It should be noted that cash flow and profitability will not change. There will be changes to the form of the statements and volume of the notes, but cash flow should not be affected.

The most noticeable impact will be the volume of information required to prepare the notes to the financial statements. IFRS requires more detailed disclosure including many disclosures that will be duplicated in the MD&A [management discussion and analysis] required in Canada. In addition, reconciliations from Canadian GAAP [Generally Accepted Accounting Policies] to IFRS in the first year will significantly increase the volume of the notes for 2011.

One of the largest balance sheet impacts upon adoption will be asset retirement obligations (ARO). Because of changes to the discount rate, ARO reported on the balance sheet will be significantly increased under IFRS. This will erode equity on transition and may impact debt covenants.

On an ongoing basis, the likelihood of impairment write-offs will increase as assets will have to be divided into more granular pools for impairment testing.

The way we account for [asset] dispositions will also change, with gains or losses being calculated on each disposition. While these gains or losses may not be material, this is a fundamental change to the current practice.

Are the reasons behind the move to IFRS justified and worthwhile? What type of expense are we looking at for the industry as a whole?

Canadian capital markets are small compared to the rest of the world. It is becoming unrealistic for Canada to have its own accounting rules in a world of increasing globalization of capital markets. Canadian companies can expect to be more comparable to international companies and have better access to international capital markets, especially in Europe and Asia, under IFRS. Even compliance with U.S. requirements will be less onerous for entities that are IFRS compliant.

There will be considerable resources needed to examine accounting policies, procedures and systems and determine compliance with IFRS prior to conversion. Additional resources will also be needed on an ongoing basis to compile the vast volume of disclosures that will be required under IFRS, including duplication of disclosures required by Canadian MD&A [management discussion and analysis].
Communication to and education of investors, creditors and other financial statement users about the changes to key performance indicators – earnings per share, equity and debt covenants, both before conversion and in the first few periods after implementing IFRS – will also be a significant expense.

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