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Changeover to IFRS Drives Proposed Changes to Securities Legislation


December 4, 2009


Edward P. Kerwin
Sven O. Milelli

The Canadian Securities Administrators (CSA) have recently published for comments a series of notices that address proposed changes to securities legislation arising from the upcoming changeover to International Financial Reporting Standards (IFRS). The proposed changes are necessitated by the transition in the Handbook of the Canadian Institute of Chartered Accountants (the CICA Handbook) from the use of Canadian Generally Accepted Accounting Principles (Canadian GAAP) for public enterprises to IFRS for publicly accountable enterprises — for financial years beginning on or after January 1, 2011, the mandatory effective date.

As reported in our August 2009 issue, it is expected that the CICA Handbook will contain two versions of Canadian GAAP for public companies for a period of time, with current Canadian GAAP for public enterprises being the standards constituting Canadian GAAP before the mandatory effective date and IFRS being the standards that will constitute Canadian GAAP for publicly accountable enterprises for financial years beginning on or after the mandatory effective date. Furthermore, the plan is to adopt International Standards on Auditing as Canadian Auditing Standards (CASs); these will be known as Canadian Generally Accepted Auditing Standards in the CICA Handbook and will be effective for audits of financial statements for periods ending on or after December 4, 2010.

The main notice of change of securities legislation is the proposed National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards, published by the CSA on September 25, 2009. The proposed instrument is intended to facilitate an efficient transition to IFRS and the new CASs for issuers and registrants. The CSA have requested comments on the proposed instrument be submitted by December 24, 2009.

The proposed NI 52-107 will require domestic reporting issuers to do the following for financial years beginning on or after January 1, 2011:

  • prepare financial statements in accordance with Canadian GAAP applicable to publicly accountable enterprises, that is IFRS as incorporated into the CICA Handbook; and
  • report compliance with IFRS.

Domestic reporting issuers who also have securities registered under the US Securities Exchange Act of 1934 or are otherwise required to file reports under that Act will continue to have the option to use US GAAP but will no longer be required to reconcile US GAAP to Canadian GAAP. Foreign issuers will continue to have the option of using IFRS, US GAAP or home country GAAP in certain circumstances.

In the proposed instrument, financial reporting terminology will be modified to reflect IFRS terminology in replacement of current Canadian GAAP terms and phrases.

The requirements for acquisition statements under the proposed NI 52-107 were not unanimously supported by the CSA jurisdictions. Except for Ontario, the CSA jurisdictions concluded that, in addition to the other permitted accounting principles, the proposed NI 52-207 should permit acquisition statements to be prepared in accordance with Canadian GAAP applicable to private enterprises subject to certain conditions. Ontario concluded that such an approach is not appropriate and that acquisition statements should continue to be prepared in accordance with accounting standards that are required for public companies.

As a result of the amendments to be effected by proposed NI 52-107 and the changeover to IFRS, amendments have been proposed, or will be proposed, by the CSA to several other instruments and accompanying companion policies reflecting the impact of the transition to IFRS. The following proposed amending instruments have been published in September and October 2009 for comments in the 90-day period post-publication:

National Instrument 14-101


National Instrument 51-102

Continuous Disclosure Obligations

National Instrument 41-101

General Prospectus Requirements

National Instrument 44-101

Short Form Prospectus Distributions

National Instrument 44-102

Shelf Distributions

National Instrument 71-102

Continuous Disclosure and Other Exemptions Relating to Foreign Issuers

National Instrument 52-109

Certification of Disclosure in Issuers’ Annual and Interim Filings

National Instrument 81-106

Investment Fund Continuous Disclosure

National Instrument 81-101

Mutual Fund Prospectus Disclosure

National Instrument 81-102

Mutual Funds

National Instrument 81-104

Commodity Pools

National Instrument 41-101

General Prospectus Requirements relating
to Form 41-101F2
Information Required
in an Investment Fund Prospectus

National Instrument 31-103

Registration Requirements and Exemptions

National Instrument 45-106

Prospectus and Registration Exemptions

The proposed amendments are intended to replace existing Canadian GAAP terminology with IFRS terminology, to change disclosure requirements in instances where IFRS contemplates financial statements that are different from existing Canadian GAAP, and to provide certain other transitional relief.

It is expected that the CSA will publish for comment IFRS-related proposals to amend the following instruments and policies:

National Instrument 51-101

Standards of Disclosure for Oil and Gas Activities

National Instrument 52-110

Audit Committees

National Policy 58-201

Corporate Governance Guidelines

The CSA has also indicated that it will be publishing a replacement for CSA Staff Notice 52-305 Non-GAAP Financial Measures and a revised National Policy 41-201 Income Trusts and Other Indirect Offerings on a later date, reflecting the changeover to IFRS.

McCarthy Tétrault Notes:

The proposed amendments have taken considerable effort on the part of the CSA. The transition to IFRS on the part of issuers, registrants and investment funds will require considerable time and expense. Affected entities and their advisors should review carefully the proposed amendments and consider submitting comments within the 90-day period if flaws or problems are detected in the application or operation of the proposed amendments.