Friday, January 16, 2009

Ten critical points for preparing your pre IFRS preconversion MD&A

This week the CICA put on a webinar in the pre-implementation communications under IFRS, as required by the CSA. The OSFI requires a similar set of dissimilar set of disclosures for federally regulated financial institutions. I posted about these requirements previously.

The webinar war presented by Peter Chant, a technical partner at Deloitte. He was one of the authors of the CCH publication iGAAP:IFRS for Canada If you did not listen to it when it was originally presented, it is archived and can be accessed here. (Please report any broken link). Some 1900 people had signed up for the presentation.

Chant emphasized that the conversion exercise really starts in the comparative period (January 1, 2010 for calendar year companies). I must confess that many do not seem to be showing a sense of urgency (see my post yesterday -there are of course a lot of other pressures right now). I have put a widget on this blog website with the now-famous White Rabbit, together with a count-down clock to January 1, 2010. Time is running very short and resources may not be readily available at the last minute.

What will be disclosed in the first crop of MD&A disclosures called for under the CSA rules? The CICA Corporate Performance Reporting Board published a very useful guidance document. You can read about it and get the link to the document at my previous post. Among other matters the document suggests the use of KPIs (key performance indicators) in explaining the impact of IFRS on the company - interesting! This document will also be useful for non-Canadian readers of this blog.

Some messages in the presentation:

1) There are going to be a lot of changes in IFRSs between now and reporting for the year end 2001. There may even be some consideration of early adoption of some standards. Clearly then a key component of any IFRS conversion will be to monitor key projects that affect your company. I spoke about this yesterday on this blog. All this instability provides a disincentive for early disclosure of preliminary impacts.

2) The current economic environment is, to say the least, unfavorable. Even though it will be critical for companies to approach lenders on the potential impact of IFRS adoption. There may even be a pressing need to renegotiate debt covenants. Do not wait until the last minute to renegotiate these.

3) A changeover should be broad based and one should consider not only the required changes to IFRS. One needs to consider any coincident other changes in accounting policies that are not necessarily required by IFRS.

4) There seems to be no benefit to a company to tip their hand prior to 2010 and even up to the very last minute. The exemptions under IFRS 1 need to be dealt with strategically. The volatility of the economic environment is not conducive for early decisions. Of course companies will do internal analysis but will not want to tip their hand too early.

5) Disclosure of potential accounting policy changes in MD&A will not necessarily lock companies into actual future use. However, it may be necessary to publish a comprehensive recap and analysis at the end of the first year of official reporting. This would show a reconciliation with previously reported potential changes - an aid for analysts.

6) Do not be too hasty in making any broad brush statements in you MD&A or other documents. Be careful for example in any statements about the effects of "cash" impacts. There may be tax impacts that you may not originally discover (one impact may be cash tax impacts - careful). Chant cautioned about cash reporting under IFRS - cash flow from operations may be affected. Try to explain that.

7) There is no standard format for the MD&A disclosures the CPRB report suggests a tabular disclosure for consistency and comparability.

8) Find some comparable IFRS reporting entities in your industry. However, be careful in interpreting the reported information (see my post on this matter).

9) Do not ignore IFRIC, the interpretation wing of IASB, in following IFRS and potential impacts on your company.

10) Make sure you have the appropriate IFRS competencies in your company and on your Audit Committee/Board.

Chant mentioned an interesting example in his presentation. Check out the 2005 Abbey National analysis they presented as a separate document on adoption of IFRS. (It was unaudited). A similar approach might be useful for your company too?

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