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International Financial Reporting Standards (IFRS) will become mandatory accounting standards for all Canadian "publicly accountable enterprises" (PAEs) for financial years beginning on or after January 1, 2011. PAEs include publicly listed companies and enterprises with fiduciary responsibilities, such as banks, insurance companies, credit unions, securities firms, mutual funds and investment banks, crown corporations and other government business enterprises.¹ In February 2008, the Canadian Securities Administrators (CSA) issued Concept Paper 52-402 - Possible Changes to Securities Rules Relating to International Financial Reporting Standards inviting comment on, among other things, whether to permit Canadian reporting issuers to early adopt IFRS beginning in 2009.² The CSA Concept Paper also indicated that the CSA would develop guidance for disclosure relating to the IFRS transition for public filings made by issuers during the years from 2008 through 2010.

CSA Staff Notice 52-320 - Disclosure of Expected Changes in Accounting Policies relating to Changeover to International Financial Reporting Standards (the IFRS Disclosure Notice) was released on May 9, 2008. The notice provides guidance to issuers on disclosure of expected changes in accounting policies for the three financial periods immediately preceding the IFRS transition date. The notice emphasizes that "[c]hanging from current Canadian GAAP to IFRS will be a significant undertaking that may materially affect an issuer's reported financial position and results of operations. It may also affect certain business functions. Investors and other market participants will need timely and meaningful information about these matters during the reporting periods leading up to an issuer's changeover to IFRS." [emphasis added]

Reporting issuers are subject to timely and periodic reporting obligations under Canadian securities laws and stock exchange rules. Such issuers are required to make timely and periodic disclosure of material information relating to their business and affairs. Timely disclosure documents include press releases and material change reports. Periodic disclosure documents include annual information forms, financial statements and management's discussion and analysis (MD&A). In addition, prospectuses delivered in connection with securities offerings are required to contain full, true and plain disclosure of all material facts relating to the securities offered.

Reporting issuers, their directors and officers and others (including underwriters in the case of prospectus offerings and experts in certain circumstances) will be liable for misrepresentations contained in disclosure documents and for the failure to timely disclose material changes. A misrepresentation includes not only an untrue statement of a material fact, but also an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made. A fact is material if it would be reasonably expected to have a significant effect on the market price or value of the securities of the issuer. A material change includes a change in the business, operations or capital of the issuer that would reasonably be expected to have a significant effect on the market price or value of the securities of the issuer.

TSX rules require listed issuers to disclose material information concerning their business and affairs forthwith upon the information becoming known to management, or in the case of information previously known, forthwith upon it becoming apparent that the information is material. Material information includes both material facts and material changes. Failure to comply with TSX timely disclosure rules can result in a suspension of trading or delisting of an issuer's securities.

Regardless of whether an issuer is considering early adoption or will wait for the mandatory change-over date, issuers should be thinking about communicating to the market their conversion strategy and the potential impact of IFRS on their financial statements. Issuers should consider the following:

• Is the issuer considering early conversion (if permitted)?
• Has an action plan been established? What is the time line?
• Who is responsible for establishing the plan? For implementing the plan?
• Has the issuer started retraining existing staff and/or hiring IFRS experts?
• Does the issuer expect that retraining or hiring IFRS staff will be difficult/costly?
• What changes to information technology and data systems will be required?
• What changes to internal control over financial reporting are necessary?
• What are the anticipated costs? How will the costs be financed?
• Has the impact of the conversion on financial results or position been considered?
• Are significant changes in financial results or position possible? Expected?
• What are the potential changes in financial results or position?
• What impact will the transition have on business activities, e.g., contractual obligations affected by financial measures including debt covenants, compensation plans, hedging activities and capital requirements? What is the plan for dealing with, and who is responsible for, such matters?

In addition to general obligations to disclose material information, examples of specific disclosure requirements that may precipitate IFRS related disclosure include:

• MD&A is required to address changes in accounting policies, including:
  • a description of any new accounting standard,
  • disclosure of methods of adoption permitted and the method the issuer expects to use,
  • discussion of expected effects on the issuer's financial statements, and
  • potential effects on the issuer's business.
• Prospectuses and Annual Information Forms require disclosure of "risk factors" relating to the issuer and its business. Issuers will need to consider whether the conversion may have negative impact on financial results or position and the issuer's ability to convert in a timely, orderly and cost efficient manner.

Although the CSA recognizes that an issuer, three and two years before changeover to IFRS, will likely be able to provide only limited information relating to the new accounting standards and the expected or potential effects on the issuer's financial statements and business, if it is determined that the accounting standards transition is likely to materially affect an issuer's financial performance or results, then disclosure of that fact should be made when the issuer's management makes such determination, even if the impact cannot yet be quantified.

The CSA emphasizes that as an issuer moves closer to its changeover date, meaningful quantified information should be disclosed by the issuer to allow investors to understand the impact of the accounting standards transition on the issuer's financial statements. The IFRS Disclosure Notice describes an incremental approach to disclosure for the reporting periods prior to the adoption of IFRS. In particular, the notice sets out the expected disclosure in MD&A for each of the interim and annual periods ending prior to the IFRS changeover date. Issuers should consult the IFRS Disclosure Notice to ensure that their IFRS conversion plans will permit them to respond appropriately and effectively to the disclosure expectations set out in the notice.

As a matter of good governance, the issuer's board of directors should be aware of plans for transition, the changes in accounting policies that will or may occur and the timing and nature of disclosure regarding such changes. The audit committee or a special committee comprised of directors and senior management should have responsibility for ensuring that the conversion strategy is developed and implemented and for ensuring appropriate and timely disclosure of information regarding the foregoing.

Underwriters, lenders and others conducting due diligence in connection with securities offerings, M&A transactions, credit agreements or other transactions will need to be satisfied that the issuer has implemented an action plan for the transition to IFRS and has considered the impact of the conversion on financial results and position. They will also need to be satisfied that the issuer's disclosure regarding such plan and the potential impact is reasonable and appropriate. Boilerplate disclosure will not be sufficient.

1. Private companies and not-for-profit organizations are not required, but can choose, to adopt IFRS.

2. The Office of the Superintendent of Financial Institutions (OSFI) has indicated in a release dated April 25, 2008 that it will not permit Federally Regulated Financial Institutions (FRFIs) to early adopt IFRS.

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The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault LLP or any member of the firm on the points of law discussed.

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