Ifrs and Financial Markets

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Efficient Securities Markets and International Financial Reporting Standards |

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Introduction

As of January 2011 Canada’s publicly accountable enterprises (PAEs) will have to adopt International Financial Reporting Standards (IFRS) as their accounting framework under which financial statements are prepared. This means the accounting standards Canada had been using generally accepted accounting principles (GAAP) will no longer apply. What will this mean for PAEs and their investors? Will there be more or less decision useful information and will securities markets become more efficient with Canada’s adoption of IFRS or is it the same business, just different accounting?

Executive Summary

Comparing financial statements internationally has become difficult as accounting rules and standards have evolved differently depending on the country due to history, culture, political influence and economics. That is why the IFRS have been created and currently there is almost 100 countries that adhere to IFRS standards. Canada too has decided it must join and in 2011 all Canadian PAE’s will report under IFRS. There are both pros and cons for investors who will be relying on financial information from companies that are using IFRS’s foundation. The adoptions of IFRS will likely cause recognition, measurement and presentation differences in a company’s financial statements. Although IFRS’s mandate is to provide a single set of high quality, understandable and enforceable global accounting standards there will be challenges that must be understood otherwise investor confidence will be eroded due to differences is various countries that have adopted IFRS.

International Financial Reporting Standards (IFRS) versus Canada Generally Accepted Accounting Principles (GAAP)

IFRS and Canadian GAAP are both accounting standards where IFRS is an international standard and Canadian GAAP is valid in Canada only. While Canadian GAAP has...