Tackle IFRS before the ball drops on New Year's Eve: Ernst & Young

Five key areas must be addressed now

TORONTO, Dec. 16 /CNW/ - As the recession fades and Canadian businesses plan for 2010, companies here cannot afford to put off key International Financial Reporting Standards (IFRS) decisions, Ernst & Young says.

"Publicly accountable enterprises that follow the calendar year need to get ready to provide IFRS comparables as of January 1, 2010," explains Eric Spiekman, Ernst & Young Partner. "To transition successfully, organizations should tackle certain key decisions before the new year, or risk struggling to catch up in the months ahead. That could be costly."

In particular, Ernst & Young suggests Canadian reporting issuers use the last weeks of 2009 to take a serious look at the areas below:

    
    1.  Designated hedging relationships: First-time adopters must measure
        all derivatives at fair value on the transition date. To continue to
        qualify for hedge accounting, hedging relationships must be
        designated, and their effectiveness documented (all in accordance
        with IFRS) on or before the IFRS transition date. But beware: certain
        hedge strategies don't qualify for hedge accounting under IFRS.

    2.  Designation of financial instruments: Entities can change the
        classification of financial instruments under IFRS. But the change
        must be made upon transition, otherwise it could appear to be
        influenced by hindsight.

    3.  New fair value and other estimates required under IFRS: Under IFRS,
        some entities may need to prepare fair value or other estimates not
        currently required. These new estimates should be developed at or
        near the transition date to avoid the use of hindsight. At a minimum,
        companies should collect all the inputs needed for valuation models
        as at December 31, 2009. This makes it easier to show the opening
        fair values are current as of January 1, 2010.

    4.  Actuarial valuation reports prepared as at the transition date: A
        full actuarial valuation is usually required at or around the date of
        transition to IFRS, depending on the facts and circumstances.
        Businesses should review the options to determine what type of
        actuarial assistance will be required, and as of which dates.
        Combining these transition tasks with the actuary's routine reporting
        under Canadian GAAP can achieve worthwhile efficiencies.

    5.  Impairment testing: Under IFRS, goodwill must be tested for
        impairment at the transition date based upon its fair value at that
        date. This process can be complex, requiring considerable time and
        effort. Advance planning can make the process more efficient by co-
        ordinating the assessment at the transition date with annual review
        for goodwill impairment.
    

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For further information: To learn more about these or other aspects of IFRS, please contact: Amanda Olliver, [email protected], [phone]; Brooke McLachlan, [email protected], [phone]; Marie-Ève Graniero, [email protected], [phone]