Canadian technology industry

The unique business aspects of technology companies can mean that the conversion to International Financial Reporting Standards (IFRS) requires some complex judgments.

A significant challenge in working with “principles-based” standards is that, without a rulebook, management needs to spend more time explaining the judgments made to apply the principles. The transition can also have a major impact on a technology company’s business culture, requiring training programs that focus on how IFRS will affect the decision-making and value-creating strategies of all business units, not just the finance/accounting functions.

Experience from around the world has shown that conversion projects often take more time and resources than anticipated. Our experience helping the many technology companies in Europe and Australia complete their transition and apply IFRS since 2005 has provided us with good insight into the interpretation and application challenges unique to the industry.

Key differences between IFRS and GAAP

IFRS affects many characteristics unique to the technology industry, including the following:

• The variety and complexity of sales contracts and arrangements present some key IFRS reporting issues for the technology sector
• Technology companies typically need significant up-front investment in research and development to commercialize a product or service, often with great uncertainty about outcomes over the long term
• Much of the value of technology companies lies in internally generated intangibles such as know-how and product development, which can take many years to generate revenue and positive cash flows
• Technology sector companies often issue complex equity instruments in order to support the need for cash flows in the early stages, compensate consultants and vendors, and retain key employees involved in the development of know-how

How PwC can help

For more in-depth discussion on how IFRS affects the technology industry, download Putting IFRS in motion: The potential impact of International Financial Reporting Standards (IFRS) on the Canadian Technology Sector or contact our team today.