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.

Other companies that lack the allowance and fear that a switch to IFRS will make them less comparable with their U.S. counterparts have lobbied the International Accounting Standards Board to change its rules. And they’ve had some near-success: for instance, rate-regulated utilities, such as Fortis, will likely get a two-year reprieve from Canada’s 2011 deadline. Fortis CFO Barry Perry halted his IFRS project — begun three years ago — just last month when Canadian standard-setters proposed a deadline extension for his industry. Unlike U.S. and Canadian accounting rules, IFRS does not recognize assets and liabilities related to regulated activities on the balance sheet. If Fortis adopted IFRS in its current form, the utility would have volatile earnings and would need to maintain two sets of books, one for accounting purposes and the other for regulators that set its rates, according to Perry.

The IASB had been considering a new standard that would more closely align with Canadian and U.S. accounting guidance on this issue but recently tabled the discussion. “That left us in a very precarious position, because we’re sitting here having to change over as of January 1, 2011, and we didn’t know what the standard would be for regulatory assets and liabilities,” says Perry. Canadian standard-setters will vote on the proposal to stretch rate-regulated utilities’ IFRS-switchover deadline to 2013 later this year.

To be sure, for every company pushing back on the current version of IFRS, there is a willing volunteer. Jayden Resources and Newstrike Resources, for example, have already begun reporting under IFRS after regulators approved their requests for early adoption. And some privately held companies are obeying the same edict as their public peers. For example, McCain Foods, known for its frozen French fries, makes it a habit to follow the same rules imposed on public companies, and the IFRS mandate is no exception. Moreover, Richard Burton, corporate controller of McCain, buys into the comparability benefits for companies worldwide to adopt IFRS. After all, he says, as a multinational business, McCain is a “poster child for IFRS in the first place.”

With a fiscal year-end of September 30, McCain has a longer time frame than most public companies for its self-imposed IFRS changeover. But even with the extra time, the work can be difficult as the company has to keep tabs on the ever-changing standards while also figuring out how to apply the rules across its more than 120 worldwide subsidiaries. Indeed, as Canadians are in the thick of an IFRS switch, the U.S. and international rulemakers are in the middle of the meatiest part of their efforts to meld their standards, which is leading to overhauls of significant rules. “IFRS is going through a higher-than-usual number of changes, and that’s an extra challenge,” says Burton, who estimates he has spent at least 25% of his time on the switch.

Looming Deadline
As 2010 begins to wind down, Canadian regulators are worried about some companies’ ability to meet the IFRS adoption deadline. In a recent review of Canadian companies’ disclosures about their conversion progress in their 2009 annual filings, the Canadian Securities Administrators found that nearly all of the 196 calendar year-end companies it reviewed had some sort of changeover plan. However, the regulator warned in a July document that for the 5% that didn’t have one, “we are concerned that issuers…may be at greater risk of not meeting their future filing obligations.”


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