Securities Bulletin
October 2009
Fasken Martineau DuMoulin LLP
National Instrument 52-107: Acceptable Accounting Principles and Auditing
Standards
Authors: Aaron Atkinson, Robert D. Chapman and Michael Shour
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Calgary
Toronto
Ottawa
Montréal
International
Financial
Reporting
Standards (“IFRS”) has been widely
touted as a comprehensive, high-quality,
universal set of principles. In an effort to
ensure Canada would be on equal footing
in terms of financial reporting with over
100 other nations—such as the U.K.,
other members of the E.U., and
Australia—the Canadian Accounting
Standards Board (AcSB) released a
strategic plan in February 2006 to
transition from Canadian generally
accepted
accounting
principles
(“Canadian GAAP”) to IFRS by January
1, 2011. This changeover date was
confirmed in February 2008. AcSB plans
to incorporate IFRS into Part 1 of the
Canadian
Institute
of
Chartered
Accountants Handbook as “Canadian
GAAP
for
publicly
accountable
enterprises,” which will be applicable for
financial years beginning on or after
January 1, 2011.
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Johannesburg
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The Canadian Securities Administrators
(“CSA”) has been taking steps to ensure
Canada’s securities regime facilitates the
changeover. As part of this effort, on
September 25, 2009 the CSA published,
for the purposes of soliciting comments,
proposed amendments to National
Instrument 52-107 Acceptable Accounting
Principles and Auditing Standards (“NI
52-107”), the companion policy to NI 52107, and National Instrument 14-101
Definitions (“NI 14-101”). The purpose
of NI 52-107, generally, is to provide the
accepted accounting principles for
financial reporting for Canadian and nonCanadian reporting issuers, foreign
registrants, and other capital markets
participants.
In its current form—not considering the
proposed
amendments—NI
52-107
requires reporting issuers to disclose
financial information in accordance with
Canadian GAAP, while giving SEC
registrants the option of reporting in
accordance with United States generally
accepted accounting principles (“U.S.
GAAP”).
Currently, only foreign
reporting issuers and registrants are
provided with the option of reporting on
the basis of IFRS.
IFRS Defined
Under the proposed amendments to NI
52-107, Canadian GAAP applicable to
publicly accountable enterprises (post
changeover to IFRS), will be defined as
follows:
“IFRS” means standards and
interpretations adopted by the
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International Accounting Standards Board
and amended from time to time, comprising
International Financial Reporting Standards,
International Accounting Standards and
interpretations
developed
by
the
International
Financial
Reporting
Interpretations Committee or the former
Standing Interpretations Committee.
Domestic Issuers
For financial years beginning on or after January 1,
2011, domestic issuers will be required to prepare
their annual and interim financial statements on the
basis of IFRS, and to make a clear statement
regarding complete compliance with IFRS in the
notes to their annual financial statements, or, in the
case of interim financial statements, to discuss
compliance with International Accounting Standard
34, Interim Financial Reporting.
Further, the
auditor’s report accompanying these statements must
address the fact that the statements were prepared
under IFRS (which may be referred to as “Canadian
GAAP applicable to publicly accountable
enterprises”).
Domestic Registrants
Similarly, registrants must prepare their financial
statements on the basis of IFRS, except that the
financial statements must account for investments in
subsidiaries, jointly controlled entities, and
associates as specified for separate financial
statements under IFRS.1 Consistent with current
requirements, registrants will still be required to
issue financial statements on a non-consolidated
1
For registrants, comparative information for the
applicable period in the prior year would not need to
be prepared in accordance with IFRS if that period
precedes January 1, 2011 provided that certain
disclosure is included.
Securities Bulletin
2
basis to facilitate identification of capital and
solvency issues.
Acquisition Statements
There is some disagreement among CSA
jurisdictions as to how IFRS should apply to
acquisition statements.2
All of the CSA
jurisdictions, except Ontario, propose that
acquisition statements should be permitted to be
prepared under Canadian GAAP applicable to
private enterprises as long as they meet the
following conditions: (1) the acquisition statements
consolidate subsidiaries and account for influenced
investees and joint ventures using the equity method;
(2) financial statements for the business were not
previously prepared using the other accounting
principles permitted for acquisition statements; and
(3) the acquisition statements are accompanied by a
notice specifying the accounting principles used,
explaining that they differ from Canadian GAAP
applicable to publicly accountable enterprises, and
indicating that the pro forma financial information
incorporates adjustments relating to the business and
financial information compiled using accounting
principles employed by the issuer. In contrast,
Ontario asserts that Canadian GAAP applicable to
private enterprises with or without variations is
unsuitable for acquisition statements, and that
permitting acquisition financial statements to be
prepared in accordance with those principles would
result
in
investors
receiving
insufficient
2
Where an issuer acquires a business that is “significant”
in relation to the issuer, the issuer is required to file a
document that includes audited annual financial
statements and unaudited interim financial reports for
the acquired business. Generally, if the issuer is
TSX-listed, an acquisition is considered to be
“significant” if it increases the size of the issuer by
20% or more. If the issuer is a venture issuer as
defined in National Instrument 51-102 Continuous
Disclosure, the significance threshold rises to an
increase in size of 40% or more.
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comprehensive financial information for making
informed investment decisions.
The CSA is
soliciting comments specifically on this issue.
Related Instruments
In conjunction with the proposed changes to NI 52107, the CSA, except the Autorité des marchés
financiers and the New Brunswick Securities
Commission, also published notices that propose
IFRS-related changes to several of the prospectus,
continuous disclosure and certification rules.3
Conclusion
Most companies have begun their changeover to
IFRS. It is important to note that, while the
changeover date is January 1, 2011, the changeover
to IFRS will require issuers to record their results in
IFRS during the financial year leading up to the
changeover date in order to prepare the IFRS
comparative statements that will be required in 2011.
The CSA are asking for comments on the proposed
changes to NI 52-107 on or before December 24,
2009.
3
NI 51-102 Continuous Disclosure Obligations, NI 41101 General Prospectus Requirements, NI 44-101
Short Form Prospectus Distributions, NI 44-102
Shelf Distributions, NI 71-102 Continuous
Disclosure and Other Exemptions Relating to Foreign
Issuers, and NI 52-109 Certification of Disclosure in
Issuers’ Annual and Interim Filings. Later, the CSA
will also be publishing a replacement for CSA Staff
Notice 52-306 Non-GAAP Financial Measures and a
revised National Policy 41-201 Income Trusts and
Other Indirect Offerings reflecting the changeover to
IFRS.
Securities Bulletin
3
For more information on the subject of this bulletin,
please contact the authors.
Aaron J. Atkinson
416 865 5492
aatkinson@fasken.com
Robert D. Chapman
613 236 3882
rchapman@fasken.com
Michael Shour
416 868 3341
mshour@fasken.com
Fasken Martineau DuMoulin LLP
Securities Bulletin
4
Our Securities and Mergers & Acquisitions Group
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Peter Villani
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rsteinberg@fasken.com
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*Practice Group Leader
Ottawa
Calgary
London
Virginia K. Schweitzer
613 236 3882
R. Greg Powers Q.C.
403 261 6148
vschweitzer@fasken.com
gpowers@fasken.com
David Smith
+44 207 917 8510
dsmith@fasken.co.uk
This publication is intended to provide information to clients on recent developments in provincial, national and international law. Articles in this bulletin
are not legal opinions and readers should not act on the basis of these articles without first consulting a lawyer who will provide analysis and advice on a
specific matter. Fasken Martineau DuMoulin LLP is a limited liability partnership and includes law corporations.
© 2009 Fasken Martineau DuMoulin LLP
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