Intent Declared Summary

In March 2006, after extensive consultation the Canadian Accounting Standards Board (AcSB) approved a Strategic Plan “Accounting Standards: New Directions.” Noting that “one size does not fit all,” the AcSB decided to pursue separate financial reporting strategies/standards for public companies, private enterprises, and not-for-profit organizations. As pointed out in a 2009 AcSB special edition on accounting activities, Canadian Generally Accepted Accounting Principles (GAAP) in its current form will cease to exist starting January 2011. Following which, Canadian publicly accountable enterprises (PAEs) defined as publicly listed companies and enterprises with fiduciary responsibilities, such as banks, insurance companies, credit unions, securities firms, mutual funds, and investment banks (but excluding pension plans), must apply International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB) in preparation of their annual and interim financial statements. Private companies will be required to either follow new set of accounting standards for private enterprises issued by the AcSB in December 2009 or apply IFRSs. As for non-profit entities and pension plans, as of 2009, the AcSB was still deliberating on the reporting requirements for this type of entities, although it has been decided that non-profit entities will be allowed to use IFRSs. There is insufficient publicly available information on to what extent the new standards for private companies, not-for-profits and pension plans will conform to IFRSs. Before the deadline of January 2011, all compamies will continue to apply Canadian GAAP which are contained in part V of the Handbook as the “pre-changeover” standards. According to the 2009 KPMG report and other publications on the subject, these “pre-changeover” standards differ from IFRSs.

General Overview

According to its website, the independent Accounting Standards Board of Canada (AcSB) has the authority to develop and establish standards and guidance governing financial accounting and reporting by Canadian companies and not-for-profit organizations. The mission, objectives, and responsibilities of the AcSB are set out in the Canadian Institute of Chartered Accountants (CICA) Handbook. In 1988, the AcSB established the Emerging Issues Committee (EIC) as a way to ensure that emerging accounting issues are swiftly reviewed and presented to the public in order to encourage the development of solutions that address the needs of all stakeholders, including auditors. According to its website, the Accounting Standards Oversight Council (AcSOC) was established in 2000 by the CICA to supervise and provide guidance on the activities of the AcSB. In addition, starting 2003 the AcSOC began overseeing the activities of the Public Sector Accounting Board, which is responsible for establishing accounting standards for the public sector.

With regard to convergence of the Canadian accounting standards with international standards, a January 2006 CICA media release notes that in March 2005 the AcSB issued an "Invitation to Comment", calling for public input regarding Canada's future direction regarding its accounting standards. The objective was to gather feedback on the proposal to adopt International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB) in lieu of the Canadian Generally Accepted Accounting Principles (GAAP). After numerous consultations, the vast majority of stakeholders were found to favor the proposal, and in January 2006, AcSB endorsed a “Strategic Plan” for future accounting standards for the three major categories of reporting entities: public companies, private businesses, and not-for-profit organizations. As pointed out in a 2009 AcSB special edition on accounting activities, Canadian GAAP in its current form will cease to exist starting January 2011. Following which, Canadian publicly accountable enterprises (PAEs), with the exception of pension plans, must apply IFRSs in preparation of their annual and interim financial statements. PAEs are defined as publicly listed companies and enterprises with fiduciary responsibilities, such as banks, insurance companies, credit unions, securities firms, mutual funds, and investment banks.

As part of the ongoing IFRS transition, the AcSB approved a new structure for the Canadian Institute of Chartered Accountants (CICA) Handbook which is divided in five parts that address accounting requirements for various types of entities. IFRSs, which as mentioned above will be applied by the PAEs, have been issued as Part 1 of the CICA Handbook. The AcSB notes that the release of revised standards for pension plans as Part IV of the Handbook in the first quarter of 2010 will conclude the Board’s strategy for publicly accountable enterprises. In December 2009, the AcSB issued new accounting standards for private enterprises which will become effective in January 2011 (contained in Part II of the Handbook). Private enterprises will be given an option of applying IFRSs instead of the new standards. Part II of the Handbook was developed based on the existing Canadian GAAP; however, “ standards in Part V that are largely irrelevant to the private enterprise sector have been excluded from Part II and a limited number of issues that have caused significant concern for private enterprises have been reconsidered. However, the majority of the recognition and measurement requirements in Part V of the Handbook do not cause significant concern for private enterprises and have been retained in Part II “as is,” states the Summary Comparison of Part II and Part V of the Handbook available on the AcSB website. A Part III of the Handbook is being developed and it will include requirements for not-for-profit organizations, which will be also permitted to use IFRSs. There is insufficient publicly available information on how the new standards for private companies, not-for-profits and pension plans differ from or conform to IFRSs. Before 2011, PAEs, private enterprises, not-for-profit organization and pension plans will continue to apply Canadian GAAP which are contained in Part V of the Handbook as the “pre-changeover” standards. According to the 2009 KPMG report, these “pre-changeover” standards differ from IFRSs.

The AcSB follows a rigorous due process in developing accounting standards. The first step is to develop a new or revised standard followed by a discussion of the draft proposal. A formal vote is taken and approval of a project proposal is followed by the final round of public consultation on the Exposure Draft based on a complete draft as the AcSB expects to issue it in the proposed Handbook material. The AcSB website explains that “on global convergence projects, reliance on the work of the IASB allows the AcSB to proceed directly to an Exposure Draft.” Standard-setting decisions of the AcSB are not finalized until it has undertaken public consultations. Although the AcSB is empowered to act without public consultation, this happens rarely and usually involves deferring the effective date.

The AcSB website discloses that the Canada Business Corporations Act of 1985 and provincial corporations and securities legislation require companies to prepare financial statements for their shareholders according to GAAP as spelled out in the CICA Handbook. According to Canada's 2005 self-assessment for the International Federation of Accountants (IFAC), the Canada Business Corporations Act covers federally incorporated corporations, whereas the Canada Corporations Act of 1970 governs federal nonprofit companies and the Financial Administration Act of 1985 deals with federal government departments, agencies, and some federal entities. Section 308 of the Bank Act requires a bank's financial statements to be produced using GAAP's guidelines and requirements, except in instances where the Office of the Superintendent of Financial Institutions (OSFI) demands otherwise, according to CICA's 2005 self-assessment. The OSFI is a member of the AcSOC and monitors the setting of GAAP. The same 2005 assessment indicates that, under the Office of the Superintendent of Financial Institutions Act, the OFSI is also the regulatory body responsible for supervising the compliance of insurance companies with accounting requirements. The securities market in Canada is regulated at the provincial level, and each province has its own Securities Act. Ontario, Quebec, British Columbia, and Alberta are the four most important provinces in terms of securities market regulation, with Ontario having the largest securities market. The different securities commissions generate Policy Statements, Rules and Orders. According to CICA's 2006 self-assessment, "securities regulations allow Canadian SEC registrants to use Canadian or US GAAP and GAAS" (p. 15). The Certified Management Accountants, the CICA, and the Certified General Accountants' Association of Canada are listed as members on the IFAC website.

The Principles

NCIFRS 1: First-time Adoption of International Financial Reporting Standards (effective 2010)

According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IFRS 1 First-time Adoption of International Financial Reporting Standards does not have a Canadian equivalent. A more recent KPMG report of 2009 that compares Canadian GAAP to IFRSs does not make mention of IFRS 1.

NCIFRS 2: Share-based Payment (effective 2010)

According to the 2009 KPMG report, “unlike IFRSs, stock-based payments effected through employee share purchase plans are outside the scope of the stock-based compensation standard when certain conditions are met, including a requirement that the discount from the market price be less than 5 percent” (p. 123). Numerous other differences also exist with respect to the accounting of goods, transactions, and cash-settled awards.

NCIFRS 3: Business Combinations (effective 2010)

According to the 2009 KPMG report, there are also some conceptual differences between the international and the Canadian accounting model. For example, “unlike IFRSs, there is no explicit linkage between control and ownership benefits [and also,] there are two models to determine which entities are consolidated, namely the variable interests model, and the voting interests model” (p. 15). Overall, differences were observed in the accounting for variable interest entities, qualifying special interest entities, non-controlling interests, cost of acquisition, contingent considerations, pension obligations, restructuring costs, deferred tax assets, contingent liability, goodwill, and common control transactions.

NCIFRS 4: Insurance Contracts (effective 2006)

According to the 2009 KPMG report, “unlike IFRSs, Canadian GAAP has accounting and reporting standards for insurance contracts issued by an insurance entity; there are no specific requirements for other entities that accept significant insurance risk” (p. 165). Numerous other differences also exist. For instance, Canadian GAAP does not address how insurance risk is assessed. Furthermore, “unlike IFRSs, accounting standards for insurance entities do not place restrictions on the introduction of new policies other than the general guidance under Canadian GAAP, which permits a voluntary change in accounting policy only when it results in reliable and more relevant information” (p. 165).

NCIFRS 5: Non-current Assets Held for Sale and Discontinued Operations (effective 2010)

According to the 2009 KPMG report, “unlike IFRSs, any loss arising from a write down to fair value less costs to sell is allocated to non-current assets, excluding goodwill, on a pro rata basis, except that the carrying amount of an individual non-current asset generally is not reduced below its fair value. Goodwill is evaluated for impairment separately from the disposal group, unlike IFRSs” (p. 147). A number of other differences also exist.

NCIFRS 6: Exploration for and Evaluation of Mineral Resources (effective 2006)

According to the 2009 KPMG report, a number of differences exist between Canadian GAAP and the corresponding international standards. For instance, the report notes that “unlike IFRSs, Canadian GAAP does not have a single accounting standard for exploration and evaluation (E&E) activities; rather, it has accounting guidance that separately addresses various aspects of the mining and oil and gas industries” (p. 169).

NCIFRS 7: Financial Instruments: Disclosures (effective 2009)

According to the 2009 KPMG report, the requirements for the derecognition of financial assets transferred differ from IFRSs.

NCIFRS 8: Operating Segments (effective 2010)

According to the 2009 KPMG report, “unlike IFRSs, entities that follow a matrix form of organization determine operating segments based on products and services when more than one set of components is reviewed by the chief operating decision maker” (p. 139). There are differences in the accounting of disclosures for long-lived tangible assets as well.

NCIAS 1: Presentation of Financial Statements (effective 2010)

According to the 2009 KPMG report, numerous differences were observed between the international and local accounting practices. For instance, the report points out that “unlike IFRSs, non-controlling interests are not presented in equity and, therefore, are excluded from both the statement of retained earnings and, when presented, the statement of changes in equity” (p. 9). Furthermore, unlike IFRSs, a statement of changes in equity that includes components of comprehensive income is permitted and also, “financial statements generally are prepared on a historical cost basis, with limited use of fair values” (p. 13).

NCIAS 2: Inventories (effective 2005)

According to the 2009 KPMG report, “unlike IFRSs, decommissioning and restoration costs incurred through the production of inventory are added to the carrying amount of the related long-lived asset” (p. 69). Other differences also exist, including in the accounting of interest that is directly attributable to the acquisition, construction or production of inventories.

NCIAS 7: Cash Flow Statements (effective 2010)

According to the 2009 KPMG report, differences were observed between the international and local accounting practices. Among other issues pointed out, the report noted that “unlike IFRSs, cash flow information attributable to operating, investing and financing activities of discontinued operations is not required to be disclosed” (p. 11). Furthermore, unlike IFRSs, capitalized interest must be classified as investing activities.

NCIAS 8: Accounting Policies, Changes in Accounting Estimates and Errors (effective 2005)

According to the 2009 KPMG report, differences were observed between the international and local accounting practices. Among other issues pointed out, the report notes that “unlike IFRSs, non-controlling interests are not presented in equity and, therefore, are excluded from both the statement of retained earnings and, when presented, the statement of changes in equity” (p. 9). Furthermore, unlike IFRSs, a statement of changes in equity that includes components of comprehensive income is permitted. Also, “unlike IFRSs, a statement of financial position (balance sheet) is not required to be presented at the beginning of the earliest comparative period following an accounting policy change, the correction of an error, or the reclassification of items in the financial statements” (p. 35).

NCIAS 10: Events after the Reporting Period (effective 2005)

According to the 2009 KPMG report, “unlike IFRSs, the post-reporting date period is to the date of completion of the financial statements, which may be earlier than the date that the financial statements are authorised for issue” (p. 37).

NCIAS 11: Construction Contracts (effective 1995)

According to the 2009 KPMG report, “unlike IFRSs, Canadian GAAP requires persuasive (generally written or formal) evidence of an arrangement to exist before revenue can be recognized” (p. 105). Numerous other differences also exist including the absence of specific guidance in respect of consideration received by a retailer from a supplier.

NCIAS 12: Income Taxes (effective 2001)

According to the 2009 KPMF report, “unlike IFRSs, Canadian GAAP addresses income taxes, which includes alternative minimum taxes and withholding taxes, as well as refundable taxes and investment tax credits” (p. 91). Numerous other differences with respect to the accounting and measurement of deferred taxes also exist.

NCIAS 16: Property, Plant and Equipment (revised 2009)

According to the 2009 KPMG report, “unlike IFRSs, interest and other borrowing costs may be capitalized as part of the cost of a “qualifying” item of property, plant and equipment” (p. 41). Differences in the accounting for incidental income or expense derived from property, plant and equipment, depreciation of an asset, residual value of an asset were also observed. Also, unlike international requirements, property, plant and equipment may not be revalued to fair value, the report adds.

NCIAS 17: Leases (effective 2010)

According to the 2009 KPMG report, “unlike IFRSs, there is no specific definition of investment property under Canadian GAAP; such property is accounted for as property, plant and equipment unless it meets the specific criteria to be classified as held for sale” (p. 49). A number of other differences also exist including in the accounting for property under an operating lease, measurement of investment property, disclosure requirement on fair value of investment property, and also no guidance is available on classification of dual-use property.

NCIAS 18: Revenue (effective 1995)

According to the 2009 KPMG report, “unlike IFRSs, Canadian GAAP requires persuasive (generally written or formal) evidence of an arrangement to exist before revenue can be recognized” (p. 105). Numerous other differences also exist including the absence of specific guidance on the measurement of revenue other than for related party transactions.

NCIAS 19: Employee Benefits (revised 2009)

According to the 2009 KPMG report, “unlike IFRSs, pension plans in which participating employers pool their assets for investment purposes, but maintain separate accounts for purposes of benefit payments (multiple-employer plans), are classified as defined benefit plans” (p. 113). Other differences also exist.

NCIAS 20: Accounting for Government Grants and Disclosure of Government Assistance (revised 2009)

According to the 2009 KPMG report, “unlike IFRSs, government assistance related to biological assets is accounted for in the same way as other government assistance” (p. 111). Among other differences, the report also points out that “unlike IFRSs, when government assistance in the form of a non-monetary asset is received, both the asset and the government assistance are recognised at fair value” (p. 111).

NCIAS 21: The Effects of Changes in Foreign Exchange Rates (effective 2005)

According to the 2009 KPMG report, many differences were observed between the international and local accounting practices. Among other issues pointed out, the report noted that “unlike IFRSs, financial statements generally are prepared on a historical cost basis, with limited use of fair values” (p. 13). Furthermore, “unlike IFRSs, an entity is not explicitly required to assess the unit of measure (functional currency) in which it measures its own assets, liabilities, revenues and expenses; rather, it only assesses the functional currency of its foreign operations” (p. 29). Among several other differences, the report also points out that “unlike IFRSs, purchasing power adjustments are not permitted if the functional currency of a foreign operation is highly inflationary” (p. 31).

NCIAS 23: Borrowing Costs (revised 2009)

According to the 2009 KPMG report, “unlike IFRSs, interest and other borrowing costs may be capitalised as part of the cost of a “qualifying” item of property, plant and equipment” (p. 41). Differences in the accounting for incidental income or expense derived from property, plant and equipment, depreciation of an asset, residual value of an asset were also observed. Also, unlike international requirements, property, plant and equipment may not be revalued to fair value, the report adds.

NCIAS 24: Related Party Disclosures (effective 2005)

According to the 2009 KPMG report, “unlike IFRSs, there are special recognition and measurement requirements for related party transactions” (p. 153). Also, “unlike IFRSs, compensation arrangements in the normal course of business are not considered related party transactions and are not required to be disclosed” (p. 153).

NCIAS 26: Accounting and Reporting by Retirement Benefit Plans (effective 1998)

According to the November 2009 AcSB report, the AcSB has issued an Exposure Draft proposing to modify existing Handbook Section 4100, Pension Plans, rather than adopting IAS 26. Pension plans are publicly accountable enterprises that will be required to follow a revised Pension Plans, Section 4100, rather than IAS 26 Accounting and Reporting by Retirement Benefit Plan, following adoption of IFRSs as Canadian GAAP for publicly accountable enterprises for fiscal years beginning on or after January 1, 2011.

NCIAS 27: Consolidated and Separate Financial Statements (effective 2010)

According to the 2009 KPMG report, differences were observed between the international and local accounting practices. Among other issues pointed out, the report noted that “unlike IFRSs, non-controlling interests are not presented in equity and, therefore, are excluded from both the statement of retained earnings and, when presented, the statement of changes in equity” (p. 9). Furthermore, unlike IFRSs, a statement of changes in equity that includes components of comprehensive income is permitted. There are also some conceptual differences, for example, the KPMG report explains that “unlike IFRSs, there is no explicit linkage between control and ownership benefits [and also,] there are two models to determine which entities are consolidated, namely the variable interests model, and the voting interests model” (p. 15). Overall, differences in the accounting for variable interest entities, qualifying special interest entities and non-controlling interests were also observed.

NCIAS 28: Investments in Associates (revised 2009)

According to the 2009 KPMG report, “unlike IFRSs, potential voting rights that are currently exercisable are not considered in assessing significant influence” (p. 51). Numerous other differences also exist including in the accounting for joint ventures arrangement, investments subject to significant influence and joint ventures, equity accounting or proportionate consolidation for an investment subject to significant influence or a joint venture that is acquired for subsequent sale.

NCIAS 29: Financial Reporting in Hyperinflationary Economies (revised 2009)

According to the 2009 KPMG report, many differences were observed between the international and local accounting practices. Among other issues pointed out, the report noted that “unlike IFRSs, financial statements generally are prepared on a historical cost basis, with limited use of fair values” (p. 13). Furthermore, “unlike IFRSs, an entity is not explicitly required to assess the unit of measure (functional currency) in which it measures its own assets, liabilities, revenues and expenses; rather, it only assesses the functional currency of its foreign operations” (p. 29). Among several other differences, the report also points out that “unlike IFRSs, purchasing power adjustments are not permitted if the functional currency of a foreign operation is highly inflationary” (p. 31).

NCIAS 31: Interests in Joint Ventures (revised 2009)

According to the 2009 KPMG report, “unlike IFRSs, potential voting rights that are currently exercisable are not considered in assessing significant influence” (p. 51). Numerous other differences also exist including in the accounting for joint ventures arrangement, investments subject to significant influence and joint ventures, equity accounting or proportionate consolidation for an investment subject to significant influence or a joint venture that is acquired for subsequent sale. Also, “unlike IFRSs, upon the loss of significant influence or joint control, there is no remeasurement of any retained investment to fair value” (p. 53).

NCIAS 32: Financial Instruments: Disclosure and Presentation (effective 2010)

According to the 2009 KPMG report, the definition of “derivatives” differs from the one used under the international framework. A number of other differences also exist, including in the accounting of deferred income taxes, puttable financial asset, foreign currency derivative, multiple embedded derivatives, loans and receivables, foreign exchange gains and losses and impairment loss.

NCIAS 33: Earnings per Share (effective 2005)

According to the 2009 KPMG report, “unlike IFRSs, there is no requirement for expenses to be classified according to their nature or function” (p. 103). Other differences also exist, including in the accounting of items of income or expense and items defined as “unusual items,” and the computation of earnings per share.

NCIAS 34: Interim Financial Reporting (effective 1999)

According to the 2009 KPMG report, “unlike IFRSs, inventory is not recognized and measured as if the interim period were a discrete period and the deferral of certain inventory cost variances expected to be absorbed by the annual reporting date is permitted” (p. 163).

NCIAS 36: Impairment of Assets (revised 2009)

According to the 2009 KPMG report, “unlike IFRSs, Canadian GAAP does not contain a single comprehensive impairment standard” (p. 73). A number of other differences also exist.

NCIAS 37: Provisions, Contingent Liabilities and Contingent Assets (effective 1999)

According to the 2009 KPMG report, “unlike IFRSs, the amount recognized as a provision is a “reasonable estimate” of the amount to be paid” (p. 85). Also, unlike IFRSs, in some cases a specific standard requires a provision to be measured at fair value. A number of other differences with respect to accounting of provisions and contingent assets and liabilities also exist.

NCIAS 38: Intangible Assets (effective 2010)

According to the 2009 KPMG report, “unlike IFRSs, there is a presumption that an entity in its development stage does not meet the definition of a business” (p. 21). The report notes that “unlike IFRSs, the fair value of equity securities issued by the acquirer is determined by reference to their market price for a reasonable period before and after the terms of the acquisition are agreed to and announced” (p. 21). Overall, differences in the accounting for cost of acquisition, contingent considerations, pension obligations, restructuring costs, deferred tax assets, contingent liability, non-controlling interests, goodwill and common control transactions were observed. Also, intangible assets cannot be revalued to fair value.

NCIAS 39: Financial Instruments: Recognition and Measurement (effective 2010)

According to the 2009 KPMG report, the definition of “derivatives” differs from the one used under the international framework. A number of other differences also exist, including in the accounting of puttable financial asset, foreign currency derivative, multiple embedded derivatives, loans and receivables, foreign exchange gains and losses, overall fair value of a written prepayment option, and impairment loss.

NCIAS 40: Investment Property (effective 2009)

According to the 2009 KPMG report, “unlike IFRSs, there are additional circumstances in which the exchange of non-monetary assets is measured based on historical cost” (p. 157).

NCIAS 41: Agriculture (effective 2009)

According to the 2009 KPMG report, “unlike IFRSs, there is no specific guidance on accounting for biological assets” (p. 71). There are differences in the accounting of the fair value of biological assets and no specific guidance exists on determining the cost of agricultural produce harvested from a biological asset.