With only four months left for Canadian publicly listed companies to fully convert to the International Financial Reporting Standards (IFRS), about half will have to rush to meet the deadline, says a recent study. And the race to the Jan. 1, 2011 conversion will also involve a lot of input and changes from the companies’ lawyers.
Companies, accountants, and lawyers have known the deadline date, but only half of public companies were 60 per cent of the way along the conversion project as of spring 2010, according to the study conducted by Financial Executives International Canada, and sponsored by PricewaterhouseCoopers. Small- and medium-sized companies, in particular, are lagging in their conversions at this point.
“The notice came out several years ago, but in the meantime, we had an economic meltdown, and they were trying to keep their businesses afloat,” says Dawn P. Whittaker, a partner at Ogilvy Renault LLP who has worked extensively of IFRS issues. “And now they are all rushing.”
While accountants bear the brunt of the work when it comes to the IFRS conversions, the accounting principles have a lot of legal implications, which means lawyers involved in the organizations going through conversion have to be in the loop in order to make sure contractual and securities law obligations are met, Whittaker tells InHouse.
“Lawyers are reacting to it. We are advising and helping the clients, and telling them what the legal implications are, and to deal with things like contractual obligations that corporations have with other parties [including credit agreements] and what disclosures and requirements they need to file,” she says. “The reality is that these are accounting principles with legal implications.”
IFRS implementation and the accompanying changes to securities laws mean a wide variety of changes to contracts and reporting procedures, all of which require time and a steep learning curve for lawyers to properly understand their impact.
However, PwC’s study says it is worrying to find out that as of spring 2010, nearly one in three companies with revenues of less than $49 million said they did not have the resources required to implement the conversion.
“The CFERF research report shows that smaller companies are facing more resource constraints and they’ll be the ones that may be more challenged to meet the impending January 2011 deadline unless they find more internal help or reach outside their organizations,” says Diane Kazarian, PwC Canada’s national IFRS leader.
Canadian firms that are closer to completion include larger public companies and those in rate-regulated sectors. The survey shows respondents with annual revenues of more than $20 billion were more than 60-per-cent complete, compared to 41 per cent in the $50- to $249-million range who were more than 60-per-cent complete.
“Given that there is not a lot of time left, a number of companies may be challenged to meet the conversion date,” adds Kazarian.
The IFRS were established in 2001 by the International Accounting Standards Board to help offer a unified accounting and reporting platform for listed companies in a global economy. Nearly 70 countries have mandated IFRS for all listed companies, but many are also in transition. In 2011, Canada will join large economies like the European Union and Australia, which have now adopted the IFRS.
“Cross-border issues will be easier for Canadian lawyers than they are now,” says Whittaker.
But she adds U.S.-Canada transaction will be affected even more once the United States adopts IFRS as well. While the Americans have a stated goal of moving from their own Generally Accepted Accounting Principles to IFRS, there is more resistance to IFRS south of the border, so the U.S. is behind Canada in the adoption process.
“It’s going to be a good change for Canada. There will be some growing pains, but we will be better for it,” says Whittaker.