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Canadian study reveals impact of IFRS transition

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23 Mar 2011

A new study by the Certified General Accountants Association of Canada (CGA-Canada), The Effects of IFRS on Financial Ratios: Early Evidence in Canada, outlines the findings from a comparison of the financial statements of Canadian companies that early adopted IFRS and statements prepared under pre-changeover Canadian GAAP.

It also examined the key differences between pre-changeover GAAP and IFRS.

The key findings of the study include:

  • IFRS presents a number of specific characteristics that differentiate it from other accounting regimes – including a 'principle-based approach' and greater reliance on fair value accounting
  • The impact of IFRS on financial ratios is driven by fundamental differences in application of fair value accounting and consolidation under IFRS and pre-changeover Canadian GAAP, and by a number of other differences
  • Most of the financial ratios under IFRS present a significantly higher volatility than those computed under pre-changeover Canadian GAAP
  • The impact of IFRS is subject to the industry effect and the time of the transition
  • Differences between IFRS and pre-changeover Canadian GAAP do not generally affect cash flows
  • The exact source of increased volatility in financial ratios under IFRS remains unclear and may represent a future area of research – increased volatility in the Canadian context may be explained by fair value accounting, impairment, revenue recognition, capitalisation, pension and scope of consolidation

Click for CGA-Canada press release (link to CGA-Canada website).

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