IFRS North of the Border

Canadian companies offer a preview of what it's like to switch to international accounting standards as their January 1, 2011, adoption deadline nears.

In the middle of a major accounting-system changeover, Siim Vanaselja, CFO of Bell Canada Enterprises, pines for the new year, when he’ll have just one set of books to worry about. For now, the communications company uses a trio of accounting rules: Canadian generally accepted accounting principles, international financial reporting standards, and U.S. GAAP.

Cutting that number down is one benefit of Canada’s mandate that all of its publicly traded companies, with a few exceptions, adopt IFRS starting January 1, 2011. In the meantime, financial reporting for Canadian CFOs has not been easy. “This is probably the most complicated year in terms of what the IFRS transition means,” says Vanaselja, who estimates he has spent 10% of his time on the project. “Once we have fully implemented the new standards, then we’ll be reporting on a single basis again.”

Canadian CFOs’ preparedness for the wholesale adoption of IFRS has varied by the size of their company, their industry, and their approach to the massive switchover. Most telling will be the next round of quarterly reports, where they’re supposed to quantify the predicted effects of the change. The majority of them are running parallel IFRS/Canadian GAAP accounting systems this year, as companies with calendar year-ends are expected to apply IFRS to first-quarter filings made in 2011 and also have a comparative year to share.

The work has involved spending the past two years or more exploring the differences between their local GAAP and IFRS; training their staff; and keeping their boards, investors, and lenders informed about how the transformation will affect their IT systems, internal controls, and financial results. Their experience offers a preview of what U.S. CFOs will encounter if the Securities and Exchange Commission decides to require U.S. publicly traded companies to also adopt IFRS.

Little Choice for Change
Four years ago, Canada’s standard-setters chose IFRS over U.S. GAAP in the belief that continuing to update the country’s rules would no longer be worth the cost or trouble and that the American rules were too detailed (and therefore too expensive) to adopt. The change comes with a few advantages for Canadian companies, including the presumption that by adopting the popular international standards, the country’s businesses will become more comparable on a global level.

Moreover, once the conversion work is done, Canadian companies that are listed in the United States, such as Bell Canada, will no longer need to reconcile their financial statements with U.S. GAAP for their SEC filings, since the regulator accepts IFRS (without modification) from its foreign filers.

Still, some companies have eschewed the move altogether. For instance, high-profile Canadian companies Biovail and Research in Motion are sticking with their use of U.S. GAAP, an allowance given to Canadian companies that solely use the American rules and are listed on U.S. exchanges (both companies also sell shares on the Toronto Stock Exchange). In its most recent annual filing with the SEC, Biovail said its loyalty to U.S. GAAP lies in its ability to provide “better comparability with our U.S.-based industry peers.”


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