IFRS and the Board / Audit Committee

Transcription

1 IFRS and the Board / Audit Committee Alexandre Guertin The Great-West Life Assurance Company Marion Kirsh Ontario Securities Commission

2 IFRS Background International Financial Reporting Standards (IFRS) are financial reporting standards developed by the International Accounting Standards Board (IASB) The aim of IFRS is to provide a single set of high quality, global accounting standards that require transparent comparable information in general purpose financial statements Consistency and comparability for improved decision making Greater accessibility to worldwide capital markets Simplify reporting for global entities IFRS are now required or permitted in nearly 100 countries, including the European Union and much of the Pacific Rim Financial Accounting Standards Board (FASB) and IASB working to align standards Securities and Exchange commission (SEC) has eliminated the IFRS / US GAAP reconciliation for foreign-owned filers 1

3 IFRS in relation to CGAAP IFRS will be incorporated en block in the CGAAP handbook Intention is to implement in full and without modification CGAAP and IFRS are very similar in terms of the style and form of the standards Based on a similar conceptual framework Principles based IFRS includes standards and interpretations Many similarities, however many subtle differences in the details The significance of differences will vary by industry and individual entities 2

4 Who Needs to Convert to IFRS? Mandatory for all publicly accountable enterprises Publicly accountable enterprises include: Entities that have issued or are in the process of issuing, debt or equity instruments that are, or will be, outstanding and traded in a public market Entities that hold assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses: Examples include: Banks, credit unions, insurance companies, securities brokers / dealers, mutual funds, investment banks Excluded when is incidental to one of its primary businesses (e.g., some travel or real estate agents) Optional for private enterprises and non-profit organizations 3

5 When is IFRS Effective? IFRS is effective for interim and annual financial statements relating to fiscal years beginning on or after Jan. 1, 2011 First quarter 2011 not year-end 2011 Comparative information 2010 and 2011: requires information to be gathered in accordance with both existing CGAAP and IFRS in 2010 Opening balance sheet Jan. 1, 2010 for fiscal years ending Dec. 31 Choice of early adoption Subject to regulator guidance e.g., OSFI no early adoption allowed Requires exemptive relief from the Canadian Securities Administrators (CSA) Disclosure requirements before 2011 Financial statement disclosure Management and discussion analysis (MD&A) 4

6 What happens at Conversion? Required to comply with each IFRS effective at the reporting date for the entity s first IFRS financial statements (IFRS 1) Retrospective application Preparation of opening balance sheet (i.e., recognition and / or derecognition assets / liabilities according to IFRS rules, reclassification required, measurement changes and adjustments) Note financial statement reconciling CGAAP to IFRS Financials prepared with IFRS effective at the time; need to keep informed on Exposure Drafts Some exceptions to retrospective applications: Some mandatory, particularly to avoid hindsight situations Some optional 5

7 Issues Boards / Audit Committees should ask and CFOs should talk about Although the IFRS transition occurs in 2011, Board of Directors / Audit committees need to begin now to address the implication of the conversion Shared responsibility between CFOs and Directors Management has responsibility for executing the conversion to IFRS Boards responsibilities to play an oversight role 20 questions Directors should be asking management as they prepare for the conversion 1. Conversion project considerations 2. Financial reporting considerations 3. Non-financial reporting considerations 4. Other Board considerations 6

8 What are Conversion Project Considerations? 1. What will converting to IFRS mean for our business? Not restricted to the accounting function Widespread change management, including training, compensation plans, systems and data management, investor relations, etc. 2. How do we plan to approach the conversion to IFRS? Conversion plan including diagnostic including financial and business and systems impacts, solution development and implementation planning Enterprise-wide project management Regular progress update 3. What are the key areas that need to be addressed during the conversion? Planning activities and project management Key accounting decisions, including IFRS 1 Dual reporting and skeleton IFRS financials Business and systems impact Training Communication with key stakeholders 7

9 What are Conversion Project Considerations? cont d 4. What is the timeline for our IFRS conversion project, what resources will be required and how much will it cost? Diagnostic is key Consider internal and external resource requirement Project management office (PMO) with dedicated resources Involvement in industry-wide forums Include assessment for system and data capture change 5. What can we learn from the European Union conversion experience? Underestimated scale and complexity of conversion Poor project management Lack of support from senior management Poor communication 8

10 What are Financial Reporting Considerations? 6. How will converting to IFRS impact external financial reporting in our organization? Impact on opening financials Potential increase in earnings volatility Increased volume and complexity of financial disclosure 7. What will be the impact on management reporting? Potential increase in non-ifrs measures Change to management reporting format and processes Amend budgeting and financial planning and analysis 8. How will management address the need for 2010 financial information prepared under both Canadian GAAP and IFRS? Dual reporting in

11 What are Financial Reporting Considerations? cont d 9. What are our competitors and industry peers doing? Peer assessment Coordinate industry-specific questions Consider regulatory requirements 10. Will publicly accountable enterprises be required to apply IFRS throughout their group structures? Strategy for non publicly accountable enterprises within the group Consider local statutory and regulatory needs by entity 11. How will IFRS impact tax reporting and tax filings? Impact on deferred taxes Assess tax impact of conversion Define tax basis 10

12 What are Non-Financial Reporting Considerations? 12. Other than financial reporting, which other business areas will be impacted by the conversion? Wide range impact beyond financial reporting IT systems and data gathering, investor relations, HR, management reporting, training, internal controls, business processes, financial covenants, etc. CEO / CFO certification 13. Can our current IT systems handle the business revised data collection requirements under IFRS? Changes to systems to support reporting requirements Consider both breadth and frequency of additional disclosure requirements 14. What IFRS training programs are management planning to provide to finance personnel? Overall and specialized IFRS training Consider IFRS centralized database and IFRS newsletters 11

13 What are other Board Considerations? 15. What are the most significant risks associated with converting to IFRS? Misstatement risks with significant change in accounting framework Risks with changes required to internal controls Missed reporting timelines 16. What are the other key risks associated with converting to IFRS? Excessive conversion costs Unreasonable of excessive work levels Retention of key personnel 17. How can our organization take advantage of the opportunities presented by the conversion to IFRS? IFRS 1 optional one-time conversion options Accounting choices 12

14 What are other Board Considerations? cont d 18. How will converting to IFRS impact our stakeholders, and what should be done to manage the expectations of capital markets? Communication plan with stakeholders including investor and analyst needs Coordination with regulators 19. What should the role of our auditor be in the conversion process, and do we need a third party advisor independent from our auditor? No delegation from management Assistance from auditors Advisors can provide objective reviews and expertise on complex accounting choices 20. Other than financial reporting integrity, what are the other implications for Boards of Directors? Training requirements for Boards and their committees Directors and Officers Liability 13

15 And now from the regulator.. 14

16 Agenda CSA Staff Notice changeover plans to IFRS CSA Staff Notice early adoption U.S. GAAP approach Substantive IFRS Proposals Other IFRS Changes Questions 15

17 CSA Staff Notice Disclosure of Expected Changes in Accounting Policies relating to changeover to IFRS Disclosures required for all interim and annual periods beginning with annual 2008 filings about changeover plan Qualitative reporting required; quantification beginning with 2010 filings Continuous Disclosure reviews of 2008 year end and 2009 interims are underway; 2009 year ends to come OSC expects to publish a Staff Notice highlighting areas for improvement 16

18 CSA Staff Notice Issues Relating to changeover to IFRS Exemptive relief for early adoption still required until changeover to Canadian GAAP for publicly accountable enterprises for financial years beginning on or after January 1, 2011 Less than 20 Canadian companies have applied to early adopt IFRS to date 17

19 CSA s recent publications about changeover to IFRS Publications of September 25 th Proposed National Instrument Acceptable Accounting Principles and Auditing Standards and related materials Publication which describes the accounting and auditing reporting requirements for issuers and registrants Proposed National Instrument Continuous Disclosure and related materials IFRS related changes for continuous disclosure requirements Proposed National Instrument Certification of Disclosure in Issuers Annual and Interim Filings and related materials IFRS related changes for certification requirements Proposed National Instrument General Prospectus Requirements and related materials IFRS related changes for prospectus requirements 18

20 Substance of IFRS changes Most of changes to continuous disclosure, certification and prospectus requirements are to reflect terminology changeover to IFRS Substantive changes in these rules: Filing delay for first interim filing Transition balance sheet in first interim filing Transition balance sheet for accounting policy changes Acquisition statements Transition balance sheet and reconciliations in Q2 or Q3 when no Q1 interim filing made (IPO Issuers) 19

21 U.S. GAAP Currently we permit SEC cross-listed issuers to file financial statements in U.S. GAAP Currently we permit acquisition statements using U.S. GAAP to be filed for the acquisition of any U.S. public or private acquiree Proposed NI maintains existing requirements We are proposing to remove the requirement to reconcile to Canadian GAAP after 2010 for issuers transitioning from Canadian GAAP to U.S. GAAP 20

22 Substantive IFRS Proposals in NI Acquisition Statements Proposed NI requires for acquisition statements: Canadian GAAP for publicly accountable enterprises IFRS US GAAP designated foreign issuer GAAP a carve-out for jurisdictions other than Ontario to permit modified Canadian GAAP for private enterprises (PE GAAP) The CSA Notice discusses the two views and asks several questions including one about an additional alternative posed by Ontario PE GAAP with reconciliation to IFRS We are asking issuers and investors to respond to the cost and time of the preparing IFRS acquisition statements as well as usefulness for investment decisions 21

23 Substantive IFRS Proposals Mixed GAAPs for different periods Proposed NI permits use of old Canadian GAAP and IFRS in the same filings IFRS requires the current period and one comparative period Where 3 years of financial statements are required for prospectuses and business acquisition reports, we are proposing to permit the use of old Canadian GAAP for the 3 rd year back We are proposing to permit filings with interim periods in IFRS and previous annual periods in old Canadian GAAP 22

24 Substantive IFRS Proposals Same core subject matter removed Currently we permit foreign issuers to use their own national GAAP if it has the same core subject matter as Canadian GAAP Proposed NI has removed this choice We are proposing to maintain designated foreign issuer GAAP i.e. home country GAAP for 15 named countries 23

25 Other IFRS Changes Accounting Framework We propose to require that issuers prepare financial statements in accordance with Canadian GAAP for publicly accountable enterprises; they no longer have to identify these accounting principles We propose to require issuers to disclose compliance with IFRS This permits references to both Canadian GAAP for publicly accountable enterprises and IFRS but does not require it This satisfies the need to use IFRS in both French and English, as well as requirements in contractual agreements and other legislation to refer to Canadian GAAP 24

26 Other IFRS Changes Audit Opinions Canadian generally accepted auditing standards (GAAS) will incorporate International Standards on Auditing (ISAs) for audits of financial statements on or after December 14, 2010 We are proposing to continue to permit ISAs only for foreign issuers We are proposing to continue to require Canadian GAAS for domestic issuers Canadian domestic issuers could state compliance with Canadian GAAS and ISAs if desired 25

27 Other IFRS Changes No jurisdictional IFRS Certain countries use IFRS with specific exceptions or add-ons - their accounting standards are known as jurisdictional IFRS The SEC permits filings in IFRS without reconciliation to US GAAP for foreign private issuers who use IFRS as issued by the IASB i.e. not jurisdictional IFRS Proposed NI defines IFRS as IFRS as issued by the IASB The Proposed Companion Policy explains that jurisdictional or national IFRS are not accepted versions of IFRS 26

28 Other IFRS Changes CSA publication of October 23, 2009 Registrants and Proposed NI Registrants deliver non-consolidated financial statements in accordance with Canadian GAAP this includes investment dealers, mutual fund dealers, investment advisors, portfolio managers, etc. This provides financial information to calculate working capital requirements; these financial statements are delivered to securities regulators they are not filed on SEDAR We propose to permit Registrants to adopt IFRS at the beginning of fiscal 2011 without comparative financial statements 27

29 Other IFRS Changes CSA publication of October 16, 2009 Investment Funds and Proposed NI Substantive issues: Consolidation accounting issue is under consultation with IASB as part of ED 10 Consolidations; CSA is participating as part of this consultation process Puttables accounting issue drafting addresses alternative presentations of unitholders equity as either liability or equity presentation IFRS financial statements and audit opinion required Statement of Investment Portfolio - non-consolidated, non comparative (may be non-gaap) Terminology changes to IFRS 28

30 Other IFRS Changes French Translation of Proposed materials French IFRS terminology is still in a state of flux so that publication for comment in Québec and New Brunswick for all except Proposed NI will not occur until the first quarter of 2010 Staff notices were published instead on each of the 3 dates that IFRS-related instruments were published Market participants in Québec and New Brunswick are encouraged to comment during the CSA comment period on the substantive proposed changes presented in the staff notices, and on the amendments published by the other CSA jurisdictions 29

31 Other IFRS Changes Structure of Proposed NI Changeover occurs when an issuer or registrant s financial year begins on or after January 1, 2011 NI needs to address the continuing need for old Canadian GAAP Proposed Part 3 applies to financial years beginning on or after January 1, 2011 and defines Canadian GAAP for publicly accountable enterprises Proposed Part 4 applies to financial years beginning before January 1, 2011 and defines Canadian GAAP-Part IV of the Handbook which is old Canadian GAAP for public enterprises** **Note AcSB has just changed the content of the new Handbook so that old Canadian GAAP will now be Part V. 30

32 Resources CICA IFRS Transition Resources at Publications 20 Questions Boards of Directors and Audit Committees Should Ask About IFRS Conversions IFRS Conversions: What CFOs Need to Know and Do CICA IFRS Education and Training at All instruments and notices referred to in this presentation are available on the OSC website at IFRS-related materials can be found on the OSC website: Other commissions BC Securities Commission Alberta Securities Commission Autorité des marchés financiers IASB webpage 31

33 Contact information Alexandre Guertin, CA, MBA Senior Vice-President & Chief Risk Officer The Great-West Life Assurance Company ( ) Marion Kirsh, FCA Associate Chief Accountant Ontario Securities Commission ( ) 32

34 Questions and Answers 33