Saturday, June 21, 2008

IFRS - Spotting the Differences

So you are ready to get down and do some serious work on the details. One step is to get familiar with the differences between Canadian GAAP and IFRS.

Many if not most of you have already made this step to some degree or another. The Accounting Firms have published some quite weighty publications dealing with the identification of differences. Visit the “Big Four” websites in particular where there are downloads of publications. Some firms charge for detailed comparisons and these are generally restricted to clients for the most part. Speak to your auditors about what they will provide to you.

Do not forget to check out the websites of firms that are not part of the “Big Four”. For example, BDO in Canada has a series analyzing differences on various topics.

These difference analyses, although very useful in gaining some familiarity, can be dangerous. Remember we are comparing one principles-based system with another principles-based system. There will be nuances that will emerge later (the devils in the details).

Here are some points to consider.

A “minor” difference may turn out to be very material in your case. Conversely, a matter identified as “major” in an analysis could be immaterial in your case or not apply to you at all.

Because of materiality considerations (hopefully not an error) you could be following an accounting treatment that may differ from a strict reading of Canadian GAAP as set out in the analysis documents. It is essential that you have a complete understanding of your existing accounting and the basis for following it.

In a past life I worked in the National Department at a major firm. The focus was on differences between US GAAP and Canadian GAAP. Among other things this analysis was used to identify candidates to be used in the reconciliation for US filings. (This still goes on today). However, this identification is in many cases only a first step and a great deal of care must be taken to research the areas carefully. Sometimes there can be surprises. An initial impression could be changed when a call is made to experts (in that case New York office). There are likely to be a number of such situations that will arise in the case of IFRS differences. I suggest document, document, document………..and never make assumptions.

There are a number of mechanical issues when dealing with these differences memoranda. It is probably impossible to be totally comprehensive despite the yeoman work done on the documents. You could get an impression of comprehensiveness just looking at the sheer size of the documents. There can be no guarantees, especially in the case of principles-based rules such as IFRS.

You must make sure that you are using the current version of the analysis of differences. I was reluctant to provide links because it could be very dangerous to refer to an out-of-date document. The IFRS world moves on. Watch those projects on convergence and the “Annual Improvements” project on IFRS, not to mention IFRIC interpretations. You will need to keep an eye on these and their effective dates. I plan to discuss these considerations in future. Work with your auditors on this.

These difference analyses can be dangerous in the wrong hands when used as a tool for conversion. They are very useful for initial familiarity though. Do not rely on the analyses without further research. A sophisticated background in accounting theory and practice is very useful in navigating through the minefield of these “differences”. Take care you do not get blown up by a mine!

Is it all about differences?

The objective of the IFRS conversion is to actually report in the other GAAP – IFRS – not to be able “just” to do a reconciliation. That is an entirely different exercise. It is strategic and not tactical. It is mission critical to become fluent in the IFRS areas that apply to your business. This point comes up in many discussions on IFRS conversions.

I will discuss the issue of how to be fluent in later posts. E&Ys question (“Do you Speak IFRS?”) is a good one!

The IFRS/Canada difference of the week.

I will be starting a feature soon on the “Difference of the week” as identified in the documents discussed. I will look at the differences from different perspectives. I need your input here. I will provide questions and not answers. Stay tuned


The IFRS Exorcist © said...

To my readers in the USA. Don't feel left out the firms also have US GAAP/IFRS differences analyses.

The IFRS Exorcist © said...

It occured to me that I should have referenced the CICA's detailed comparison of differences it can be found at