According to a January 2006 media release by the Canadian Institute of Chartered Accountants, in March 2005 the Accounting Standards Board of Canada (AcSB) requested public comment on Canada's future direction regarding its accounting standards. The objective was to gather feedback on a proposal to adopt International Financial Reporting Standards (IFRSs) in lieu of the Canadian Generally Accepted Accounting Principles. At the end of numerous consultations, the vast majority of stakeholders favored IFRS adoption, and a Strategic Plan to that effect was approved the following year. In its February 2008 media release, the AcSB confirmed the adoption of IFRSs, setting the official changeover date as January 1, 2011. In its March 2008 Bulletin, the AcSB declared its intent to adopt IFRSs in effect as of January 1, 2007 without modification. In a March 2008 Bulletin, the AcSB announced that conversion to IFRSs will be required of all publicly accountable enterprises (PAEs), which include publicly listed companies and enterprises with fiduciary responsibilities, such as banks, insurance companies, credit unions, securities firms, mutual funds and investment banks. Private companies and not-for-profit organizations are permitted, but not required, to adopt IFRSs in 2011. Although the Canadian Securities Administrators initially proposed an early (2009) opt-in alternative for PAEs, the Canadian Office of the Superintendent of Financial Institutions has rescinded this early IFRS adoption option.

General Overview

Canada's legal framework is two fold: common law and civil law. Common law applies in all provinces and territories except Quebec, where civil law governs the province. With new precedents established by previous court judgments, common law continues to change, and the Civil Code of Quebec has had several amendments since the late 1990s. 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. The AcSB established the Emerging Issues Committee (EIC) in 1988 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, as of 2003 the AcSOC began overseeing the activities of the Public Sector Accounting Board, which is responsible for establishing accounting standards for the public sector. According to the International Federations of Accountants (IFAC) website, the Certified Management Accountants, the CICA, and the Certified General Accountants' Association of Canada are all members of the IFAC.

According to the CICA's January 2006 media release, the AcSB issued an "Invitation to Comment" in March 2005, 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) 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 a "Strategic Plan" was approved the following year. In its February 2008 media release, the AcSB confirmed the adoption of IFRSs, setting January 1, 2011 as the official changeover date. All Canadian Publicly Accountable Enterprises (PAEs) will be required to adhere to IFRSs' guidelines and requirements. The AcSB's March 2008 Bulletin defines PAEs as "are profit-oriented enterprises that have responsibilities to a large or diverse group of stakeholders" (p. 1). These would include publicly listed companies as well as enterprises with fiduciary responsibilities: banks, insurance companies, credit unions, securities firms, mutual funds, and investment banks. An AcSB media release issued in February 2008 indicated that enterprises that are not publicly accountable, as well as nonprofit organizations, are permitted, but not required, to adopt IFRSs in 2011. Accounting principles for these enterprises "are still under consideration," (p. 1) according to AcSB's March 2008 Bulletin. The 2007 CICA Guide notes that, beginning in January of 2011, companies which fail to release IFRSs-compliant financial statements must prove that they are not publicly accountable. In May 2008, the Canadian Office of the Superintendent of Financial Institutions (OSFI) notified all PAEs that the choice to opt for early adoption (in 2009) of IFRSs, as previously proposed in February 2008 by the Canadian Securities Administrators (CSA), has been rescinded. The 2007 CICA Guide asserts that AcSB's objective is "to adopt IFRSs with no modifications" (p. 2). The AcSB has released an "Omnibus Exposure Draft, Adopting IFRSs in Canada" which will include all IFRSs as of January 1, 2007.

The CICA website indicates that, during the transition to IFRSs, the AcSB will be adopting all converged standards stemming from joint projects of the IASB and the U.S. Financial Accounting Standards Board (FASB). This will be the case in the event that changes made to the Canadian GAAP fail to require extensive modifications that would make them redundant at changeover in 2011. The adoption of IFRSs poses a number of challenges, according to AcSB's 2008 report titled "Implementation Plan for Incorporating IFRSs into Canadian GAAP." Training accountants and all stakeholders in IFRSs will take some time and will require new training materials and updates in textbooks. The issue of early adoption of IFRSs and continued use of U.S. GAAP has been raised by market participants, and the CSA is expected to announce its decisions about these matters expected during the course of 2008. Another concern is that some IFRSs adopted in 2011 might be amended shortly after adoption. The AcSB's 2008 Implementation Plan states that any such major alteration to IFRSs following January 1, 2011 will probably be known in advance of the changeover date, enabling companies to mitigate the impact of such a "dual change" situation. The AcSB also noted that some industries, such as oil and gas, are concerned about reconciling the inconsistencies between their current cost-accounting methods and the accrual-accounting procedures of the IFRSs. To address this issue, a team of the AcSB and industry insiders are working with the IASB.

The AcSB website discloses that the Canada Business Corporations Act of 1985 and provincial corporations and securities legislation usually 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 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 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 Principles

IFRS 1: First-time Adoption of International Financial Reporting Standards (effective 2006)

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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. However, the AcSB intends to adopt IFRSs in their entirety, without any modifications.

IFRS 2: Share-based Payment (effective 2005)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IFRS 2 and Section 3870 are "converged" but the differences are deemed significant. The AcSB intends to adopt IFRSs in their entirety, without any modifications.

IFRS 3: Business Combinations (effective 2004)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IFRS 3 and Sections 1581 and 1600 are "converged," however, the same report notes that there are significant difference between IFRS 3 and Section 1581. These inconsistencies are expected to be eliminated when the IASB and the FASB complete a project on business combinations that would add new requirements for purchase method procedures and standards convergence. Differences between IFRS 3 and Section 1600 are also considered significant, but the work in process is expected to eliminate them or change the current requirements. The AcSB intends to adopt IFRSs in their entirety, without any modifications.

IFRS 4: Insurance Contracts (effective 2006)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, there are significant differences between IFRS 4 insurance contracts and Section 4211 life insurance enterprises particularly for life insurance companies. Differences between AcG-3 and AcG-9 and IFRS 4 are also significant as IFRS 4 has limited requirements. The AcSB intends to adopt IFRSs in their entirety, without any modifications.

IFRS 5: Non-current Assets Held for Sale and Discontinued Operations (effective 2005)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IFRS 5 non-current assets held for sale and discontinued operations and Section 3475 "are converged, except that IFRS 5 contains a more restrictive definition of a discontinued operation" (p. 57). Nevertheless, the AcSB intends to adopt IFRSs in their entirety, without any modifications.

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

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IFRS 6 exploration for and evaluation of mineral resources and Section 3061 property, plant and equipment are "converged, except that IFRS 6 provides limited guidance on the financial reporting for exploration for, and evaluation of, mineral resources" (p. 41). Further, some components of Section 3061 and all of AcG-16 Oil and Gas Accounting and Emerging Issues Committee (EIC)-126 Accounting by Mining Enterprises For Exploration Costs are more comprehensive than IFRS 6. The AcSB intends to adopt IFRSs in their entirety, without any modifications.

IFRS 7: Financial Instruments: Disclosures (effective 2007)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, disclosure requirements contained in IFRS 7 Financial Instruments: Disclosures are more comprehensive than those of Section 3861 Financial Instruments. Some requirements of IFRS 7 include clearer disclosures of collateral, embedded derivatives with values that are interdependent, and entity disclosures that enable stakeholders to evaluate the different financial instruments. Section 3862 and IFRS 7 are also "converged," with minor differences. However, the differences are minor. The AcSB intends to adopt IFRSs in their entirety, without any modifications.

IAS 1: Presentation of Financial Statements (effective 2007)

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Various Sections, including 1000, 1400, 1505, 1508, 1510, 1520, 1530, 1535, 3000, 3020, 3040, 3210, 3240, 3251, 3260, and 3280 and IAS 1 are "converged," but with some differences, according to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007. Nevertheless, the AcSB intends to adopt IFRSs in their entirety, without any modifications.

IAS 2: Inventories (effective 2005)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 2 Inventories is more comprehensive than its Canadian equivalent, Section 3030. IAS 2 requires, among other things, that inventories be assessed at the lowest of cost and that more guidance be provided with regard to determining cost. In addition, IAS 2 does not allow the last-in-first-out method of cost determination. The AcSB approved and replaced Section 3030 with Section 3031 which makes the new section now significantly "converged" with IAS 2. The differences are expected to be eliminated with the introduction of Section 3031.

IAS 7: Cash Flow Statements (effective 1994)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 7 Cash Flow Statements and its counterpart Section 1540 are "converged," except that IAS 7 does not forbid the disclosure of cash flow per share amounts. The AcSB intends to adopt IFRSs in their entirety, without modifications.

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

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, requirements of IAS 8 accounting policies, changes in accounting estimates and errors and those spelled out in Sections 1100 and 1506 are "converged," except that Section 1100 ensures a "temporary exception for recognition and measurement of assets and liabilities arising from rate regulation"(p. 15), while IAS 8 differs from Section 1506 in that the former does not require a company to revisit previous periods to address an error on grounds of impracticability. The AcSB has issued an Exposure Draft with the objective to remove the exception with respect to Section 1100 but AcSB decided not make the necessary changes to Section 1506 and instead maintain convergence with the U.S. GAAP. The differences between Section 1100 and IAS 8 are considered to be trivial for some companies and significant for companies subject to rate regulation. The AcSB intends to adopt IFRSs in their entirety, without any modifications.

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

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 10 and Section 3820 are "converged," except that IAS 10 has additional requirements such as release of the date of approval for issue and who gave that authorization. The report does not mention any work in process and lists the significance of differences as minor. Nevertheless, the AcSB intends to adopt IFRSs in their entirety, without modifications.

IAS 11: Construction Contracts (effective 1995)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 11 Construction Contracts and Section 3400 Revenue and EIC-141 Revenue Recognition are "converged," except that IAS 11 does not allow the completed contract method [and] provides more guidance on work in process" (p. 53). The IASB and the FASB started working on revenue recognition standard which will possibly create a substantially different accounting model. The report finds the differences to be important and will remain as such until the completion of the work in process eliminates them. The AcSB intends to adopt IFRSs in their entirety, without modifications.

IAS 12: Income Taxes (effective 2001)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 12 Income Taxes, SIC-25 and its equivalent Section 3465 are "converged," however there are several differences between the standards. The IASB and the FASB started work on a project to converge their standards, and the AcSB plans to fully converge the standards on income tax once the joint IASB/FASB project is completed.

IAS 14: Segment Reporting (effective 1998)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 14 has been superseded by IFRS 8. According to a comparison of Canadian GAAP and IFRSs published by the AcSB in 2006, section 1701 Segment Disclosures and IAS 14 use different underlying approaches. IAS 14 requires segments to be determined based on risks and returns, and requires either a business or geographical basis as the primary basis and the other as secondary, with results reported using the same accounting policies as used in preparing financial statements.

IAS 16: Property, Plant and Equipment (effective 2005)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 16 and Section 3061 and Section 3280 are "converged." Some differences between IAS 16 and Section 3061 are that IAS 16 allows for "the revaluation of property, plant and equipment to fair value... and requires that the depreciable amount to be the asset cost less its residual value, rather than using the greater of the asset cost less its residual value or asset cost less its salvage value" (p. 41). Nevertheless, the AcSB intends to adopt IFRSs in their entirety, without any modifications.

IAS 17: Leases (effective 2005)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 17 and Section 3065 are "converged," however some differences remain. For instance, IAS 17 uses "finance lease" whereas section 3065 employs the term "capital lease." In addition, the disclosure requirements differ. The IASB and the FASB started a project on lease accounting which will possibly result in an accounting model that is substantially different. The AcSB intends to adopt IFRSs in their entirety, without any modifications.

IAS 18: Revenue (effective 1995)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, the recognition criteria in IAS 18, and Section 3400 and EIC-141 are "converged," except that IAS 18 comprises "measurement standards requiring fair value for consideration received or receivable" (p. 53). The CICA assessment notes that Accounting Guidelines AcG-4 Fees and Costs Associated with Lending Activities and AcG-2 Franchise Fee are more comprehensive than IAS 1; however the differences between the standards are not major. The AcSB intends to adopt IFRSs in their entirety, without any modifications.

IAS 19: Employee Benefits (effective 2006)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 19 and Section 3461 Employee Future Benefits are "converged," however differences still exist. Meanwhile the IASB released an Exposure Draft suggesting amendments to IAS 37 that include adjustments pertaining to the termination benefits requirements of IAS 19. The AcSB also issued an Exposure Draft that requires stating a company's benefit plan on its balance sheet. The AcSB intends to adopt IFRSs in their entirety, without any modifications.

IAS 20: Accounting for Government Grants and Disclosure of Government Assistance (effective 1984)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 20, SIC-10 and Section 3800 Government Assistance are "converged," but differences are significant for companies that have specific government grants. IAS 20 differs in that it "permits, and provides guidance on, the recognition of non-monetary government grants at zero; and provides guidance on biological assets" (p. 61). The IASB has postponed making changes to IAS 20 to address accounting for government grants until more progress is made with regard to work on IAS 37 and IAS 41. The AcSB intends to adopt IFRSs in their entirety, without any modifications.

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

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 21, EIC-130 and Section 1651 are "converged." However, IAS 21 differs in that it requires "that non-monetary items measured at fair value be translated at the date when the fair value was determined rather than the balance sheet date" (p. 30). Differences can be considerable for entities operating in a highly inflationary environment and those depending on foreign denominated assets. The AcSB intends to adopt IFRSs in their entirety, without any modifications.

IAS 23: Borrowing Costs (effective 1995)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 23 and Section 3850 are significantly different. The AcSB does not plan to adopt the standard until the changeover date, when all IFRSs will be adopted in their entirety and without modifications.

IAS 24: Related Party Disclosures (effective 2005)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 24 and Section 3840's disclosure requirements are "converged" and the significance of differences is minor. Nevertheless, the AcSB intends to adopt IFRSs in their entirety, without any modifications.

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

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 26 and Section 4100 are different in several ways. IAS 26 "does not require a statement of changes in net assets available for benefits; [nor] does [it] require information on pension obligations be included in the statements of a defined contribution plan; [but] permits the actuarial valuation with or without salary projection and without prorating the effect" (p. 75). The AcSB has not yet decided whether to adopt IAS 26 at changeover. However, the AcSB intends to adopt IFRSs in their entirety, without any modifications.

IAS 27: Consolidated and Separate Financial Statements (effective 2005)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 27 and Sections 1590 and 1600 are "converged," however the report indicates differences between the standards. The AcSB intends to adopt IFRSs in their entirety, without any modifications.

IAS 28: Investments in Associates (effective 2005)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 28 and Section 3051 are "converged," however the standards contain various differences. However, the AcSB intends to adopt IFRSs in their entirety, without any modifications.

IAS 29: Financial Reporting in Hyperinflationary Economies (effective 1990)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 29 is more comprehensive than its Canadian equivalent Section 1651. However, the AcSB intends to adopt IFRSs in their entirety, without any modifications.

IAS 31: Interests in Joint Ventures (effective 2005)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 31 and Section 3055 are slightly different from each other. The differences are that IAS 31 allows for "the use of either the proportionate consolidation method or the equity method to account for joint ventures; and excludes a venturer's interest in a joint venture held by a venture capital organization, mutual fund, unit trust or similar entity" (p. 40). However, the AcSB intends to adopt IFRSs in their entirety, without modification.

IAS 32: Financial Instruments: Disclosure and Presentation (effective 2005)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 32 and Sections 3861 and 3863 are "converged." The report deems the differences between IAS 32 and Section 3861 significant and between IAS 32 and Section 3863 minor. However, the AcSB intends to adopt IFRSs without modification.

IAS 33: Earnings per Share (effective 2005)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 33 and Section 3500 are "converged." There are differences between the two standards but the IASB has issued a proposal to amend IAS 33 which the AcSB will adopt when the standard is revised.

IAS 34: Interim Financial Reporting (effective 1999)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 34 and Section 1751 are "converged." There are some differences between the two standards; however the CICA report deems the significance in difference to be trivial. However, the AcSB intends to adopt IFRSs without modification.

IAS 36: Impairment of Assets (effective 2004)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 36 and Sections 3051 and 3061 are "converged." Section 4211 is also the equivalent of IAS 36 but with some differences. The CICA report indicates that the differences between IAS 36, Sections 3051 and 3061 are significant. However the AcSB is expected to revise its standards when the IASB completes its research project on extractive industries. Section 3062 shares similarities with IAS 36 but uses a different model testing impairment. However, the AcSB intends to adopt IFRSs in their entirety, without any modifications.

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

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 37 and Sections 1508 and 3290 are "converged." Section 3110 is more comprehensive than the requirements of its equivalent IAS 37. The major differences between IAS 37 and Section 1508 are that IAS 37 has additional disclosure requirements and no exemption is allowed for these disclosures. The IASB issued an Exposure Draft suggesting amendments to IAS 37. The AcSB intends to adopt IFRSs in their entirety, without any modifications.

IAS 38: Intangible Assets (effective 2004)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 38 and Section 3450 are "converged" and the differences between the two are not significant. On the other hand, IAS 38 is more comprehensive than Section 3062 given that IAS 38 offers more guidance on intangible assets. The AcSB issued an Exposure Draft on Internally Developed Intangible Assets (IDIA) with proposals that would reduce the differences between Section 3062 and IAS 38 and increase the extent of convergence. The AcSB intends to adopt IFRSs in their entirety, without any modifications.

IAS 39: Financial Instruments: Recognition and Measurement (effective 2006)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 39 and Sections 3025, 3855, and 3865 are "converged," The differences between IAS 39, Sections 3025 and 3855 are significant while the difference between IAS 39 and Section 3865 are minor. For Sections 3855, 3865 and IAS 39, a revision of the standards on financial instruments by the IASB, the FASB and the AcSB will help the convergence with one another. CICA's 2007 Guide notes that AcSB's objective is "to adopt IFRSs with no modifications" (p. 2).

IAS 40: Investment Property (effective 2005)

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According to a comparison of Canadian GAAP and IFRSs published by the CICA in 2007, IAS 40 and Section 3061 are "converged," except that IAS 40 "allows investment property to be accounted for using a fair value or a cost-based model" (p. 41). Section 4211 is also the equivalent of IAS 40 except that some corresponding requirements are not the same. However, the AcSB intends to adopt IFRSs without modification.

IAS 41: Agriculture (effective 2003)

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According to a comparison of Canadian GAAP and IFRS published by the CICA in 2007, IAS 41 has no Canadian equivalent. However, the AcSB intends to adopt IFRSs in their entirety, without any modifications. This standard provides specific guidance in dealing with agriculture. The transition to this standard can bring major differences to companies with operations in the agricultural sector.