.

Potential complexities arising from the IFRS changeover
When making their MD&A disclosures regarding DC&P, certifying officers of non-venture issuers need to consider whether they have appropriately designed and implemented controls to give them reasonable assurance that appropriate information has been gathered and reported in their MD&A filing.

The transition to IFRS adds another dimension to these certifications— certifying officers will have to consider whether their DC&P have been appropriately amended to capture the additional MD&A disclosures expected for the IFRS changeover.

Forward looking financial information for 2011
MD&A may also include forward looking financial information, such as revenue or earnings per share (EPS) guidance. Both Canadian and U.S. regulators require any forward looking statements to be based on the future expected accounting policies that the issuer will have in place. Therefore, for a calendar-year-end issuer that provides EPS guidance in 2010 for its 2011 fiscal year – any EPS guidance must be in accordance with the anticipated IFRS framework. Management should therefore consider whether appropriate controls are in place so that forecasted figures reflect the appropriate IFRS accounting policies. Alternatively, issuers may choose to report meaningful non-financial measures, such as operating statistics.

Disclosing changes in ICFR
Each quarter, a non-venture issuer’s MD&A must also disclose any changes in ICFR that are reasonably likely to have a material effect on its ICFR. During the IFRS transition, depending on the size and complexity of the issuer, many factors can result in ICFR changes. Such changes can be very broad and have a significant impact, such as introducing a new ERP system, or more specific, such as a new process for capturing specific new disclosure information. Management should consider whether the company has a comprehensive process in place throughout the organization to capture any changes in ICFR. Such a process can aid management in evaluating changes and assessing the need to disclose material ICFR changes in MD&A. Many companies may need to make material change disclosures as a result of their IFRS conversion.

I hope this helps. This is one of a series of blogs that is meant to convey information relating to Canada’s transition from Canadian GAAP to IFRS, specifically as it pertains to CEO and CFO Certifications.

For further information, please refer to the ongoing series of IFRS blogs on the Edelkoort Smethurst Schein CPA’s LLP web-site or send me a note, and please remember to contact your accounting professional for further guidance.

Edelkoort | Smethurst | Schein CPAs LLP is located in Burlington Ontario servicing the Golden Horseshoe and Greater Toronto Area and beyond. The firm is fully licensed with CPA Ontario to provide assurance, tax and accounting services as well as registered as tax preparers with the Canada Revenue Agency (CRA) & Internal Revenue Service (IRS). The firm is also registered as an IRS Certified Acceptance Agent.

All blog posts published on this site are for informational purposes only and do not constitute professional advice. Readers should contact a professional to discuss their individual situation. Neither the author or the accounting firm shall accept any liability for any reliance placed on the information posted.

2016-10-14T13:26:47+00:00

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