Canadian study reveals impact of IFRS transition
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).
