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IFRS Implementation in Canada - February 2008
1. IFRS Implementation Plan
for a Canadian Enterprise
Antonello Dessanti
Senior Business Consultant
February 2008
2. Why IFRS now
• In January 2006 the Canadian Accounting Standards Board (AcSB)
announced its decision to replace Canadian GAAP with International
Financial Reporting Standards for all Canadian Publicly Accountable
Enterprises (PAEs).
• Effective January 1, 2011 enterprises issuing financial statements
under standards other than IFRS must demonstrate that they are
not publicly accountable.
• Over the last few years, over 100 countries, including European
Union, Australia and New Zealand, have adopted IFRS. US standard
setter (FASB) is also working with the International Accounting
Standards Board (IASB) to develop converged standards. Effective
September 2007, any enterprise in compliance with IFRS is no more
required to prepare a set of reconciliation tables with US GAAP.
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3. Timeline for the change
March 31, 2008 AcSB confirming changeover timing
December 31, 2008 Disclosure of an enterprise’ plan for convergence and what
effects the enterprise anticipates with the change to IFRS
December 31, 2009 Same disclosure as required in 2008, but with greater
degree of quantification of the effects
January 1, 2010 First year of collection of comparative information for
inclusion in 2011 financial statements in accordance with
IFRS
December 31, 2010 Last year of Canadian GAAP reporting
January 1, 2011 Changeover. First year of IFRS reporting
March 31, 2011 First interim IFRS based financial statement
December 31, 2011 End of first annual reporting in accordance with IFRS
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4. IFRS Impact
The adoption of IFRS is not solely a change in the accounting principles
IFRS require an on-going mechanism to maintain full compliance
It is a multidisciplinary process with both internal and external implications.
The adoption involves:
accounting systems, financial and management reporting
organizational and operational issues
legal and compliance issues
analyst and investor relations
performance measurement tools
processes and systems to gather and manage information
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5. IFRS Implications
Risk Capital
IFRS framework
Financial Results
External Significant Impacts
Management and
Organizational Capital Allocation
Control Reporting
Internal Significant Impacts
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6. IFRS Implementation
ACCOUNTING AND REPORTING SYSTEMS
Classification criteria for assets and liabilities
Measurement criteria: from cost model to the fair value model
Need for highly reliable and well developed risk management systems
Greater volatility of financial statements figures and fewer possibilities of “managing
earnings”
Measurement of impaired assets (individual assessment and pooling of impaired
assets)
Need to review the internal reporting and the performance measurement systems
Changes in the measurement of impaired assets (tangible and intangible)
Capitalization of pre-operating expenses not allowed
Not allowed the presentation of extraordinary items in the income statement
Significant changes in the consolidation framework (e.g. negative goodwill,
acquisition date, impairment, SPV vs VEI)
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7. IFRS Implementation
Organizational Processes and Information Technology
IFRS implementation requires organizational obligations with regard to the
management of financial instruments
The most commonly used financial instruments to be measured generate an increase
in the workload of the relevant units; consequently, some internal organizational
processes may have to be revised
Exploration for and evaluation of mineral resources with full cost accounting only
during exploration and evaluation phases (applicable to oil & gas enterprises)
Guidance in dealing with agriculture enterprises
Changes in the standards for inventories (e.g. LIFO prohibited)
Completed contract method not allowed (applicable to construction enterprises)
During the transition period, it will be necessary to manage two sets of different
accounting systems and, possibly, a variety of information flows
IFRS Project may overlaps with other priorities (e.g. reorganization and
standardization projects)
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8. IFRS Implementation
Impacts on other departments
Organizational and IT decisions should be approved by the front office operating
units and by the administrative and control units
Front office units should be aware of the consequences of their operations on
financial statements and understand the impact of the new standards on the
customers’ business
The greater volatility of financial statements should be managed in terms of both
internal and external financial reporting
Management of the operations pertaining to the period preceding the adoption of
IFRS, budgets and strategic plans should consider the changes occurred
(reinstatement of historical data)
Consolidation process must strictly follow the coherence approach, i.e. each
consolidated subsidiary must be in compliance with IFRS
Compliance with Sarbanes-Oxley Act shall include compliance with IFRS
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9. IFRS Master Plan
IFRS implementation may follow two different options
1. A throughout implementation across the organization, recommended when there
has been no previous IFRS reporting. It requires a larger scale project team but
provides a more effective enhancement in the reporting system post-
implementation
2. The implementation of the standards for specific areas, which could be used for an
initial testing of the project team capacity. It might also produce redundancy in
subsequent stages.
Both options share the same methodology:
AS IS – TO BE
Definition of objectives
Definition of objectives
CHECK
Carrying out
Carrying out
Impact Analysis Design and Implementation
IFRS Analysis
assessment development Post-implementation
Program Management & Project Office
Program Management & Project Office
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10. IFRS Implementation: 1° Phase
AS IS
Definition of objectives
Definition of objectives
Kick-off meeting
Examination of each standard: applicable – not applicable
IFRS Analysis Preliminary analysis of the potential impact
Macro planning of the project
Design of the project structure
Analysis of the existing accounting process
Identification of the gaps between CICA and IFRS
Establishment of new accounting rules
Impact Identification of the processes to be changed or of new processes
assessment Identification of the information procedures to be implemented or
of new information procedures
Identification of the application / macro architecture
Updating the project plan
Recommended model: PERT (program evaluation and review technique) with three
estimates to complete the activity (longest time, most likely time and earliest time).
Completion date: September 30, 2008
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11. IFRS Implementation: 2° Phase
TO BE
Carrying out
Carrying out
Detailed revision of information processes and applications
Identification of new software packages
Analysis
Definition of new organizational responsibilities
Decision to opt for coexistence or migration
Definition of technical and functional specifications
Design and System and process implementation
development Presentation to Audit Committee for preliminary review
Compliance test
Process tests
Implementation Accounting manuals and risk management chapters
Post-implementation
Training and identification of gaps in human resources
Board of Directors’ approval
On-going maintenance
Recommended model: CPM (critical path method)
Completion date: September 30, 2009
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12. IFRS Post Implementation
• IFRS have experienced a two years grace but likely many standards shall be
amended in specific areas with on-going CICA convergence
• A post-implementation stage shall require therefore a constant maintenance with a
specific team capable to promptly identify any subsequent change in the
accounting standards
• The post-implementation stage shall however benefit from the tools and
methodology used for the first time adoption of the standards
• This on-going mechanism comprises:
Gap matrix: it identifies gaps emerging from the adoption of an IAS with regard to the
area of analysis; this is the starting point for reading matrices.
Accounting matrix: it describes the gap analysis and the impact on the accounting
model and treatment of the adoption of an IAS with regard to the area of analysis.
System matrix: it describes the gap analysis and the impact on the information system
procedures following the adoption of an IAS with regard to the area of analysis.
Process matrix: it describes the gap analysis and the impact on operating processes
following the adoption of an IAS with regard to the area of analysis.
Business matrix: it describes the gap analysis and the impact on the Group business
following the adoption of an IAS with regard to the area of analysis.
People matrix: it investigates the gap analysis and the impact on the bank's resources
for optimal management of the change resulting from the adoption of an IAS.
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