Are Canadian companies ready for IFRS?

Survey shows some companies have barely started

June 24, 2009 — With the January 1, 2011 deadline for Canadian companies' transition to International Financial Reporting Standards (IFRS) looming on the horizon, a new survey by the Canadian Financial Executives Research Foundation (CFERF), the research institute of FEI Canada, and sponsored by PricewaterhouseCoopers (PwC), indicates that many companies will have a race to the finish line.

Of the 256 respondents, 147 were publicly accountable enterprises, 51 were private companies and 28 were Crown corporations. The remaining 30 were not-for-profit, government or other types of organizations. All respondents indicated that they would be adopting IFRS although not necessarily on January 1, 2011. Despite the fast-approaching conversion deadline, more than 12% of the 147 public companies surveyed and one in five of private companies had not yet taken the first step of starting their initial diagnostic assessments.

Several reasons for their delay were provided, with about 41% of public companies and 54% of private companies stating they had other higher priorities. About 80% of public companies remain short of the halfway mark in their overall conversion process. Private companies surveyed were lagging behind public companies, with 51% between only 0 - 20% complete.

According to Diane Kazarian, PwC Canada's National IFRS leader, "Our survey shows that companies were more likely to put cost containment at the top of the list of activities rather than IFRS. However, we're not surprised by the status of conversion projects across the board. While there are many reasons a company might be waiting to begin the process, the fact remains that to be ready for 2011-a date recently reaffirmed by the Accounting Standards Board-with comparable data from 2010 they should have started long ago-especially for companies with multiple product lines, business units and complex IT environments."

Further, with cost constraints on their minds, many companies have opted to only hire very limited resources to help with the conversion, putting more and more pressure on existing staff to execute the conversion in addition to their day-to-day responsibilities. Execution includes not only figuring out the complex conversion issues for finance but the conversion team must broaden to comprise IT, HR, investor relations, operations, internal audit, legal, treasury and risk. All these stakeholders may be affected by the decisions made. Indeed, the most commonly reported conversion team size was the equivalent of only one to two full-time staff.

A wide range of financial accounting issues emerged in the survey, with the most common concern being the impact of IFRS on asset values-nearly 60% of public companies and just over 60% of private companies said that IFRS will have a significant affect on their asset valuations.

"At a time when companies' are relying more heavily on asset-backed lending as a source of capital financing, any negative impact on asset values may have financing implications for many companies," says Ramona Dzinkowski, Executive Director, CFERF. "Certain standards, like mark-to market asset valuations will put additional pressures on finance executives to make sure they have adequate operating capital."

Adding to the accounting concerns is the fact that 55% of public companies said they had not yet assessed the systems implications of the changeover. However, this contrasts with the fact that by 2010, 76% of respondents maintain that their company plans to run parallel IFRS and Canadian GAAP financial reporting systems during this year. "The question is: Will they really be ready to run parallel financial reporting systems if they haven't even begun assessing the wider impact of the system change-over?" comments Kazarian.

When it comes to IFRS awareness and training, most companies reported they had begun training their finance staff (82% of public companies). Board education on IFRS was not as advanced, with only 41% of public companies indicating that they had started educating their boards. Dzinkowski notes, "This may reflect the fact that many organisations across Canada are waiting to provide concrete estimates of financial implications of moving to IFRS before engaging the full board of directors as opposed to just the chair of the audit committee."

Kazarian continues, "IFRS conversion is not just a corporate transition. Employees participating in profit-sharing arrangements, or those who are expecting bonuses or commissions based on revenue, will be very interested in the financial statements produced under IFRS. Investors and analyst may find that IFRS will have a real impact on the way they perceive companies and impact the investment decisions that they make. Converting to IFRS is not just an internal company process that is only discussed in the boardroom. All stakeholders need to be informed."

For more information please visit www.pwcifrs.ca or www.feicanada.org.

For more information, read IFRS Readiness in Canada: 2009 — Survey Highlights.

IFRS Readiness in Canada: 2009 — Survey Highlights (322 KB) Download the full PDF survey.

About PricewaterhouseCoopers LLP

PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 155,000 people in 153 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice. In Canada, PricewaterhouseCoopers LLP (www.pwc.com/ca) and its related entities have more than 5,200 partners and staff in offices across the country.

“PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity.

About The Canadian Financial Executives Research Foundation (CFERF)

CFERF is the research institute of Financial Executives International Canada (FEI Canada), the all-industry professional membership association for senior financial executives that provides professional development, thought leadership and advocacy services to its over 2,000 members. CFERF's primary objective is to study emerging financial management issues in Canada with the aim of increasing the competitive capabilities of Canadian companies across the country. Further information can be found at www.feicanada.org.

For further information, please contact:

Carolyn Forest, PricewaterhouseCoopers, +1 416 814 5730.

Caroline Spivak, +1 416 371 9740, caroline@profilecoms.com.