As Canada transitions to IFRS, there may be significant implications for collecting data.
There are differences between IFRS and Canadian GAAP that will take considerable time to prepare for, keeping in mind milestones and deadlines. Companies need to start turning their attention to data collection to support IFRS planning, decision making, and ultimately financial reporting. The question then becomes – how early is it necessary to collect IFRS data?
The quick answer – early enough to turn your thoughts into a proactive action plan. Depending on the type of organization and the situation, it may be necessary to start collecting data immediately however the general message is that it really can never be too early. The IRFS transition really needs to be treated as a project, and one of the initial stages of that project is to do a “GAP” analysis, to determine what the major issues. A company will only be ready to start collecting once it has identified which issues are applicable.
From a project planning standpoint, what is useful is use an approach wherein you determine the end goal, and then work backwards in time to determine when the project needs to begin – often referred to as a “Work-Back” schedule. This would follow the GAP analysis – after all of the issues have been identified, a company will understand the data needs and then identify the data collection milestones and objectives that need to be achieved at key points in the work back schedule. It is easy to get caught up in big IFRS issues or bog down in significant differences such as fixed assets and impairments.
Looking at IFRS from an individual company standpoint, the focus should be on the GAP analysis and from there, mapping out the IFRS project from an information gathering standpoint. For example, there may be entries that have to be recorded for the data transition, but it will also have been necessary to have gathered all of the data at key points in order to record the entries. One of the approaches for identifying data collection issues is for the company to take the financial statements and list all Balance Sheet and Income Statement items and start identifying what key issues are imbedded in each item. However, remember that whenever more detailed concepts are reviewed such as PP&E, it will not be possible to identify all issues from the financials. It will be necessary to drill down into the Fixed Asset ledger and historical cost data that forms the basis of the assets costs and its amortization.
There are certainly many things that can be done immediately – for instance understanding the exemptions and exceptions under IFRS-1. For companies having a December year-end, it will be necessary to prepare an opening Balance Sheet as of January 1, 2010, which in reality is a December 31st 2009 IFRS version of closing Balance Sheet. You need to plan for collecting any data that is required to prepare that Balance Sheet. For instance, once again looking at PP&E, if it is determined that there are “components” that were not previously accounted for under Canadian GAAP, and the company decides not to use the IFRS-1 Deemed Cost exemption for Fair Value for that component, it will be necessary to review historical data, and determine the cost of that component. Furthermore, the company will need to determine the amortization that would have been taken if IFRS had been applied since the point of acquisition. This could be a significant undertaking. Before making choices under IFRS-1, data must be collected to support the choices. For example, with component accounting under PP&E, it needs to be determined which components are considered material, and if they are, the cost of this component must be determined “retrospectively”.
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.
For further information, please refer to the ongoing series of IFRS blogs on the Edelkoort Smethurst Schein CPA’s LLP web-site 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.