A new report by the Certified General Accountants Association of Canada (CGA-Canada) reveals that the adoption of International Financial Reporting Standards (IFRS) has had a noticeable impact on the financial statements of Canadian-listed companies. The source of the differences in financial reporting is linked to a broad range of accounting adjustments. The study looked at 150 companies listed on the Toronto Stock Exchange (TSX), which mandatorily adopted IFRS in 2011, and used their audited financial statements as the basis of the analysis.
"Adoption of IFRS in Canada brings both good and bad news", says Michel Blanchette, professor of accounting with the University of Quebec and coauthor of the report. "The good news is that the comparability of Canadian financial statements internationally may improve, since many other countries have already adopted IFRS. The bad news is there are a number of pitfalls lurking for financial analysts and other users of financial statements."
Blanchette points out that in the short term, the outcome of trend analysis may be distorted as current IFRS statements are compared to statements prepared under pre-changeover Canadian generally accepted accounting principles (CGAAP). In the longer term, the outcome of the analysis will be influenced by the application of IFRS, which differs – to a greater or lesser extent – from that found in CGAAP.
The report makes a number of recommendations to financial analysts and other users of financial statements.
"Those involved in the analysis of financial statements are advised to accord particular attention to the trend analysis when comparing pre-adoption data computed under CGAAP with post-adoption data obtained under IFRS", says Rock Lefebvre, vice president of Research & Standards at CGA-Canada and sponsor of the report.
"Analysts should also be aware of the differences caused by a company's industry affiliation, particularly in the finance, management, professional services, real estate, retail, and transport sectors."
The real effects of IFRS adoption in Canada are likely to be even larger than those identified in the study, Lefebvre notes, as the effects observed during the analysis are likely diluted by the gradual nature of transition to the new regime and some other factors.
Founded in 1908, the Certified General Accountants Association of Canada serves 75,000 Certified General Accountants and students in Canada and nearly 100 countries. Respected accounting and financial management professionals, CGAs work in industry, finance, government, and public practice. CGA-Canada establishes the designation's certification requirements and professional standards, offers professional development, conducts research and advocacy, and represents CGAs nationally and internationally.