Forest, paper and packaging industry

The forest, paper and packaging (FPP) industry is characterized by the need for extensive investment. While IFRS implementation may appear complicated and expensive, Canadian companies can manage the size and complexity of the migration process if they plan ahead.

Many European and Australian FPP companies completed their IFRS transition in 2005 and now apply the new accounting standards. Their IFRS migration revealed interpretation and application problems unique to the FPP sector. The following reveals the key differences between Canadian GAAP and IFRS specific to the FPP industry.

Key differences between IFRS and Canadian GAAP

Reclassifying timber harvesting licenses acquired through business combinations.
Value attributed to harvesting licenses acquired through business combinations would generally be classified as intangible assets under International Accounting Standard (IAS) 38 whereas Canadian GAAP often classifies them as tangible assets, and uses a significantly different, less comprehensive accounting model for guidance. The useful life of these intangible assets is restricted by IAS 17 based on a renewable contract to not exceed the contract period unless evidence supports the renewal by the licence holder without significant cost.

Property, plant and equipment impairment. Unlike Canadian GAAP, IFRS' IAS 36, Impairment of Assets, does not require an initial assessment of recoverability on an asset's undiscounted cash flows. The new standard compares the carrying value to the higher of 'value in use' — which is based on the asset's present value of estimated cash flows — and 'fair value less costs to sell,' an amount based on the asset's third-party sale which determines whether an impairment change is needed. The difference may result in FPP companies calculating asset write downs that used to be recoverable under Canadian GAAP's undiscounted cash flow test.

Asset retirement obligations. Asset retirement obligations measured under IFRS may encounter significant financial volatility. Under the new standard, assuming no changes in the obligation, companies must use current interest rates at each reporting date to measure an asset's retirement obligation instead of the interest rate used upon initial recognition of the liability. IFRS also requires using management's best estimate of cash outflows rather than fair value measurement upon initial recognition.

How PwC can help

PricewaterhouseCoopers' IFRS team tailors a conversion strategy to help meet your organization's needs. In addition to our global network's experience with assisting FPP clients migrate to IFRS, our local practice helps Canadian companies initiate the conversion process with a diagnostic review.

Contact us for more information today.