Canadian study shows IFRS adoption had significant impact on financial statements
08 Nov 2013
A new report by the Certified General Accountants Association of Canada (CGA-Canada) reveals that the adoption of International Financial Reporting Standards (IFRS) has had a noticeable impact on the financial statements of Canadian-listed companies. The source of the differences in financial reporting is linked to a broad range of accounting adjustments.
The study looked at 150 companies listed on the Toronto Stock Exchange (TSX), which mandatorily adopted IFRS in 2011, and compared the accounting figures and financial ratios computed under IFRS and pre-changeover Canadian GAAP (CGAAP).
Although the study explains that, at the aggregate level, IFRS adoption does not significantly change the central values that describe the financial position and performance of Canadian companies, the findings also show that differences between individual IFRS and CGAAP values can be significant. The study highlights:
- The analysis of individual differences between IFRS and CGAAP values shows that assets and liabilities are higher in IFRS than in CGAAP; however, these differences are mostly offset in shareholders’ equity.
- Sales and operating revenues are reduced under IFRS compared to CGAAP, but profit is higher and other comprehensive income (OCI) adjustments are predominately negative (losses).
- The scale of differences observed in the balance sheet can be striking. For instance, total assets in IFRS are less than half of the total assets in CGAAP for the company that has the largest negative difference in the sample examined and more than double the total assets in CGAAP for the company with the largest positive difference.
- Fair value accounting for investment property, consolidation and strategic investments, financial instruments, and derivatives and hedges are the most important categories of accounting adjustments in the reconciliation of IFRS and CGAAP figures.
Another result of the study is that the volatility of financial statement figures is mostly higher in IFRS than in CGAAP. This concerns especially the areas of consolidation (including strategic investments), financial instruments (including derivatives and hedges), and fair value for investment property. Specific effects are also traced to a company's sector.
The study concludes with recommendations to financial analysts and other users of financial statements and recommends that according specific attention to the trend analysis may be beneficial when comparing pre-adoption data under CGAAP with post-adoption data in IFRS, that users should be aware that differences in IFRS and CGAAP are particularly noticeable in certain sectors, and that it is important to keep in mind that volatility of accounting figures in IFRS is generally higher than in CGAAP.
Please click for access to the following documents on the CGA-Canada website:
