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Bulletin #0378-M

Membership Information
Conversion to International Financial Reporting Standards (“IFRS”) – Discussion Paper / Request for Comment

Contact: Ken
Woodard
BULLETIN #0378 – M
Director, Communications & Membership Services
June 12, 2009
Phone: 416-943-4602
E-mail: kwoodard@mfda.ca


MFDA Bulletin

Membership Information

For Distribution to Relevant Parties within your Firm and Members’ Audit Firms

Conversion to International Financial Reporting Standards (“IFRS”) –
Discussion Paper / Request for Comment

As noted in MFDA Bulletin #0328-M (Conversion to IFRS), the Canadian Accounting Standards
Board (“AcSB”) has confirmed that IFRS will replace current Canadian Generally Accepted
Accounting Principles (“GAAP”) for publicly accountable enterprises (“PAEs”), effective for
fiscal years beginning on or after January 1, 2011. All entities meeting the definition of PAE,
including MFDA Members, must adopt IFRS by this effective date.

Purpose of this Discussion Paper

As further discussed below, not all Members will meet the definition of a PAE. The purpose of
this discussion paper is to solicit feedback from Members and auditors to determine the impact to
them should the MFDA require all Members to adopt IFRS.

This discussion paper (i) sets out issues and options that are currently being considered by the
MFDA and (ii) seeks input with respect to the potential impact of IFRS implementation on
Member operations. Questions seeking specific Member input are set out below.

The MFDA recognizes that requiring financial reporting in accordance with IFRS for all
Members could have an impact on Member operations (e.g. in respect of the calculation of
regulatory capital, financial statement preparation and costs) and that such impact may be both
transitional (i.e. those that arise in moving from current Canadian GAAP to IFRS) and ongoing.

Accordingly, the MFDA intends to use Member responses to the questions set out below, and
any other input provided, to assist in determining the significance of such impact across the
entire Membership prior to making a determination with respect to whether IFRS should be
adopted for all Members.

Members are encouraged to consult with their external auditors when reviewing this discussion
paper, responding to the questions set out below and providing any additional input that may
assist the MFDA in considering relevant issues.

Background

Bulletin #0328-M advised Members of entities excluded from the definition of PAE as the AcSB
defined the term at that time. Members were also advised that, based on the existing definition,
the position of the MFDA was that Level 3 and 4 dealers would be considered PAEs, and would
thus be required to file their financial reports with comparative financial information in
accordance with IFRS, for financial years commencing on or after January 1, 2011.

It was also noted that MFDA staff had not yet determined if Level 2 dealers met the definition of
a PAE but that consideration was being given to requiring all Members to report using IFRS to
maintain a consistent standard of reporting across the entire Membership.

In March 2009, the AcSB issued its second Exposure Draft relating to Adopting IFRS in Canada,
which included a revision to the definition of PAE. The AcSB’s revised definition of PAE
includes profit-oriented entities that:

• Have issued, or are in the process of issuing, debt or equity instruments that are, or will be,
traded in a public market; or
• Hold assets in a fiduciary capacity for a broad group of outsiders as one of its primary
businesses.

As a result of this revised definition, it appears that only Level 4 dealers holding client assets in
nominee name meet the definition of PAE and are required to file financial reports in accordance
with IFRS for financial years commencing on or after January 1, 2011.

In addition, MFDA staff notes that Members that are directly or indirectly owned by companies
that come within the definition of PAE may elect to adopt IFRS to satisfy the reporting
requirements of the corporate group.

Current Options and MFDA Considerations

The main options currently being considered are:

Option 1:

Require all Members to submit financial reporting to the MFDA based on IFRS.

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MFDA Considerations:
This option may result in transition issues for all Members but would
enable the MFDA to maintain a consistent standard of financial reporting across the entire
Membership. It would also be more cost-effective for the MFDA as the MFDA would only be
required to maintain a single platform for Members’ financial reporting and a single format for
the filing of Member financial reports. Further, Members, other than Level 4 dealers, may still
be required to change accounting policies as a result of changes being made to private entity
reporting.

Option 2:

Require all Level 4 Members to submit financial reporting to the MFDA based on IFRS.
Members other than Level 4 dealers would either (i) report in accordance with private enterprise
GAAP; or (ii) elect to report in accordance with IFRS. These Members would be required to
choose a reporting option, advise the MFDA of their option by a specified date and, subject to
conditions, remain with the option selected.

MFDA Considerations:
MFDA staff are concerned that there may be auditors of Members who
will decide not to conduct an audit in accordance with IFRS which would require Members to
change audit firms. MFDA staff are also concerned that there may be potential costs,
particularly one-time consulting costs relating to the first year adoption, in converting to IFRS.

Request for Comments

We are seeking input from Members and their auditors on the options discussed above. MFDA
welcomes all comments but has provided questions below for consideration when responding.
Members are encouraged to provide as much detail as possible.

Comments should be directed to membershipservices@mfda.ca by Monday July 13, 2009.

Questions to Consider:

1. Under Option 1, the MFDA would require all financial reporting under MFDA Rules be done
in accordance with IFRS, except as modified by the requirements of the MFDA or MFDA
Investor Protection Corporation, for all Members.

(a) Has your firm conducted an assessment of the impact of having to adopt IFRS [for the
purpose of all financial reporting under MFDA Rules]?

(b) If so, what transitional and ongoing impact have you identified? In your response
please consider and specifically address the impact with respect to each of the
following:

ƒ Calculation of Risk Adjusted Capital (“RAC”);
ƒ Preparation of financial statements;
ƒ Existing accounting policies and procedures;
ƒ Related party transactions;
ƒ Financial statement disclosures;
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ƒ Lease obligations;
ƒ Early Warning Tests;
ƒ Existing debt covenants;
ƒ Compensation plans;
ƒ Existing pension obligations/liabilities;
ƒ Increased costs (e.g. accounting resources, increased internal / external audit costs,
increased costs related to systems changes/other). Please provide a breakdown in
terms of (i) increased costs related to the transition to IFRS; and (ii) increased costs
that would be incurred on an ongoing basis;
ƒ Systems changes: please provide details with respect to the types of changes that
would be necessary;

2. If you are a Level 2 or 3 dealer, would your firm elect to adopt/has your firm elected to adopt
IFRS? If so, please provide the reason (e.g. internal firm decision/upon the recommendation
of the external auditors or to satisfy the financial reporting requirements of the corporate
group as your firm is owned by a company that comes within the definition of PAE).

DM # 173459v1

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