Monday, October 13, 2008

Will fewer companies elect to go public under IFRS?

Under Canadian AcSB proposals only “publicly accountable enterprises” will be required to adopt IFRS.

Private companies are on a different track under the AcSB strategy.

We have not seen the final private company proposals yet. However a lot of information on preliminary thinking has been posted to the CICA site on Private Company Reporting. Generally we expect that private companies will follow a simplified version of the CICA Handbook. One example of this simplification will be in the area of Financial Instruments. See the recent AcSB Decision Summary.

Here is a list of the guiding principles for private company reporting according to AcSB:

· the existing CICA Handbook – Accounting will be used as a starting point;
· the majority of the recognition and measurement standards in the existing Handbook, other than those that give rise to significant issues, are relevant to the sector and will be retained with few, if any, modifications;
· issues in the existing Handbook that have caused significant concern to private enterprises will be reconsidered, based on cost/benefit considerations;
· the specific disclosure requirements will be re-evaluated and are expected to have considerably fewer disclosures than in the existing Handbook;
· reducing the volume of material will be a secondary goal.

According to the plan an Exposure Draft on Private Company Financial Reporting will be released for comment early next year.

According to Ron Salole, the CICA’s Vice President, Standards, private companies will be able to opt to adopt IFRS on a voluntary basis under the new regime. (He was speaking at the Economist IFRS Conference on September 23, 2008). See also this CICA Report

You will have to think your strategy through very carefully. Undoubtedly some private companies may wish to follow IFRS for a number of reasons. Perhaps you are a private company that is consolidated in an IFRS reporting environment (including Canada starting in 2011, or earlier if your parent chooses early adoption)?

You may be in an industry where there are many IFRS reporters and you want to provide statistical information that is comparable with your competitors. In future many of your competitors might be “publicly accountable” and required to report under IFRS. You may already be in an industry with foreign competitors reporting under IFRS.

If you do not elect to report under IFRS immediately you will be required to follow IFRS if you go public. Would this be an impediment to your going public? Is it just another increase in the ante? Please note that you will be considered “publicly accountable” and under the IFRS regime even if you are in the process of jssuing debt or equity securities.

Is there a possibility that you will want to go public in the near future? You should at least do a diagnostic to see what the potential input of the conversion to IFRS might be on your financial results. Perhaps you want to adopt IFRS now so that your comparative information will be ready? You should also consider the non-financial aspects of the contingency of going public also. You may need to make your systems IFRS-ready. As well you might need to consider the future impact of any IFRS adoption on contracts such as debt covenants.

One thing seems certain that you will not be given two to three years to do a conversion. The best advice is to think about possibilities now and plan accordingly!

If you are in a private company or you an adviser to a private company you may be interested in a private company conference on October 24, 2008. The Conference DRIVE YOUR SME TO SUCCESS (CFO Challenges in the SME Sector) will deal with a number of issues affecting SMEs (small and medium sized enterprises). For more information please visit Note that the Agenda goes beyond financial reporting into SME management issues.

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