IFRS Implications for the
Public Sector
Andrew Newman, Audit Partner, Public Sector
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Agenda
Canada’s Plan to Adopt IFRS
IFRS-Canadian GAAP Similarities and Differences
Key Success Factors
Q&A
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Canada’s Plan to Adopt IFRS
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Canada’s plan to adopt IFRS – who and
when?
Canadian GAAP will cease for publicly accountable enterprises
Change-over date to IFRS now confirmed as fiscal years
beginning on or after January 1, 2011
Currently “publicly accountable enterprises” defined to be
entities that:
Issued any class of instruments in a public market; and
Hold assets in a fudiciary capacity for a broad group of outsiders.
Publicly accountable enterprises include Government Business
Enterprises and Government Business Type Organizations
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Private Enterprises
AcSB has announced intention to develop unique set of
standards for private enterprises
Two key premises:
The majority of the recognition and measurement standards in the
existing Handbook are relevant to Canada’s private business and
will be retained with few, if any, modifications
Financial statement disclosure requirements will be considerably
fewer than in the existing Handbook.
Moving quickly—anticipated to be completed by end of 2008.
Proposed approach and working drafts of some sections
published on August 28th.
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Not-for-Profit Organizations
AcSB has not mandated adoption of IFRS by NPOs
AcSB actively discussing the future direction of accounting
standards for NPOs
Possible options include:
Providing a set of over-arching standards (liks S4400) that address
unique aspects of NPOs
Allowing NPO’s to select between IFRS and private business
GAAP, under the umbrellas of the over-arching NPO standards
Allowing, or requiring, the “SUCH” sector (schools, universities,
colleges, hospitals) to adopt PSAB standards
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Governments
PSAB has not signalled that governments or
government NPOs will be required to adopt IFRS
International Public Sector Accounting Standards
Board:
Currently no plan to implement international Public
Sector standards in Canada
IPSASB relocated to Toronto
Canada has two members on IPSASB (Rick Neville &
Sheila Fraser)
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IFRS - Canadian GAAP
Similarities and Differences
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Timeline for adoption of IFRS
Changeover date
announced
Jan 1/08
Disclosure
of plan for convergence
and anticipated effects
Dec 31/08
Update convergence plan
and standards which
may have material
effect in greater detail
Jan 1/10
Calendar year periods
beginning
Jan 1/11
IFRS
Comparative
figures
IFRS
Opening
Balance
Sheet
IFRS
go-live
Last reporting
under
Canadian GAAP
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IFRS versus Canadian GAAP – Similarities
Comprehensive set of principles-based standards
Similar to Canadian GAAP in structure and form
Similar basic concepts and recognition / measurement
principles
Similar structure and content of financial statements
Many standards in IFRS provide similar approach as
Canadian GAAP
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IFRS versus Canadian GAAP – Differences
Fewer bright lines and rules
Some standards in IFRS differ considerably from
Canadian GAAP – e.g. impairments, provisions
More accounting policy choices and less interpretative
guidance
Applying IFRS requires more professional judgement
and results in greater volume of disclosures
Many differences in application/interpretation
BE CAREFUL – The devil is in the detail!
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IFRS versus Canadian GAAP:
Areas with more significant differences
Impairment of assets 
Provisions (incl. asset
retirement obligations)
Financial instruments &
hedging
Leases
Property, plant and
equipment
Employee benefits
Securitizations 
Stock-based compensation
Accounting for tax
uncertainties
Consolidations, SPEs,
investments, JVs
Rate-regulated operations 
Industry-specific issues –
insurance, extractive industries
 Fundamentally different from Canadian GAAP
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Impairment of Assets
(IAS 36)
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Impairment – Summary of approach
IFRS has one general impairment standard
IFRS –
“1-step process”
Recoverable amount is higher
of
fair value less cost to sell
value in use (discounted
CF)
Discounting required in
Evaluation stage
Canadian GAAP –
“2-step process”
For an asset in use,
undiscounted future cash flows
from use establish recoverability
and fair value used for the
impairment calculation
Discounting occurs only in
the valuation stage
Impairments more likely under IFRS!!
Impairment – Long-lived assets and
finite-life intangible assets
Timing of impairment tests same as Canadian GAAP
Estimate recoverable amount for
individual asset or, if not possible
the asset’s cash-generating unit
Apply CGU concept when asset does not generate cash
inflows which are independent from other assets
similar to “asset group” but could have differences
Presume future cash flows beyond initial 5 years not
reliable
extrapolation based on steady or declining rate of growth
Reverse impairment charges if circumstances change
Property, Plant & Equipment
and Investment Property
(IAS 16, IAS 40)
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PP&E – Recognition and measurement
Components approach – more rigorously applied
and broader than under Canadian
allocate cost to significant parts of the asset (including nonphysical components such as major overhaul/inspection)
Borrowing costs directly attributable to
construction of “qualifying” assets – must be
capitalized
Subsequent measurement options are cost or
revaluation model; apply to all items in a category of
PP&E
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Investment property – Two options
Property held for rental or capital appreciation
Fair value model
Initially measure at cost
Adjust carrying value to
fair value
Do not deduct disposal
costs in arriving at FV
Recognize changes in
FV in P&L, not equity
No depreciation or
impairment losses
Cost model
Initially measure at cost
Depreciate
Impairment losses
Determine and disclose
fair value
Apply accounting policy choice to all investment properties
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Pension and
Post Employment Benefits
(IAS 19)
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Defined benefit pension plans and OPEBs –
Actuarial gains and losses
Can choose to recognize:
immediately in equity (with no amounts ever
recognized in P&L); or
using corridor method; or
another systematic approach to recognize faster
Required to apply accounting policy choice
consistently to all plans
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Defined benefit pension plans and OPEBs
– Past service costs
Accelerated recognition of past service costs relative
to Canadian GAAP
Recognize past year service cost on straight-line
basis over average remaining vesting period
To the extent that benefits are already vested at time
of amendment, recognize past service costs
immediately
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Provisions
(IAS 37)
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Scope of IAS 37 – Provisions
Applies to all enterprises in accounting for provisions,
contingent liabilities and contingent assets, except
those covered by another IFRS (e.g. financial instruments,
insurance contracts, employee benefit obligations)
HB 1000
EIC-60,
134, 135, 159
IAS 37
(IFRIC I, 5, 6)
HB 3290
HB 3110
Provisions – liabilities of uncertain timing or amount
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Provisions – Recognition and measurement
Recognize if probable a liability has been incurred
Recognize on basis of legal OR constructive obligation
Probable = “More likely than not” rather than “likely”
Measure at “best estimate” – may be one of
most likely outcome – single best estimate
expected value – probability weighted expected value
midpoint – where a range of probable estimates
Discounting required when effect is material
More items to be recognized…measurement may differ
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Measurement
IFRS
Canadian GAAP
Provisions under
IAS 37
Best
estimate
Best estimate
Loss
contingencies
Best
estimate
Asset retirement
obligations and
restructuring
liabilities
Best
estimate
amount required to settle at balance
sheet date or transfer to a third party
Reasonable estimate
of ultimate loss (or low end of range if
no estimate more likely than any other)
Fair value
(amount liability could be settled for in
a current transaction by willing parties)
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Other Potential Differences
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Related Parties
No special rules – RPTs accounted for in accordance with
requirements of relevant IFRSs
Should take into account substance over form
Consider transactions with shareholder, particularly nonreciprocal amounts received in the form of cash or nonmonetary assets
 If any possibility of having to repay, then recognize
liability
 If no requirement to repay under any circumstance,
then normally will be an equity contribution and not
income
potential issue for GBE/GBTOs—applicability of PS3800
–
–
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Other Potential Differences
Revenue recognition
Don’t blindly assume that your revenue recognition
policies are consistent with IFRS
Accounting for Investments
No VIE standard; consolidate controlled SPEs
No exemption from consolidation of subsidiaries;
no AcG-18 equivalent standard
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Implementation
Key Success Factors
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Two Sources
1) IFRS Implementation Experience from Europe and
Australia
2) The Canadian Experience with Significant Accounting
Changes in the Public Sector
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Experiences from Europe and Australia
Companies found that they
 Underestimated the effort needed to convert
 Lacked early support from senior management
 Waited too long to get started
 Suffered from poor project management
 Failed to fully embed IFRS into their primary systems
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More experiences from Europe and Australia
Companies found that they
 Invested heavily in training finance & accounting staff
 Required systems upgrades / adjustments
(IT and management reporting systems)
 Needed to renegotiate contracts
(e.g. bank and compensation agreements)
 Spent considerable time communicating with
stakeholders
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Key Success Factors
1) Support from highest levels of management

Corporate Priority
2) A robust & flexible project plan




Accounting & Financial Reporting
Systems
People/Training
Operations/Business/External
3) A multi-functional implementation team
4) An energetic and dedicated team leader committed to
successful completion
5) Prioritization of tasks (Complexity, Time & Resource
Requirements, Risk, Momentum)
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Key Success Factors
6)
7)
8)
9)
Resources (financial, human, technical)
Engaging non-financial managers and staff
Communications / Managing Expectations
Engaging external stakeholders consistently (Audit
Committee, Board, TBS, OAG)
10)Seek value-added benefits:
enhance skill / knowledge of financial and non-financial staff
streamline and standardize processes
enhance your control environment
improve knowledge of organization
cross-functional interaction
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Questions?
Andrew C. Newman
Partner
andrewnewman@kpmg.ca
613-212-2877
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