International Financial Reporting
Standards
Ian P.N. Hague
Principal, Accounting Standards
Presentation to FMI (Halifax Chapter)
January 15, 2009
Own views – not those of AcSB or other staff
Agenda
• What is changing and when?
• The IASB
• First-time Adoption
• Some similarities and differences
• Planning for the change
• Resources
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The Plan
• February 13, 2008: “The Canadian Accounting Standards Board (AcSB) has
confirmed that use of International Financial Reporting Standards (IFRS) will
be required in 2011 for publicly accountable profit-oriented enterprises.
• IFRS will replace Canada’s current Generally Accepted Accounting Principles
(GAAP) for those enterprises.
• The official changeover date is for interim and annual financial statements
relating to fiscal years beginning on or after January 1, 2011.”
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Who does this apply to?
• Publicly Accountable Enterprise:
• Issued, or is in the process of issuing, debt or equity instruments that are
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or will be outstanding in a public market (i.e. all public companies are
PAE’s); or
Holds assets in a fiduciary capacity for a broad group of outsiders as its
primary business, (i.e. others with large or diverse groups of users, such
as a bank, insurance entity, securities broker/dealer, credit union, mutual
fund or investment banking entity).
• Also, Public Sector: GBE/GBTO
• NOT required for NFPOs
• Others may choose to adopt IFRSs
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Public Sector
• November 2007, PSAB approved amendments to Introduction to
PSAB standards:
• GBEs and GBTOs follow for-profit GAAP – i.e., IFRSs
• December 2008, decided to reconsider whether ALL such entities
should follow IFRSs – ITC, early 2009
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When is adoption required?
Opening
balance
sheet
IFRS
Reporting
date
 < 12 months 
Jan. 1,
2008
Preparatory
period
Jan 1/
Apr 1
2010
Cdn. GAAP & IFRS
Jan 1/
Apr 1
2011
Dec 31
2011/
Mar 31
2012
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Agenda
• What is changing and when?
• The IASB
• First-time Adoption
• Some similarities and differences
• Planning for the change
• Resources
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What are IFRSs?
• A single set of globally converged, high quality accounting
standards
• Regulatory backing – IOSCO, EU, etc.
• Globally accepted (100+ countries)
• SEC – 2011 to decide if IFRS mandatory for
2014
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What are IFRSs?
• “Principles-based” standards
• Developed by International Accounting Standards Board (based in
London, England)
• Broad international representation
• Independent
• Extensive due process
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IASB structure
Trustees (22)
(appoint Board, IFRIC and SAC)
Standards Advisory
Council (SAC)
(advises Board)
IASB (14)
(sets accounting standards)
National standard
setters
Int’l Finc’l Reporting
Interpretations Committee
(IFRIC) (14)
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The standards
IFRSs:
Set out recognition, measurement, presentation &
disclosure requirements for general purpose F/S
• IFRS
• IAS
• IFRIC
• SIC
Financial Reporting
Standards
Financial Reporting
Interpretations
Standards
EICs
Developed in accordance with Conceptual Framework
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What does it mean to adopt
IFRSs?
• PAEs adopt IFRSs without modification as Canadian GAAP – all
Canadian GAAP falls away (for PAEs)
• Interpretations by IFRIC only
• Focus of attention becomes on IASB in London
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Benefits to Canada
• Access to foreign markets
• Lower cost of capital – familiar standards
• Continued principles-based standards – less complexity
• Efficiencies for international companies
• BUT: It will take work to get there
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Challenges
• Financial information will differ
• Recognition
• Measurement
• Disclosure
• Significant education required
• IFRSs are, themselves, changing
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Agenda
• What is changing and when?
• The IASB
• First-time Adoption
• Some similarities and differences
• Planning for the change
• Resources
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First-time adoption of IFRSs
• Basic Principle: Retrospective treatment of IFRSs in effect at the
reporting date
• Cost benefit to retrospective treatment
• Optional exemptions – e.g., fair value on transition
• Exceptions to the principle – e.g., estimates and hedging
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IFRS 1: Timeline
(calendar year entity)
Date of
Transition
Opening
balance
sheet
Jan. 1,
2010
First IFRS
Financial
Statement
Jan. 1,
2011
Same accounting policies
IFRS
Reporting
date
Dec. 31,
2011
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First IFRS financial statements
• Reconciliations of the effect of the change from ‘local’ GAAP to
IFRS
• Equity as at
• Date of transition, and
• End of latest period presented by the entity in most recent
annual financial statements prepared in accordance with its
local GAAP
• Net income for period last presented in most recent annual
financial statements
• Accounting policy disclosures
• Other disclosures if significant
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Agenda
• What is changing and when?
• The IASB
• First-time Adoption
• Some similarities and differences
• Planning for the change
• Resources
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What will IFRS F/S look like?
Similarities
• Cash
• Accounts Receivable – except transfers
• Inventories - except for Agriculture and Construction Contracts
• Property, Plant and Equipment – revaluation optional
• Leases – finance lease = capital lease
• Goodwill and Intangibles – some revaluation
• Accounts payable
• Long term debt – presentation: must refinance by balance sheet
date
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IFRS Adoption at
changeover
• Many similarities between IFRSs & Cdn GAAP
• BUT: Also some major differences
• Impairment
• Fair value / Revaluations
• Securitization
• Devil is in the details!
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Impairment
Identify
cash generating unit
Identify asset group
Identify impairment
indicators (B/S date)
Monitor for
impairment indicators
If impairment indicators
exist, determine
recoverable amount
(discounted cash flows)
If impairment indicators
exist, determine
recoverable amount
(undiscounted cash flows)
Write-down to
recoverable amount
Write-down to
fair value
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Looking for impairment
Impairment Indicators
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Proactive review at each reporting date to assess
whether there is any indication that an asset might be
impaired
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External information
Internal information
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Reversal of impairment loss
• All impaired assets other than goodwill
• Look for indicators of reversal (B/S date)
• Mirror of external and internal indicators of impairment
• Calculate new recoverable amount and perform impairment test
• Recognize reversal if appropriate
• Only if change in estimates since last impairment loss
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Fair value in existing IFRSs
compared to Canadian
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IAS 16: Property, Plant and Equipment – optional FV
IAS 17: Leases - similar
IAS 18: Revenue - similar
IAS 19: Employee Benefits - similar
IAS 20: Government Grants - similar
IAS 21: Foreign Exchange - similar
IAS 32: Financial Instruments: Presentation - similar
IAS 33: Earnings per Share - similar
IAS 38: Intangible Assets – optional FV
IAS 39: Financial Instruments: Recgn. & Meas. - similar
IAS 40: Investment Property – optional FV
IAS 41: Agriculture - additional
IFRS 2: Share-based Payments - similar
IFRS 3: Business Combinations - same
IFRS 4: Insurance Contracts – additional
IFRS 7 – Financial Instruments: Disclosure - same
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Fair value guidance in IFRSs
• Limited guidance today in IAS 32, 39 & 41
• Recent guidance issued on fair value in inactive markets
• Active project to develop consistent fair value guidance
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Property, plant & equipment
Property plant and equipment (IAS 16)
• Options for measurement
• Cost
• Revaluation Model
• Both less accumulated depreciation and accumulated impairment
losses
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Property, plant & equipment
When to revalue?
• As frequently as necessary to ensure that the carrying value of the
revalued assets and the current values are not materially different
• Therefore, frequency depends on volatility of asset value
• Revalue all assets of same class at same time
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Property, plant & equipment
Changes in value
• Increase = credit to revaluation surplus (in equity)
• Decrease = charge to income statement
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Property, plant & equipment
Revaluation after initial recognition
Upwards
No
Yes
Downwards
Asset Revalued
Increase to
Equity as
‘revaluation
surplus”
Increase to
income = previous
downward. Excess
to equity in revaluation surplus.
Decrease to
Income
No
Yes
Decrease to
revaluation surplus.
Excess to income
Statement.
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Property, plant & equipment
Depreciation
• Charge for depreciation against income even in revaluation model
• Portion of revaluation reserve also transferred to retained earnings
• When asset disposed of, any remaining balance in revaluation reserve
moved to retained earnings
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Investment property
• Options for measurement
• Cost (but must disclose FV)
• Fair value method (not revaluation method)
• Gains and losses directly to income statement
• No depreciation
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Property, plant & equipment /
Investment property
• 28% of EU companies with investment property used FV method
[ICAEW, 2007]
• 4% of EU companies used revaluation for buildings – none for
P&E [ICAEW, 2007]
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Agenda
• What is changing and when?
• The IASB
• First-time Adoption
• Some similarities and differences
• Planning for the change
• Resources
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Majority of IFRSs remain
unchanged through 2011
• Inventories
• Accounting Policies & Accounting
Changes
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Events after the Balance Sheet Date
Property Plant & Equipment
Government Grants
Foreign Currency
Borrowing Costs
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Associates
Hyperinflation
Interim Reporting
Impairment ??
Intangible Assets
Investment Property
Agriculture
Business Combinations
Extractive Activities
Segments
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How do we get there?
Convergence before changeover
• Business combinations [IFRS 3/IAS 27] – 2011
• Earnings per share [IAS 33] – 2010?
• Joint ventures [IAS 31] – 2011
• Credit Environment? – 2010/11?
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IASB changes expected
IASB changes before 2011
• Financial instruments disclosures – 2009
• Fair value measurement (how not when) – 2010
• Liabilities – 2010
• Income taxes – 2010
• Emissions trading – 2010
2009 probably effective 2011
2010 probably effective 2012
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IASB isolated changes
Isolated changes
• Related Party Disclosures
• Discontinued Operations
• Group Cash-settled Shared-based Payment
• First-time Adoption
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Changes expected in 2011
• Financial statement presentation
• Insurance contracts
• Liabilities & equity
• Leases
• Employee benefits
• Revenue recognition
Likely to be effective in 2013. Might not be available for early adoption?
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IASB Projects in longer term
• Reducing complexity in financial instruments
• Extractive activities
• Common control transactions
• Government grants
• Intangible assets
• Conceptual framework
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Planning
Evaluate the effects for your organization
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More than a technical exercise – creates opportunities and challenges
Need to thoroughly assess accounting policies
Start thinking in terms of IFRSs
More than just accounting
• User relations
• Performance measures
• Covenants, etc.
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Agenda
• What is changing and when?
• The IASB
• First-time Adoption
• Some similarities and differences
• Planning for the change
• Resources
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Find out more: IFRS
resources
• IASB web site – www.iasb.org
• IFRSs on AcSB website – www.acsbcanada.org
• What’s changing when?
• Canada/IFRS GAAP Comparisons – 2 levels of
detail
• Bulletins, Implementation Plan, etc.
• Major firms – Newsletters, webcasts, publications, illustrative
financial statements
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Find out more: Training
• CICA/PICAs
• Three-day in-depth course
• One-day overview of differences
• Web-based learning
• Major Accounting Firms – self-study (e.g., www.iasplus.com)
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Conclusions
• Biggest changes to financial reporting in recent years
• Creates challenges and opportunities
• Be prepared for both
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Questions/comments?
ian.hague@cica.ca
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