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Bulletin #0411-C

International Financial Reporting Standards (“IFRS”) – Follow up to MFDA Bulletin #0378-M, Conversion to IFRS

Contact: Ken
Director, Communications & Membership Services
November 26, 2009
Phone: 416-943-4602

MFDA Bulletin


For Distribution to Relevant Parties within your Firm and Audit Firm

International Financial Reporting Standards (“IFRS”) – Follow up to
MFDA Bulletin #0378-M, Conversion to IFRS

The Canadian Accounting Standards Board (“AcSB”) has confirmed that International Financial
Reporting Standards (“IFRS”) will replace current Canadian Generally Accepted Accounting
Principles (“GAAP”) for all entities that meet the definition of a publicly accountable enterprise
(“PAE”), effective for fiscal years beginning on or after January 1, 2011.

On June 12, 2009, the MFDA published Bulletin #0378-M which: (i) set out issues and options
under consideration by the MFDA with respect to the conversion to IFRS; and (ii) sought input
with respect to the potential impact of IFRS implementation on Member operations. On July 10,
2009, the Canadian Securities Administrators (“CSA”) issued CSA Staff Notice 33-314
International Financial Reporting Standards and Registrants, in which CSA staff advised that
they had concluded their consideration of this issue, would require all registrants that were not
Members of a Self-Regulatory Organization (“SRO”) to use IFRS for financial years beginning
on or after January 1, 2011 and that the requirement would apply regardless of whether the non-
SRO registrant meets the definition of a PAE. On July 13, 2009 the Investment Industry
Regulatory Organization of Canada (“IIROC”) issued Notice #09-0209, International Financial
Report Standards (IFRS) Survey Results and Staff Recommendations, in which IIROC staff
outlined their recommendation to require a consistent reporting standard for all Members based
upon IFRS.


The purpose of this Bulletin is to provide Members with a summary of comments received in
response to Bulletin #0378-M and to update Members on MFDA staff position with respect to
Members’ financial reporting requirements following the changeover to IFRS in 2011.

Summary of Comments

The MFDA received a total of 11 submissions from Member and industry participants in
response to Bulletin #0378-M. Generally, commenters highlighted the fact that not all MFDA
Members would meet the definition of a PAE and therefore, imposing IFRS on firms that would
not otherwise be required to convert to this standard may result in increased costs. The areas of
concern regarding costs focused on: (i) the one-time conversion/transition costs (e.g. staff
resources, staff education/training, operational system changes); and (ii) increased accounting
and audit fees going forward. These commenters also questioned whether the benefits derived
from imposing one reporting standard on all Members, given the different business and
operational models they might have, would compensate for the increased costs expected.

Two Members stated they had performed a preliminary impact assessment of the changing
standards on their financial position/results and determined the impact would be low to

MFDA Analysis and Considerations

MFDA staff reviewed the composition of its membership with respect to: dealer level; firms
owned by a PAE and therefore likely required to report to their parent company using IFRS;
nature of operations; and complexity of financial statements. In addition, MFDA staff performed
a preliminary review of IFRS in comparison to existing Canadian GAAP and the requirements
expected at the time of first adopting IFRS. Key differences requiring consideration by the
majority of Members are financial statement disclosures and requirements associated with first-
time adoption.

In response to Member concerns regarding possible increased costs in relation to benefits
derived, MFDA staff intends to review the specific financial statement disclosure requirements
and consider whether it is appropriate to allow a departure from IFRS on the Form 1, MFDA
Financial Questionnaire and Report (“FQR”), where minimal regulatory benefit would be
achieved from requiring full IFRS compliance. Furthermore, MFDA staff does not consider
comparative financial statement information to be of significant regulatory importance as the
primary purpose of the reporting requirements is to assess the current solvency of the firm.
Therefore, comparative financial statement balances for regulatory reporting purposes will likely
not be imposed during the first year of transitional reporting.

In addition, the implications of permitting two sets of reporting standards across the membership
were considered as part of the IFRS review process. Two standards (i.e. IFRS and private
enterprise GAAP) would require staff to be familiar with both standards and keep abreast of all
changes as they arise. Further, having two standards would cause duplication of electronic filing
platforms and FQRs and an inability to effectively compare and analyze financial data across the
membership. This increase in regulatory oversight requirements would lead to increased
operational costs to the MFDA and thus, indirectly, the membership.

MFDA staff also considered the approach taken by CSA and IIROC staff, as noted above, with
respect to IFRS adoption for reporting entities under the jurisdiction of IIROC and the CSA, as
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staff is of the view that it is important to maintain a consistent standard of reporting across the


As a result of the foregoing, MFDA staff considers the requirement to adopt one standard for all
MFDA Members, based upon IFRS, to be the best approach to ensure that consistent, fair and
cost-effective regulatory oversight of the membership continues. MFDA staff will work with
IIROC staff to ensure that a consistent standard is applied amongst all SRO Members.

As the requirements of IFRS and MFDA financial reporting will be reviewed from the
perspective of relevance/regulatory benefits achieved, MFDA staff does not anticipate that
requiring financial reporting in accordance with IFRS will create widespread changes or have a
significant impact on Member operations for those who would not otherwise be required to
report using IFRS. MFDA staff intends to communicate to Members proposed changes to the
financial reporting requirements and specified departures from IFRS. Members are encouraged
to communicate and consult with their auditors with respect to the impact these changes may
have on their financial reports.

DM # 186850v2

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