The vast majority of Canadian companies that will be required to convert from Canada's generally accepted accounting principles (GAAP) to international financial reporting standards (IFRS) in January 2011 are not prepared to make the change, according to a study sponsored by Canadian Financial Executives Institute (FEI Canada) and Ernst & Young LLP and released at a conference sponsored by the Canadian Institute of Chartered Accountants and the International Accounting Standards Board in Toronto on April 23 – 25. Executives who participated in the study said, however, that they did not want the 2011 deadline to be extended.
The report, "IFRS Readiness in Canada, CFERF Executive Research Report," is based on research by the Canadian Financial Executives Research Foundation. To date, according to the executive summary, most of the information available to decision makers has surrounded the accounting differences in the IFRS and Canadian GAAP. Although the report presents some of the accounting questions that companies must address on an industry-by-industry basis, the report focuses on the state of IFRS readiness in Canada and the need to anticipate the impact of the conversion on strategic management.
"Our research shows that relatively few senior financial executives are aware of the differences between IFRS and Canadian GAAP, most have not briefed their audit committees, few have calculated the costs of conversion, and a majority don't yet know if their systems can handle the job," says Ramona Dzinkowski, executive director of the Canadian Financial Executives Research Foundation, the research organization of FEI Canada.
Two major concerns expressed by financial executives in the study are resource and time constraints and the education and training required of staff who will be evaluating and implementing IFRS conversion. "Financial executives do not know where to turn at the moment for training," says Michael Conway, Chief Executive and National President of FEI Canada.
While some IFRS training companies are currently offering courses in the Canadian market, the report says, "Companies are advised to make sure that these trainers are well versed in Canadian GAAP as well as IFRS."
Large companies that have already begun planning for IFRS implementation advise others to work closely with an IFRS consultant and their auditors, the survey reports. They recognize the shortage of accounting professionals who are skilled in IFRS and emphasize the need to keep IFRS talent in-house. They suggest an early evaluation of IT requirements for the new accounting architecture.
Some companies may be required to publish plans for conversion in their annual filings in 2008, and some may be required to disclose possible impacts of adopting IFRS, KPMG Canada says on their Web site.
Ernst & Young Canada has recommended that the Canadian Securities Administration (CSA) give Canadian companies the option to adopt IFRS before 2011. "The market will likely dictate which companies should adopt early," says Lou Pagnutti, chairman and CEO of Ernst & Young Canada. "Right now, we're working with companies that have foreign-based entities or subsidiaries in places where IFRS is already a requirement. Early adoption could provide significant advantages for them, as well as for those considering IPOs in both Canada and the U.S."
Ernst & Young does not agree with the CSA's proposal to eliminate the use of U.S. GAAP by Canadian issuers who are SEC registrants.