IFRS transition for private companies | KPMG | CA

IFRS transition for private companies

IFRS transition for private companies

Plan for substantial data collection and considerable work

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IFRS transition for private companies

With so much going on as a company prepares for an IPO, some forget to fully consider the implications of transition to IFRS as the company’s financial reporting framework. Generally, companies going public in Canada are required to file financial statements in accordance with IFRS. Transition to IFRS can be complicated and requires sufficient understanding of the process and commitment of time and resources to ensure a smooth and successful transition.

The transition to IFRS generally begins by comparing your company’s current accounting framework to the requirements of IFRS, identifying any gaps or material differences, and then taking steps to address them. While this sounds like a straightforward task, it’s often complicated by the fact that it may require new financial information, variations to how information has been produced, tracked and reported, and changes to the actual financial reporting and information systems.

More than an accounting change

The transition to IFRS not only requires companies to make numerous new decisions and policy choices with respect to financial statements, but also consider the impact of transition on other stakeholders, for example employee compensation arrangements, and other operating, financing and related governing documents. For instance, you will be expected to:

  • Select appropriate accounting policies, including IFRS 1 elections• Complete any required adjustments to IFRS and assess their impact
  • Prepare a reconciliation of any differences, if required
  • Draft IFRS-compliant financial statements
  • Provide auditors with supporting documents to make any conversion adjustments
  • Determine and prepare your financial statement disclosures
  • Figure out if you need to include revised property valuations in your IFRS financial statements and, if so, identify the appropriate valuation models
  • Prepare pro forma IFRS financial statements for historical periods
  • Confirm the tax analysis and any adjustments to deferred taxes based on your IFRS conversion items
  • Assess how your policy choices compare to those elected by our peers/competitors and the impact on publicly reportable information
  • Assess the impact of IFRS on your key financial metrics
  • Assess the impact of your policy choices and decisions on your incorporating documents, and various agreements and arrangements such as compensation agreements, lending agreements, related covenants, etc.

Regardless of the decisions made, be prepared for much expanded financial statements. The move to IFRS represents a significant change and comes with much more onerous disclosure requirements, mandating companies preparing for an IPO to put new processes in place to deal with these broadened expectations.

Be prepared and manage the transition

To try to avoid unexpected situations and unwanted crises, the company should undertake an IPO readiness assessment from a financial reporting perspective and determine the magnitude of changes required to be made on your financial reporting, IT systems, processes, controls, people, and the business itself. Take time to set out a transition plan that is clear and realistic and outlines the timelines and deliverables identified during the assessment.

The key to transition to IFRS is to entirely understand what is required, when it’s required and who will deliver – and key people must be held accountable. This is often a greater challenge than many companies expect, which is why knowledge, preparation and foresight are key to a successful transition to IFRS.

KPMG has released a Guide to Going Public, which provides a practical, realistic perspective of what is involved when preparing to go public, and will also help facilitate the transition to life as a public company.

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