Under IFRS – disclosures is an area of significant change that must be addressed early on in the conversion process planning. According to lessons learned in other countries, it was noted that disclosures were pushed off until the very end of the transition, and that was a big mistake. Often it will be necessary to create systems and processes that gather information for disclosures and that will take time and effort.

Companies may not have information available for all these new required disclosures. Companies may have dealt with all the recognition and measurement issues, and think they are ready to draft IFRS based financial statements only to realize that they have to disclose new requirements, and the information is not available. This most definitely has implications for addressing the data gathering processes in a company’s IFRS project planning.

Organizations will need to take a look at everything that is already being disclosed under Canadian GAAP, and then determine what IFRS disclosures are required. Then, the company must evaluate which additional disclosures must be included in the financial statements and then proceed one step further and pose the question – what information is required to meet these disclosures?

An example of additional disclosures under IFRS is the need to provide more information about “management judgement and uncertainties”, not all of which is currently required under Canadian GAAP. The extent to which the systems are capable of generating this information and likewise the extent to which financial reporting systems produce information with sufficient detail to extract some information could offer some difficulties.

As IFRS is principles based, it gives preparers more choice with regard to how to account for something, it then compensates for this by requiring more disclosures so companies can explain how an item was actually accounted for. That additional information and note disclosures is designed to assist with comparability – the notion is that if companies are able to have a little more flexibility in the accounting with IFRS, then companies should explain exactly how the item was accounted for.

However, thought should be given to which disclosures are necessary and essential, and what may be required specifically for the company and industry. There are IFRS disclosure checklists available to support this analysis, but keep in mind that some of the checklists are very detailed and lengthy (example 200 pages) and may be beyond the scope or not relevant to many smaller entities. Therefore, these tools should be used with discretion, concentrating primarily on the areas that are relevant to your specific organization.

An entity’s first financial statement under IFRS-1 requires reconciliation between the prior Canadian GAAP results, and the new IFRS based results. This, combined with an explanation of changes in accounting policies can significantly increase the volume of disclosures in the first IFRS statements. This will be necessary in the first quarterly financial statements of 2011 in accordance with IFRS, as well as the first annual statements. Afterwards, these particular additional disclosures will no longer be required.

It is important to address disclosure issues early, as it was learned in other international IFRS conversion projects that disclosures were left to the very end of the project, and this created significant problems. Luckily for Canada, we can learn from the experience of others, and consider disclosures in tandem with all other aspects of IFRS reporting requirements. The end result – well formulated disclosures and more accurate and relevant financial statements.

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.