IFRS disclosures in third quarter MD&A…the excitement is building…

by John Hughes

Well, it’s starting to happen: the third quarter filings are coming in and some of them contain fairly comprehensive quantified information about the impact of adopting IFRS. When I wrote about the second quarter filings, there was really only a trickle. But as I write this with two weeks left to go until the filing deadline for TSX-listed entities, the landscape is already starting to look quite different.

In the previous post, I mentioned Rogers Communications Inc. as a company providing elements of quantified information, but not yet pulling it all together. Rogers has now gone to the next step, summarizing the impact of adopting IFRS on its current year’s income as follows:

I can imagine some people thinking, well, that looks like it must have been a lot of work for so little ultimate change. We’ll have to wait and see, of course, whether the look and feel of Rogers’ financial statements changes more dramatically than these raw numbers indicate. The impact on the balance sheet is only slightly more striking:

Note that Rogers provides separate columns for reclassifications and actual measurement differences. Thomson Reuters, among others, also followed this kind of presentation, and it can certainly be helpful where housekeeping-type changes might otherwise swamp the more critical alterations. But IFRS 1 doesn’ specifically require laying things out this way, and it wouldn’t likely be necessary for simpler entities where labeling changes and suchlike can easily be followed.

It’s no surprise that the most impactful single area for Rogers seems to be employee benefits – this will very often be the case for the relatively small number of entities who actually have defined benefit plans. Rogers – again I think in common with most Canadian entities to whom it’s relevant - is selecting the accounting policy choice of immediately recognizing actuarial gains and losses directly in equity, with no impact on profit or loss. This might be one of the single greatest improvements generated by IFRS – that it facilitates balance-sheet pension amounts that actually make some kind of sense. Allowing entities the choice of getting there by putting the gains and losses into equity rather than through the income statement…it’s a classic standard-setting example of getting issuers to do the right thing via the carrot rather than the stick…

In other respects, Rogers’ narrative explanation is almost an IFRS geek’s dream, covering an impressive cross-section of favourite subjects. Componentization of property plant and equipment? Check – “we have identified a small number of assets with significant component parts that were not depreciated separately under Canadian GAAP.” Provisions for onerous contracts? Check – “We are in the process of reviewing our significant contracts at January 1, 2010 and have identified one contract that must be provided for under IFRS.” Measuring non-quoted investments at fair value? Check – “Under IFRS, the Company’s investments in equity instruments that do not have a quoted market price must be measured at fair value. Under Canadian GAAP, these instruments are measured at historical cost.” Customer loyalty programmes, which I recently described here (with acknowledged geekiness) as one of my favourite areas? You bet. They’re all probably only borderline material to Rogers if at all, but there they are nevertheless. The company even highlights an issue on joint ventures, which I was actually thinking of writing a blog post about a while ago, but which I then convinced myself no one would be interested in:

If I’m using a tone of rather forced ebullience about all this, it’s only because the Rogers disclosure actually evokes in me a rather celebratory feeling, embodying as it does evidence that all those technicalities meant something at least.

Norbord Inc. provides another example of comprehensive quantification in their third quarter MD&A:

Again, to reinforce the point, employee benefits constitutes the largest single item, with Norbord making the same policy choice as Rogers. Norbord’s other material differences, likewise, flow mostly from the more commonly discussed areas, although  the item on “consistency on accounting policies” hasn’t been highlighted that much in practice to date: “IFRS requires consistency of accounting policies across subsidiaries. The Company aligned the accounting policies of all of its subsidiaries under IFRS resulting in an adjustment on the Company’s IFRS measurement date of January 1, 2009.”

TMX Group Inc., like Rogers, was a bit ahead of the curve in its second quarter reporting, not quantifying the impact of IFRS in total, but at least doing so for one key item – its issuer services revenue (as I highlighted in the previous update, TMX provided a so-far rare example of voluntarily going back earlier than the transition date, to provide a better understanding of how the historical revenue trend would have differed under IFRS). The company’s ready now to go a step further:

TMX is in the happy position under IFRS of accelerating when it recognizes a significant portion of its revenue, which is probably worth a future blog posting in itself.

In the meantime, many entities have moved to where Rogers and TMX were in the second quarter, quantifying elements of the impact but not yet pulling it all together. Folks, one could just spend all day reading this stuff!

The opinions expressed are solely those of the author.