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Bulletin #0463-P

Policy
Transition Periods to Adopt International Financial Reporting Standards and Other Form 1 Amendments

Contact: Laura
Milliken

BULLETIN #0463 – P
Director, Financial Compliance
January 21, 2011
Phone: 416-943-5843
E-mail: lmilliken@mfda.ca

MFDA Bulletin

Policy

For Distribution to Relevant Parties within your Firm

Transition Periods to Adopt International Financial Reporting Standards
and Other Form 1 Amendments

Background

As described in Bulletin #0462-P Amendments to MFDA Rule 3.1.1 (Capital – Minimum Levels)
and Form 1 – Financial Questionnaire and Report
, proposed amendments to the MFDA Form 1
Financial Questionnaire and Report (“Form 1”) received all requisite approvals. The
amendments change the basis of Form 1 financial reporting from Canadian Generally Accepted
Accounting Principles (“Canadian GAAP”) to International Financial Reporting Standards
(“IFRS”), subject to prescribed departures and accounting treatments, and converge the MFDA’s
minimum capital requirements with the minimum requirements under National Instrument 31-
103 Registration Requirements and Exemptions (“NI 31-103”) for all MFDA Members effective
for their fiscal years beginning on or after January 1, 2011.

Attached, as Schedule “A”, is a table summarizing the extension periods and filing deadlines to
transition to IFRS reporting.

Opening IFRS Statement of Financial Position

In accordance with IFRS 1, First-time Adoption of International Financial Reporting Standards,
an opening IFRS statement of financial position at the date of transition to IFRS is required.
Members, therefore, will be required to submit an Opening IFRS Statement of Financial Position
and Reconciliation of Equity (“Opening IFRS Statement”), in both preliminary and final form, as
well as certification by each Member’s Ultimate Designated Person (“UDP”) and Chief Financial
Officer (“CFO”) (attached as Schedule “B”) to the MFDA as one-time supplemental reporting.
Given the MFDA is not requiring that comparative balances be presented, the Opening IFRS
Statement will be as at the Member’s “conversion date” to IFRS, which coincides with the
beginning of the Member’s fiscal year.
Page 1

Members must have final audited closing balances for the last fiscal year in order to finalize the
Opening IFRS Statement. However, MFDA Rule 3.5.1 requires the annual audited Form 1
prepared in accordance with Canadian GAAP (“GAAP Form 1”) to be filed 90 days after fiscal
year end, which is after the first monthly Form 1 prepared in accordance with IFRS (“IFRS Form
1”) is due.

To address this issue, there will be filing extensions for the first three monthly IFRS Form 1’s
and Members will be required to file:

(i)
a preliminary Opening IFRS Statement with the Member’s first monthly IFRS Form
1; and
(ii)
a final Opening IFRS Statement and Certificate of UDP and CFO with the Member’s
second monthly IFRS Form 1.

Audit adjustments should be reflected on the second monthly IFRS Form 1. Members should
consider and discuss with their auditors how the audit adjustments will be reflected on the
second IFRS Form 1, as well as the final Opening IFRS Statement.

The Opening IFRS Statement will be automated into the EFS system to minimize duplication
and effort in preparing the final form.

Filing Extensions

The filing deadlines have been extended for the first three monthly IFRS Form 1 filings as
follows:

• First monthly IFRS Form 1 filing – 10 business day extension
• Second monthly IFRS Form 1 filing – 10 business day extension
• Third monthly IFRS Form 1 filing – 5 business day extension

For actual filing deadlines, please refer to Schedule “A”.

Election for Deferral by Certain Non-PAEs

The Canadian Accounting Standards Board confirmed that IFRS will replace current Canadian
standards and interpretations as Canadian GAAP for Publicly Accountable Enterprises (“PAEs”),
effective for fiscal years beginning on or after January 1, 2011. Those entities not meeting the
definition of a PAE would, therefore, not have to adopt IFRS. However, as noted above, the
MFDA intends to require all Members to report using one basis of reporting, which will be IFRS.

MFDA staff is aware that certain Members would not meet the definition of a PAE and would
not, for any other reason, be required to report in accordance with IFRS other than for the
proposed changes to regulatory reporting requirements of the MFDA. Consequently, MFDA
sought, and received approval from the CSA to allow Level 2 and 3 Dealers whose fiscal years
begin on January 1, 2011 through to April 1, 2011, and are not registered in any other category
Page 2
with one of the CSA jurisdictions, to elect to defer reporting under the new IFRS requirements
for up to 12 months past their fiscal year-end. The transition period will allow smaller Members,
who would not otherwise be required to report under IFRS, time to adjust to filing the new IFRS
Form 1 on a monthly basis. In order to be eligible for the deferral, Members are required to
submit a request to the MFDA at membershipservices@mfda.ca for review and approval prior to
February 11, 2011. Approval will be considered for only those Level 2 and 3 dealers that are not
PAEs, and not required to prepare financial statements in accordance with IFRS for any other
purpose.

Other Form 1 and Rule 3.1.1 Amendments

In addition to the Form 1 amendments relating to the adoption of IFRS, amendments were made
to Form 1 and Rule 3.1.1 to converge MFDA’s minimum capital requirements with the minimum
requirements under NI 31-103.

The changes made to Rule 3.1.1 result in an increase in the minimum capital levels for Level 2
and 3 dealers that are also registered as Investment Fund Managers. The amendments, which
can be viewed in Bulletin #0462-P, have been approved by MFDA Members and are now in
effect.

Amendments made to Form 1 relating to convergence with the minimum capital requirements
under NI 31-103 include: (i) increasing the margin required for guarantees provided by a
Member in support of another party’s liabilities from 10% to 100% of the guarantee amount; and
(ii) increasing the margin rates for specific fixed income securities. These amendments will
become effective July 1, 2011.

DM #230536.v3


Page 3


Schedule “A”

Second IFRS

First IFRS
Form 1, Final

Form 1 and
Annual Audited
Opening IFRS
Third IFRS
Date of IFRS
Month of First
Preliminary
Fiscal Year End

GAAP Form 1

Statement and
Form 1
Conversion
IFRS Form 1
Opening IFRS
Due Date
UDP/CFO
Due Date
Statement
Certificate Due
Due Date
Date
31-Dec-2010
01-Jan-2011
Jan-2011 31-Mar-2011
15-Mar-2011

11-Apr-2011

6-May-2011
31-Jan-2011
01-Feb-2011
Feb-2011 2-May-2011
11-Apr-2011

13-May-2011

6-Jun-2011
28-Feb-2011
01-Mar-2011
Mar-2011 30-May-2011
13-May-2011

13-Jun-2011

7-Jul-2011
31-Mar-2011
01-Apr-2011
Apr-2011 29-Jun-2011
13-Jun-2011

14-Jul-2011

8-Aug-2011
30-Apr-2011
01-May-2011
May-2011 29-Jul-2011 14-Jul-2011

15-Aug-2011

6-Sep-2011
31-May-2011
01-Jun-2011
Jun-2011 29-Aug-2011
15-Aug-2011

13-Sep-2011

6-Oct-2011
30-Jun-2011
01-Jul-2011
Jul-2011 28-Sep-2011
13-Sep-2011

14-Oct-2011

7-Nov-2011
31-Jul-2011
01-Aug-2011
Aug-2011 31-Oct-2011
14-Oct-2011

15-Nov-2011

6-Dec-2011
31-Aug-2011
01-Sep-2011
Sep-2011 29-Nov-011
15-Nov-2011

13-Dec-2011

9-Jan-2012
30-Sep-2011
01-Oct-2011
Oct-2011 29-Dec-2011
13-Dec-2011

16-Jan-2012

6-Feb-2012
31-Oct-2011
01-Nov-2011
Nov-2011 30-Jan-2012
16-Jan-2012

13-Feb-2012

7-Mar-2012
30-Nov-2011
01-Dec-2011
Dec-2011 28-Feb-2012
13-Feb-2012

14-Mar-2012

4-Apr-2012


Schedule “B”

CERTIFICATE OF UDP AND CFO ON OPENING IFRS STATEMENT OF FINANCIAL POSITION
AND RECONCILIATION OF EQUITY

(Member Name)

We have examined the attached Opening IFRS Statement of Financial Position and Reconciliation of Equity (“Statement”)
and certify that, to the best of our knowledge, it has been prepared in accordance with its accompanying notes and
instructions and represents the opening IFRS financial position and reconciliation of equity between Canadian Generally
Accepted Accounting Principles (CGAAP) and International Financial Reporting Standards (IFRS), except for prescribed
departures and prescribed accounting treatments as stipulated in the general notes and definitions of Form 1, of
___________________________________ at _____________________________________.

(Member)
(IFRS
conversion
date)

We acknowledge that as management we are responsible for the preparation and fair presentation of the opening IFRS
financial position in accordance with our regulatory financial reporting obligations. This responsibility includes designing,
implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements. On
this basis, we certify the following statements are true and complete:

1.
We updated the written accounting policies and procedures to reflect the adoption of IFRS, except for prescribed
regulatory accounting departures and prescribed accounting treatments, where alternatives exist as stipulated in the
general notes and definitions of Form 1.

2.
Based on our knowledge and having exercised reasonable diligence, we performed an analysis and financial statement
impact assessment of the changeover from CGAAP to IFRS to determine whether we have identified all accounting
and reporting changes appropriate for our business and material adverse capital implications.

3.
We selected and adopted the appropriate IFRS 1 optional exemptions and mandatory exceptions for a Member,
including the prescribed departures and prescribed accounting treatments as set out in the general notes and definitions
of Form 1.

4.
Based on our knowledge and having exercised reasonable diligence, we identified and disclosed all of the IFRS
adjustments that impact retained earnings. For material adjustments, we provided an explanation of the effect and
implications of the transition to IFRS, including any accompanying material impact on risk adjusted capital (RAC), by
way of a note disclosure.

5.
Based on our knowledge and having exercised reasonable diligence, we identified and disclosed all of the IFRS
adjustments that are presentation differences with no impact on total equity. For material presentation adjustments to
non-allowable assets, we considered any accompanying adverse capital implication. For material presentation
adjustments, we provided an explanation by way of a note disclosure.

________________________________________________ ______________________________________________

(Ultimate Designated Person)

(date)

________________________________________________ ______________________________________________

(Chief Financial Officer)

(date)

________________________________________________ ______________________________________________

(other Executive, if applicable)
(date)

CERTIFICATE OF UDP AND CFO ON OPENING IFRS STATEMENT
OF FINANCIAL POSITION AND RECONCILIATION OF EQUITY
NOTES AND INSTRUCTIONS


Instructions

One-time transitional reporting requirement

The opening IFRS Statement A of Form 1, dated January 21, 2011, provides a starting point for accounting under IFRS.

For regulatory reporting, a Member prepares the opening IFRS Statement of financial position (also known as either the
opening IFRS Statement A or the opening balance sheet) as at the conversion date. Example: For Members with a December
2010 year end, the conversion date is January 1, 2011. Therefore, the opening IFRS Statement A is as at January 1, 2011.

Together with the opening IFRS Statement A, Members are to provide a reconciliation of the equity between previous
CGAAP and IFRS. Example: For Members with a December 2010 year-end, the previous CGAAP Statement A is as at
December 31, 2010 and as filed on Electronic Filing System (“EFS”) as part of the audited Form 1.

Date of the opening IFRS Statement A

For regulatory reporting, the opening IFRS Statement A is dated as at the conversion date. For example, a Member with a
December 2010 year-end will file an opening Statement A as at January 1, 2011.

Due date to file the opening IFRS Statement A

A Member will file a preliminary opening Statement A on or before filing its first monthly Form 1 for the first fiscal year
under IFRS. This preliminary opening Statement A will be based upon the unaudited Form 1 filed by the Member for the
month of December 2010, if the Member has a December 31st year end. To accommodate this filing requirement, Members
will be provided an extension of 10 business days following the regular filing due date in accordance with Rule 3.5.1(a) to
file the preliminary opening IFRS Statement A and the first monthly Form 1 under IFRS.

A Member will file a final opening Statement A on or before filing its second monthly Form 1 for the first fiscal year under
IFRS. This final opening Statement A will be based upon the audited Form 1 filed by the Member for its fiscal year ended
December 31, 2010, if the Member has a December 31st year end. To accommodate this filing requirement, Members will be
provided an extension of 10 business days following the regular filing due date of the second monthly Form 1 in accordance
with Rule 3.5.1(a) to file the final opening IFRS Statement A and the second monthly Form 1 under IFRS.

The filing requirement for the fiscal year-end audited Form 1 under CGAAP remains at 90 days.

Example: For Members with a December 2010 year-end, the preliminary opening IFRS Statement A and reconciliation of
equity which will be prepared using the unaudited December 2010 filing, must be filed on or before the filing of the January
2011 Form 1. The preliminary opening IFRS Statement A as at January 1, 2011 and the January 2011 monthly Form 1 under
IFRS will be filed on or before March 15, 2011, which is approximately 10 weeks after the December 2010 year-end. The
audited Form 1 as at December 31, 2010 will be filed within the normal period of 90 days. The final audited balances will
then be used to complete the final opening IFRS Statement A and reconciliation of equity as at January 1, 2011, which must
be filed on or before the filing of the February 2011 Form 1, which is by April 11, 2010.

Management certification

Senior management of the Member will certify that they have planned and executed the changeover from CGAAP to IFRS in
accordance with IFRS 1 and the prescribed regulatory accounting departures and treatments as described in the general notes
and definitions of Form 1. The purpose of the management certification is to provide MFDA a basis for its reliance on the
completeness and reasonability of adjustments in determining the opening retained earnings under IFRS and for subsequent
monthly filings under IFRS.

The ultimate designated person (UDP) and the chief financial officer (CFO) must sign. If the CFO is not an executive or if
the UDP and CFO are one, one other executive must sign.

The Member must submit a certificate with original signatures to MFDA.

CERTIFICATE OF UDP AND CFO ON OPENING IFRS STATEMENT
OF FINANCIAL POSITION AND RECONCILIATION OF EQUITY
NOTES AND INSTRUCTIONS


Notes to the reconciliation

There will be two types of IFRS adjustments:

1. Presentation differences with no impact on total equity and

2. Adjustments that will impact retained earnings.

Adjustments made to restate the opening Statement A from previous CGAAP to IFRS are generally made to retained
earnings (or if appropriate, another category of equity).

For material adjustments, Members will provide an explanation of the effect and implications of the transition to IFRS,
including any accompanying material impact on risk adjusted capital (RAC). The explanations will be in the form of note
disclosures.

A material adjustment means an adjustment – either individually or in the aggregate – that results in equal to or greater than
10% change (increase or decrease):

• in the retained earnings as filed on EFS with the audited Form 1 prepared under CGAAP and/or

• in the risk adjusted capital (RAC) as filed on EFS with the audited Form 1 prepared under CGAAP.

Mapping of the line items on Statement A

Statement A has been reformatted to accommodate the required IFRS changes, including new terminology and the addition
(as well as the deletion) of line items. To assist Members in completing the opening IFRS Statement A, a mapping of the line
items under the old CGAAP format to the new IFRS format is provided.


OPENING IFRS STATEMENT OF FINANCIAL POSITION AND RECONCILIATION OF EQUITY
______________________________________________
(Member Name)
at __________________________

LINE
NOTES CGAAP IFRS IFRS
REFERENCE
(DATE)
ADJUSTMENTS
(DATE)
CGAA
IFRS


C$

C$

C$
P

LIQUID ASSETS:







1
1
Cash on deposit with acceptable institutions







2
2
Client funds held in trust with acceptable institutions







3
3
Securities owned at market value







4 4
Receivable
from
carrying
dealer or mutual fund







5
Trading
balances







5 6
TOTAL
LIQUID
ASSETS






OTHER ALLOWABLE ASSETS [Receivables from







Acceptable Entities]:
6 7
Interest
and
dividends receivable







8
8
Current income tax assets







9
9
Recoverable and overpaid taxes







7 10
Other
receivables
[provide details]







10
11
TOTAL OTHER ALLOWABLE ASSETS







11 12
TOTAL
ALLOWABLE
ASSETS
(line 6 plus line 11)






NON ALLOWABLE ASSETS:







13
Client
debit
balances






14
Deferred tax assets







15
Intangible
assets







14
16
Property, plant and equipment







15
17
Finance lease assets






18
Due from related parties [provide details]







16
19
Investments in subsidiaries and affiliates







18 20
Other
assets
[provide details]







12
Advanced
redemption proceeds receivable







13

Provincial contingency fund deposits







17

Subordinated loans receivable from other Members







19
21
TOTAL NON ALLOWABLE ASSETS







20 22
TOTAL
ASSETS (line 12 plus line 21)













OPENING IFRS STATEMENT OF FINANCIAL POSITION AND RECONCILIATION OF EQUITY
(CONTINUED)

NOTES CGAAP IFRS IFRS
CGAAP IFRS
(DATE)
ADJUSTMENTS
(DATE)


C$

C$

C$
CURRENT LIABILITIES:
21
23
Overdrafts and loans







22
24
Securities sold short at market value







23
25 Trust
liabilities







26
Trading
balances







27
Provisions







24
28
Current income tax liabilities







25

Future income taxes – current portion







26 29
Variable
compensation
payable







27 30
Bonuses
payable







28
31
Accounts payable and accrued expenses







29
Capitalized leases and lease-related liabilities –

current portion







30
32
Other current liabilities [provide details]







31
33
TOTAL CURRENT LIABILITIES







NON-CURRENT
LIABILITIES:







34
Provisions







32
35
Deferred tax liabilities







33
Non-current portion of capitalized leases and

lease-related liabilities







34 36
Other
non-current
liabilities
[provide details]







35 37
TOTAL
NON-CURRENT
LIABILITIES







OTHER
LIABILITIES







38
Finance leases and lease-related liabilities [provide

details]






39
Due to related parties [provide details]







40
Subordinated
loans







41
TOTAL
OTHER
LIABILITIES







36 42
TOTAL
LIABILITIES
[line 33 plus lines 37 and 41]







CAPITAL
AND RESERVES:







37
Subordinated
loans







38 43
Issued
capital







44
Reserves







Page 9 of 11

39
45
Retained earnings or undivided profits







40 46
TOTAL
CAPITAL







41
47
TOTAL LIABILITIES AND CAPITAL (line 42
plus line 46)













Page 10 of 11


Note #
Adjustment explanation




















Page 11 of 11