Deficiencies in First IFRS Interim Financial Reports
On May 19 the Ontario Securities Commission (OSC) issued a
release highlighting deficiencies in issuer’s first IFRS
interim financial reports that have been filed to
date.
What Are the
Deficiencies Identified?
The release
highlights the following recurring deficiencies:
- Certain reconciliations required by IFRS1 were missing
or incomplete. Some issuers omitted certain of the periods
required for the equity or total comprehensive income
reconciliations, while other issuers included only a
reconciliation for net profit but not for total
comprehensive income. For a calendar year-end issuer, the
required reconciliations for the first interim period in
2011 are as follows:
|
Equity |
Total comprehensive
income |
|
• January 1, 2010 |
• The year ended December 31, 2010, and |
|
• December 31, 2010, and |
• The three months ended March 31, 2010 |
|
• March 31, 2010 |
|
- The opening IFRS statement of financial position (i.e.
January 1, 2010 for calendar year end companies) was missing
from the face of the financial statements.
- The statement of changes in equity for the three month
comparative period ended (e.g. March 31, 2010 for calendar
year end companies) was missing.
Auditor Involvement with Interim
Review
The release presumes that the majority
of these deficient filings were reviewed by the issuer’s
auditor, since these filings did not include an accompanying
notice stating that an interim review has not been performed.
This presumption may not be valid, since a recently released
OSC Staff Notice (OSC Staff Notice 51-718) highlighted that,
based on a sample of 72 issuers, 48 percent of venture issuers
(of 44 selected) and 14 percent of non-venture issuers (of 28
selected) failed to include an appropriate notice with their
interim financial statements indicating that they had not been
reviewed.
Impact on Certification
Process
Internal control over financial
reporting (ICFR) and disclosure controls and procedures
(DC&P) should be robust enough to address changes
resulting from IFRS transition. This includes the preparation
and filing of the first IFRS interim financial report,
including related note disclosures and the accompanying
management’s discussion and analysis. Non-venture issuers
refiling an interim financial report may need to consider if a
material weakness in the design of their ICFR has been
identified, requiring disclosure in interim MD&A.
Restatement of interim or annual financial statements to
correct a material misstatement is considered an indicator of
material weakness.
Regulatory Consequences and
Remedies
The OSC release indicates that an
issuer that has filed an interim financial report that does
not comply with securities legislation will be placed on the
list of defaulting reporting issuers maintained on the OSC
website until the default is remedied. To remedy the default,
the issuer will have to refile the interim financial report on
System for Electronic Document Analysis and Retrieval (SEDAR),
together with a news release and revised interim CEO/CFO
certificates. As a result of the refiling, the issuer will
also be placed on the Refilings and Errors list on the OSC
website for a period of three years from the date of
refiling.
Summary
If you have not yet released your first quarter interim
financial statements, we are here to assist you in avoiding
common pitfalls. |
|
