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XBRL and Accounting Standards: A Canadian Perspective

XBRL and Accounting Standards: A Canadian Perspective. Paul Cherry Chair Accounting Standards Board. Canada’s Decision to Adopt IFRS. Improve access to capital Reduce cost of capital Make Canada more attractive to foreign investors and foreign businesses Facilitate financial reporting

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XBRL and Accounting Standards: A Canadian Perspective

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  1. XBRL and Accounting Standards:A Canadian Perspective Paul Cherry Chair Accounting Standards Board

  2. Canada’s Decision to Adopt IFRS • Improve access to capital • Reduce cost of capital • Make Canada more attractive to foreign investors and foreign businesses • Facilitate financial reporting • External reporting • Internal reporting

  3. Canada’s IFRS Implementation Plan • Canadian standards to be same as IFRS • No endorsement or carve-out mechanism • Consider “unique” Canadian circumstances • Mandatory only for “publicly accountable” enterprises • Target date: January 1, 2011 • Date to be confirmed by March 31/08

  4. Benefits of Being “Same as IFRS” • Transparency: • Marketplace cannot evaluate degrees of similarity • Avoids conflicting national subsets of IFRS • Avoids costly reconciliations

  5. Interaction of XBRL and IFRSs • Framework for disclosure • Avoiding information dumps • Whatis disclosed • How it is disclosed • Comprehensive, cohesive classification scheme • Balance sheet, income statement, cash flows • Classified as operating, investing or financing

  6. Some Risks Posed by XBRL

  7. Risk # 1: Investors Ignore Important “Qualitative” Disclosures • “Investors want current value information • Current value information often is very subjective • Dilemma: relevance vs reliability • “Qualitative disclosures provide context • Necessary for a proper understanding

  8. Risk # 2: Investors Don’t Know Extent of Testing/Verification of Information • Procedures & controls over completeness and accuracy • By management • Involvement , if any, by auditors • Varies widely • By type of document within a jurisdiction • From one jurisdiction to another • Differences are not transparent to investors • Canadian Capital Markets Leadership Task Force Discussion Paper

  9. Risk #3: Investors Don’t Look Beyond the Financial Statements • Other sources are important • Management commentary or MD&A • IASB project is struggling • XBRL lagging?

  10. Risk #4: XBRL and IFRSs Exceed Available Resources • “Standards overload” is a widespread complaint • Accounting standards • Auditing standards • Independence rules • Auditor oversight/inspection • Securities regulation • Basel II capital requirements, etc • Certification brings additional concerns

  11. In Conclusion….. • Avoid indiscriminate “data dumps” • Qualitative, as well as quantitative, disclosures are important • Some areas for attention: • Management commentary (MD&A) • Minimum procedure/controls over reliability and completeness of financial information • Encourage XBRL tagging of MC/MD&A

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