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20 Questions Directors and Audit Committees Should Ask about IFRS Conversions Revised
Written by rafi g, C, C i S Sa, C
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ea “20 ” fi     a , aa   a   a  . t   a fl        a aa — a  —  . i  a, a a a  a  a  a    a   a  C  e  aa      a      aa a a   a   C. t  a     a  ,  a a a    a a   a . t  a aa      a a  a a  a   a   a a. t   a      a  a  a aa.     a     a aa,  a  a a   ,  a a  a a aa.
Written by rafi g, C, C i Caaa irS la, e  y S Sa, C S Maa, e  y
roeCt direCtion g da a, r Maa a ga CiC
t CiC a a    iCd    aa   d ea a.
20 Questions Directors and Audit Committees Should Ask about IFRS Conversions
Revised
Library and Archives Canada Cataloguing in Publication Greiss, Rafik (date)  20 questions directors and audit committees should ask about IFRS conversions revision/ Rafik Greiss, Simon Shar IS 2   Financial statements — Standards — anada 2 ccountin — Standards — anada I Shar, Simon,  II anadian Institute o hartered ccountants III itle I itle ent questions directors and audit committees should ask about IFRS conversions
F2G 200  02
oriht © 200 anadian Institute o hartered ccountants 2 ellinton Street est oronto,   2 rinted in anada isonible en rançais une 200
200000
20 Questions Directors and Audit Committees Should Ask about IFRS Conversions
able o ontents RF IRI GR RSI R SIRIS  hat ill convertin to IFRS mean or our business 2 o do e lan to aroach the conversion to IFRS  hat are the ke areas that need to be addressed durin the conversion  hat is the timeline or our IFRS conversion roect, hat resources ill be required and ho much ill it cost  hat can e learn rom the uroean nion conversion eerience FII RRIG SIRIS  o ill convertin to IFRS imact eternal financial reortin in our oraniation  hat ill be the imact on manaement reortin  o ill manaement address the need or 200 financial inormation reared under both anadian G and IFRS  hat are our cometitors and industr eers doin 0 ill ublicl accountable enterrises be required to al IFRS throuhout their rou structures  o ill IFRS imact ta reortin and ta filins
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FII RRIG SIRIS 2 ther than financial reortin, hich other business areas ill be imacted b the conversion  an our current I sstems handle the business’ revised data collection requirements under IFRS  hat IFRS trainin rorams are manaement lannin to rovide to finance ersonnel R R SI RIS  hat are the most sinificant risks associated ith convertin to IFRS  hat are the other ke risks associated ith convertin to IFRS  o can our oraniation take advantae o the oortunities resented b the conversion to IFRS  o ill convertin to IFRS imact our stakeholders, and hat should be done to manae the eectations o caital markets  hat should the role o our auditor be in the conversion rocess, and do e need a third art advisor indeendent rom our auditor 20 ther than financial reortin interit, hat are the other imlications or boards o directors R  FI R IFRI
RIS RSIG  GR R Brian Ferguson, FCA, Chair Bran eld, FCA, ICDD Andre  acDougall, B ichael B eagher, FCA Anne arie ’Donovan, FCA Sue ane, FCA, CDir eter Roberts, FCA Debi Rosati, FCA, ICDD Catherine Smith, ICDD IRRS ISR GR iles eikle, FCA, Chair ohn Caldell, CA illiam Dimma, FICD, ICDD ohn Ferguson, FCA ordon all, FSA, ICDD Carol ansell B Ronald sborne, FCA om eddie, FCA ulaine Saucier, C, FCA, FICD a Stehen, CA eter Stehenson, hD, ICDD I SFF Ian ague, CA  Director, uidance and Suort igi Dae  rincial, Risk anagement and overnance Beth Deaele, B  rincial, Risk anagement and overnance
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reace he Risk versiht and Governance oard o the anadian Institute o hartered ccountants commissioned this document to hel boards o directors, and articularl audit committees, to ulfill their oversiht resonsibilities relatin to the conversion to International Financial Reortin Standards (IFRS) lthouh the anadian transition to IFRS ill occur in 20, boards o directors need to bein no to address the imlications o the conversion or their oraniation his involves consideration not onl o the conversion rocess itsel, but o issues relatin to risk, stakeholder relations, financial reortin, and internal controls hich ill be triered b the transition In rearin or the conversion, anadian comanies have the benefit o the eerience o comanies in the uroean nion ho converted to IFRS in 200 It ill be crucial or all directors to have a eneral understandin o hat the transition to IFRS ill mean or their oraniation embers o audit and other board committees ill require a reater level o detail hile the level o detail in this document ma be more directl relevant to members o audit committees, it ill also rovide a solid oundation or all board members his document rovides suested questions or boards to ask themselves, senior manaement and others For each question, there is a brie elanator backround and some sues  tions oth the rocess and the imlications o the conversion to IFRS ill var idel amon anadian comanies, and no list o questions can be universall alicable irectors must use their on udment to determine i there is additional inormation that the need, but these questions are desined to ocus thouht and discussion on the issue he Risk versiht and Governance oard acknoledes and thanks the members o the irectors dvisor Grou or their invaluable advice, the authors Rafik Greiss and Simon Shar o rnst  oun , and the I sta ho rovided suort to the roect Brian Ferguson, FCA hair, Risk versiht and Governance oard
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Introduction In 20, the accountin rameork under hich financial statements in anada are reared or all ublicl accountable enterrises ( s) ill chane to International Financial Reortin Standards (IFRS) Generall acceted accountin rinciles (G) in anada, as e currentl kno them, ill cease to al or this rou o entities and ill be relaced b IFRS In ractice, reerences to anadian G ill remain in reulator and leal contets IFRS ill be incor  orated into the anadian G handbook he anadian Securities dministrators (S) ororate Governance Guidelines state that, as art o their steardshi role, boards o directors are resonsible or “the identification o the rinci  al risks o the issuers’ business and ensurin the imlementation o aroriate sstems to manae these risks” In addition, the Guidelines state that boards are resonsible or the “issuers internal control and manaement inormation sstems”he resonsibilit or eecutin the conversion to IFRS ill rest ith manaement It ill be the board’s resonsibilit to la an oversiht role and ensure that manaement has dischared its reson sibilities and eecuted an eective conversion onvertin to IFRS ill be one o the most undamental chanes that  s ill have to deal ith over the net e ears Such a momentous chane ill brin ith it both sinificant risks and oortunities, and boards need to be reared or the chane i the are to adequatel ulfill their unction in this area and dischare their overall steardshi resonsibilities he questions in this document are desined to hel directors, and audit committee members in articular, understand the otential scoe o the chane man aement eercise that the conversion ma resent to their business he ill also rovide uidance to the board o directors and the members o its articular committees on hat questions the should be askin manaement as the reare or the conversion he questions are oranied into our main rous  onversion roect considerations 2 Financial reortin considerations  onfinancial reortin considerations  ther board considerations CSA Cororate overnance uidelines  20  
been set deliberatel to allo directors to better understand the issues manaement ill ace durin a conversion and thereb better reare boards to ulfill their oversiht role throuhout the conversion eriod What constitutes a publicly accountable enterprise? he reace to the I andbook defines a publicly accountable enterpriseas “an entit, other than a notorrofit oran  iation, or a overnment or other entit in the ublic sector, that (i) has issued, or is in the rocess o issuin, debt or equit instruments that are, or ill be, outstandin and traded in a ublic market (a domestic or orein stock echane or an overthecounter market, includin local and reional markets) or (ii) holds assets in a fiduciar caacit or a broad rou o outsiders as one o its rimar businesses anks, credit unions, insurance comanies, securities brokers/dealers, mutual unds and investment banks ticall meet the second criterion above ther entities ma also hold assets in a fiduciar caacit or a broad rou o outsiders because the hold and manae financial resources entrusted to them b clients, customers or members not involved in the manaement o the entit oever, i the do so or reasons incidental to a rimar business (as, or eamle, ma be the case or travel or real estate aents, cooerative enterrises requirin a nominal membershi deosit, or sellers that receive ament in advance o deliver o the oods or services, such as utilit comanies), that does not make them ublicl accountable” his definition does not reclude other entities rom also adotin IFRSs It is a “rincilebased” definition that requires entities to consider or themselves hether the fit ithin it he ublic Sector ccountin oard requires that Government usiness nterrises adot IFRSs
20 Questions Directors and Audit Committees Should Ask about IFRS Conversions
 dol verl aieti dedivona eht ns hasers he le
Glossar o terms
AcSB CFO CICA CSA  FASB FPI AAP IAS IASB IASC IFRS I IA P PO onPublic roup PA Public roup SC 
ccountin Standards oard o anada hie financial oficer anadian Institute o hartered ccountants anadian Securities dministrators uroean nion Financial ccountin Standards oard Forein rivate issuers Generall acceted accountin rinciles International ccountin Standards International ccountin Standards oard International ccountin Standards ommittee International Financial Reortin Standards Inormation technolo Income a ct o anada rivate enterrise otorrofit oraniation Grou containin onl  s ublicl accountable enterrise Grou containin at least one   Securities chane ommission
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20 Questions Directors and Audit Committees Should Ask about IFRS Conversions
ackround Origins o IFRS  sinle set o lobal accountin standards has been under develoment or over three decades since the International ccountin Standards ommittee (“IS”) as first established in  oda, this suite o standards comrises International ccountin Standards (“ISs”) first issued b the IS and, subsequent to ril 200, IFRS issued b the IS’s successor, the International ccountin Standards oard (“IS”), as ell as interretations o those standards he IS’s mission includes the develoment o “a sinle set o hih qualit, understandable and enorceable lobal accountin standards that require transarent and comarable inorma  tion in financial statements and other financial reortin…” he IS seeks to “brin about converence o national accountin standards and International ccountin Standards and International Financial Reortin Standards to hih qualit solutions”2 It asn’t until 200, ith the advent o the uroean ommission’s requirement or ublic comanies reortin ithin the  uroean nion (“”) to reare consolidated financial state  ments comliant ith IFRS, that IFRS bean to be idel alied around the orld, and the IS could be said to have moved sinificantl to achievin its oal ustralian and other standard setters soon olloed the  and toda over 00 countries either require or ermit the use o IFRS or ublic coman reortin 2IASCF Foundation Constitution,  Februar 200
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IFRS in Canada arl in 200, the ccountin Standards oard (“cS”) released its strateic lan or carrin out its standardsettin mandate in anada he lan reconies that accountin standards or ublic comanies ma not be suitable or other orania  tions, and the cS oresees the need or searate strateies dealin ith dierent cateories o reortin entit nder the lan, anadian G or s ill convere ith IFRS over a transitional eriod his transition eriod etends to 20, ith the first financial reorts o  s required to coml ith IFRS bein or accountin eriods commencin on or ater anuar , 20 he cS has also issued ne accountin standards or rivate nterrises (“s”), but has et to finalie its roosals or notorrofit oraniations (“s”) IFRSs continue to chane It is eected that there ill be no sinificant ne IFRSs mandator or 20 calendar ears, but several sinificant chanes are eected in 202 and subsequentl In some cases, these chanes ill be available or earl adotion onsideration ill need to be iven to hen a ar  ticular entit decides to adot such chanes he cS sta ublishes a summar o hich IFRSs are eected to al or anadian chaneover in 20, available rom the cS eb siteRationale or conversion he cS’s rationale or conversion to IFRS centres on the anticiated benefits to anadian comanies o reortin usin a sinle lobal set o account  in standards Some believe that the increased comarabilit o financial statements arisin rom alin IFRS ill imrove accessibilit to lobal caital markets, ossibl reduce anadian comanies’ cost o caital and thereb imrove their lobal cometitiveness hen considerin the alternative otion o S G, the cS cites the olloin influences on its decision   loer cost o comliance is eected ith a rincilesbased accountin rameork such as IFRS than ith the more detailed  S G sstem 2 he oint artnershi beteen the IS and FS means that, over time, the dierences beteen IFRS and S G ill diminish as oint standards are issued
Accounting Standards in Canada e Directions, ublished b the AcSB at httacsbcanadaorg olrgacaidoanabrcnaantianctsetitstheitiv itemd
Conversion tielineamle td ill still be required to reort under eistin anadian G or 200 hen one considers the racticalities o the cS’s conversion timeline, it becomes clear that there his means that comanies have little time is not as much time as one miht first eect to remainin to understand the imacts o con  comlete the transition to IFRS Fiure  outlines vertin to IFRS, conduct aroriate lannin the eected timeline or   “amle td ” activities, decide on a conversion aroach, select convertin to IFRS  amle td has a fiscal ear revised IFRScomliant accountin olicies, train end o ecember  he first set o annual IFRS ersonnel, and test and roll out imlementation financial statements or amle td ill be or the strateies his is in addition to runnin their da ear endin ecember , 20 hese financials toda oerations and addressin the comliance ill need to include comarative inormation also issues arisin rom the cS’s converence comiled under IFRS or the ear endin ecember activities durin the transition eriod, 200 In order to determine the rofit and loss result and cash flos or 200, manaement ill In order to kee investors and other stakeholders also need to restate amle td’s oenin balance inormed about the comin chane in financial sheet rom anadian G to IFRS his date, reortin, the S has issued requirements or anuar , 200 is knon as amle td’s “transi entities to include disclosure o their roress , tion date” as this is the earliest date the coman is toard IFRS conversion in their 200 200 and required to reare IFRS inormation Further, as a 200 manaement discussion and analsisteurlbli ca cccoomuntasn u, ndear ImFRleS  ctodm mmuesntc isnub miitt hq tuhaer he AcSB has issued amendments to eisting Canadian AA, r endin ar h , 20 hese too ill needthe main, these amendments relate to ac alicable in 200 In quarte ccounting or financial instruments and disclosure o related risks IFRS comaratives ence, the first IFRS filin illCSA Sta otice 220 Disclosure o ected Changes in be uarter , 20 ne must also remember thatAccounting olicies Relating to Changeover to International Financial Reorting Standards Figure IFRS onversion imeline Preparing or   IFRS filing reuireents Fiscal    filing reuireents    enin eternalIFRSSF nnualIFRSequit reconciliations FileCanadian AAPfinancial statements nnualIFRScomrehensive income reconciliations InterimIFRScomrehensive income reconciliations InterimIFRSequit reconciliations
reare oenin internalIFRSstatement o financial osition (SF) and 200IFRS interim financial statements
reareIFRSannual and interim reconciliations and note disclosures
Involve auditor ith oenin internalIFRSSF and 200IFRSinterim financial statements
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InterimIFRSfinancial statements (IS  comliant)
InterimIFRSnote disclosure (IS  comliant) includin elanations o material items rom the IFRS 200 annual eriod
20 Questions Directors and Audit Committees Should Ask about IFRS Conversions
onversion roect onsiderations  What ill converting to IFRS ean or our business? IFRS adotion ill result in maor chane or business he chane driven b IFRS ill not be restricted to the finance unction onvertin to IFRS ill not merel be a technical accountin eercise but more a idesread chane manae  ment eercise that ill imact man areas o the business n business unction required to reare financial inormation, or imacted b financial inormation, has the otential or chane Given the eected chane in earnins and financial osition, one should eect chanes to  eecutive and emloee evaluation and comensation lans (uman Resources), • orein echane and hedin activities (reasur),  cororate income taes (aation), • ratios and bank covenants (Finance and reasur), • internal controls and rocesses (Finance), • investor relations and communication to cai  tal markets (Finance and Investor Relations), • manaement reortin (Finance), and • I and data sstems (I)
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s one can see rom the otential chanes, various committees o the board o directors, in addition to the audit committee, ill have a vested interest in the conversion to IFRS, includin uman Resources, ecutive omensation and Risk anaement Secificall, the SCorporate Governance Guidelinesstate that the board o directors should, as art o their overall steard  shi resonsibilit, assume resonsibilit or • the identification o the rincial risks o the issuers’ business and ensurin the imle  mentation o aroriate sstems to manae these risks,  adotin a communication olic or the issuer, and • the issuer’s internal control and manaement inormation sstems ll this bein said, it is imortant to note that each coman’s concerns and the etent to hich IFRS ill imact them ill be dierent For some, the imacts ill be ervasive or others, the ma be minimal
CSA Cororate overnance uidelines  20  
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