2009-10-26 CSA Proposes Revisions to Multiple National Instruments on Impact of Changeover to IFRS

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This newsletter discusses proposed revisions to CSA National Instruments related to acceptable accounting principles, continuous disclosure requirements, and the prospectus rules in respect of the changeover to IFRS.


CSA Proposals for additional changes to securities legislation on changeover to IFRS On September 25, 2009 the Canadian Securities Administrators ("CSA"), except for Quebec and New Brunswick, released for public comment a series of proposed changes to securities legislation arising from the upcoming changeover to International Financial Reporting Standards (IFRS) in 2011 for all publically accountable entities. These proposals are a follow-up to the CSA Staff Notice 52-324, Issues relating to changeover to International Financial Reporting Standards (“IFRS”) issued earlier this Spring. The CSA is proposing changes to the following instruments:
  • 14-101 Definitions
  • 52-107 Acceptable Accounting Principles, Auditing Standards and Reporting Currency
  • 52- 102 Continuous Disclosure Obligations
  • 71-201 Continuous Disclosure Obligations and Other Exemptions Relating to Foreign Issuers
  • 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings
  • 41-101 General Prospectus Requirements
  • 44-101 Short Form Prospectus Distributions
  • 44-102 Shelf Distributions
Acceptable accounting and auditing principles The CSA has put forth several potential revisions to National Instrument 52-107, Acceptable Accounting Principles, Auditing Standards and Reporting Currency, which include the following proposals:

General Purpose Financial Statements:
  • A domestic issuer would be required, for financial years beginning on or after January 1, 2011, to:
    – prepare financial statements in accordance with Canadian GAAP applicable to publicly accountable enterprises, and
    – report compliance with IFRS.
  • A domestic issuer who is also an SEC issuer will continue to have the option to use U.S. GAAP for domestic filings and for periods relating to financial years beginning on or after January 1, 2011, would no longer be required to reconcile from U.S. GAAP to Canadian GAAP.
  • Financial statements including comparative periods must be prepared in accordance with the same accounting principles for years beginning before January 1, 2011 except in limited circumstances where 3-year historical amounts are presented.

Acquisition Financial Statements
  • CSA jurisdictions, except Ontario, are proposing that in addition to other permitted accounting principles, acquisition financial statements may be prepared in accordance with Canadian GAAP applicable to private enterprises (PE GAAP), subject to specified conditions, namely:
    – consolidation of subsidiaries and equity accounting for significantly influenced investees and joint ventures;
    – financial statements for the business were not previously prepared in accordance with any of the other permitted accounting principles; and
    – presentation of pro forma information using accounting principles consistent with those of the issuer. Ontario does not believe that acquisition statements prepared under PE GAAP are appropriate for investors needs and would therefore prohibit issuers under its jurisdiction to file acquisition statements prepared under such principles.
  • Auditor's reports accompanying acquisition financial statements may be prepared / conducted in accordance with International Auditing Standards (ISA).
Continuous disclosure requirements The CSA has put forth several potential revisions to National Instrument 51-102, Continuous Disclosure Obligations, which include both housekeeping modifications for IFRS terminology as well as significant changes to the content and presentation of various continuous disclosure documents. A few of the more significant proposed modifications include:
  • The opening IFRS statement of financial position must be presented in the first annual IFRS financial statements and must be accompanied by an unqualified audit opinion.
  • The opening IFRS statement of financial position must be presented in an issuer's first IFRS interim report. If an auditor has not performed a review of the interim financial report, including this opening IFRS statement of financial position, the interim report must be accompanied by a notice indicating that the interim financial report has not been reviewed by an auditor.
  • The interim statement of cash flows will only need to include cash flows for the year to date period and corresponding comparative period; stand-alone three month period and corresponding period will no longer be required.
  • If an issuer presents the components of profit or loss in a separate income statement, the separate income statement must be displayed immediately before the statement of comprehensive income.
  • Reporting issuers will be provided a one-time 30 day extension to the filing deadline for the first IFRS interim financial report in respect of an interim period beginning on or after January 1, 2011.
Prospectus requirements The CSA has put forth several potential revisions to National Instrument
41-101, General Prospectus Requirements, and National Instrument
44-101, Short Form Prospectus Distributions. These changes include housekeeping modifications for IFRS terminology as well as changes to the content of prospectus documents consistent with the proposed changes to the aforementioned continuous disclosure requirements. One additional proposal would require that in the year of adopting IFRS, the presentation of IFRS 1 transition reconciliations and an opening IFRS statement of financial position would need to be included in all interim financial statements required to be presented in an issuer's initial public offering (IPO) prospectus. The requirement for the presentation of three years of results, equity and cash flow information in long form prospectuses under NI 41-101 is retained. The third oldest year (for example, year 2009 for a long form prospectus filed in 2012) could be presented using historical Canadian GAAP information.
Where to find more? A copy of the CSA press release announcing the proposed changes to NI 512-107 is attached here, and can also be accessed at the Ontario Securities Commission web site
http://www.osc.gov.on.ca/en/NewsEvents_nr_20090925_csa-changeover-ifrs.htm

A listing of the Instruments exposed for comment on September 25 can be accessed through the following OSC website link: http://www.osc.gov.on.ca/en/309.htm

The CSA are requesting written comments on these proposals by December 24, 2009.

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