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OSC Urges Issuers to Provide Better IFRS Disclosure

Published: 04/14/2010

By Mark T. Bennett

International Financial Reporting Standards (“IFRS”) Conversion: January 1, 2011

The January 1, 2011 deadline to convert accounting standards from Canadian GAAP to IFRS is fast approaching. Reporting issuers should be mindful of the continuing Management Discussion & Analysis (MD&A) disclosure requirements. Canadian reporting issuers should already have an IFRS convergence plan and should have disclosed the details of the plan in their MD&As.

For a reporting issuer with a December 31 year-end, the first reporting period under IFRS will be the quarter ending March 31, 2011, therefore, companies should already be compiling IFRS comparative financial figures.

The OSC recently conducted a review to assess the extent and quality of the IFRS disclosures made by reporting issuers (OSC Staff Notice 52-718). Of the 106 reporting issuers reviewed, 40% did not provide any IFRS transition disclosure in their MD&As, and of the remaining 60%, the majority provided deficient IFRS disclosure.

Inadequate IFRS Disclosure: Impact on Investors/Readers of the MD&A

The OSC’s perspective is that:

1. if a reporting issuer does not provide disclosure about an IFRS transition plan, it implies that it has not begun to prepare for IFRS; 
    
2. "boiler-plate" disclosure does not allow an investor to effectively assess the readiness of the issuer to transition to IFRS and the possible impact that IFRS may have on the reporting issuer; and
    
3. failing to provide quarterly updates on the status of IFRS transition suggests the reporting issuer has not made any progress (alternatively, reporting issuers can confirm that no progress has been made during the quarter).

Future OSC Action: MD&A Re-Filing Requests and Other Regulatory Action

Reporting issuers should be making IFRS transition disclosure on the following six key elements of their company:

1. accounting policies;
2. internal control over financial reporting (ICFR);
3. disclosure controls and procedures (DC&P);
4. financial reporting expertise (including training requirements for directors, management and employees);
5. business activities that rely on financial information (risk management, foreign currency, capital requirements, debt covenants, contractual requirements); and
6. information technology and data systems.

Please see OSC Staff Notice 52-718 for examples of adequate disclosure.

The OSC will continue to conduct reviews of select 2009 and 2010 MD&A filings, and the OSC may make re-filing requests and enforce other regulatory action, where reporting issuers have not met their disclosure obligations.
 

Related Cassels Brock Business Law Group Newsletter:
Certain Commercial Transaction Implications Arising from the Adoption of IFRS by Canadian Enterprises