Forum International Financial Reporting Standards Are Coming: Are You Ready?* PETER MARTIN, Accounting Standards Board LINDA MEZON, RBC Financial Group and Accounting Standards Board TIM FORRISTAL, Canadian Institute of Chartered Accountants RÉAL LABELLE, HEC Montréal VAUGHAN S. RADCLIFFE, University of Western Ontario JAMES C. GAA, University of Alberta ABSTRACT In June 2006, shortly after the Accounting Standards Board (AcSB) announced that Canada would be adopting International Financial Reporting Standards (IFRS), the Canadian Academic Accounting Association sponsored a session entitled “International Financial Reporting Standards Are Coming: Are You Ready?” and invited presentations on the topic by representatives of the AcSB, practitioners, and academics with diverse teaching and research perspectives. The session included an overview of the anticipated challenges arising from the AcSB’s strategy for the adoption of IFRS in Canada for the business community and the implications for accounting education and research. This paper summarizes the presentations at the forum. Keywords

Accounting education; IFRS; Transition to IFRS

LES NORMES D’INFORMATION FINANCIÈRE INTERNATIONALES ARRIVENT : PRÊTS À LA CONVERSION ? RÉSUMÉ En juin 2006, peu après que le Conseil des normes comptables (CNC) ait annoncé l’adoption par le Canada des normes d’information financière internationales (IFRS), l’Association canadienne des professeurs de comptabilité tenait un colloque ayant pour thème le degré de préparation des intéressés aux normes d’information financière internationales et sollicitait des exposés sur le sujet auprès des représentants du CNC, des praticiens et des professeurs, envisageant la question sous les divers angles de l’enseignement et de la recherche. Le colloque comportait un tour d’horizon des défis que

* The authors wish to acknowledge the assistance provided by Efrim Boritz in organizing the panel and producing this forum. AP Vol. 7 No. 1 — PC vol. 7, no 1 (2008) pages 41–56 © CAAA/ACPC doi:10.1506/ap.7.1.3

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supposera pour les entreprises la stratégie d’adoption des IFRS proposée par le CNC au Canada et des conséquences qui en découleront pour la formation et la recherche en comptabilité. Le présent article contient un résumé des exposés présentés à l’occasion de ce forum. Mots clés : conversion aux IFRS, formation comptable, IFRS

This forum summarizes a panel discussion that took place as part of the CAAA’s annual conference in June 2006. To produce this forum, the authors’ presentations were taperecorded, transcribed, edited for publication purposes, and subjected to peer review. PETER MARTIN, Director, Accounting Standards Board The title of this forum asks whether we are ready for international reporting and I hope the answer is “yes”, but in a way I think the answer has to be “no”, and I will give you a few reasons why. The question of course can be asked of all accountants in the country and all the members of the CAAA. I am going to address the question from the perspective of the Accounting Standards Board (AcSB) because, having created this idea of International Financial Reporting Standards (IFRS) convergence, we have still got some work to do ourselves. First, I would like to emphasize that IFRS convergence is designed specifically for publicly accountable enterprises in Canada. We have not decided how we are going to approach the accounting for nonpublicly accountable enterprises. We have a separate strategy for that sector and we are still investigating what is needed there. So the focus on IFRS convergence, for the time being, is solely on publicly accountable enterprises. The definition of publicly accountable is somewhat broader than just public companies. It may encompass entities like co-operative organizations, regulated financial institutions that are not public companies, and so on. The AcSB’s strategy is to achieve IFRS convergence through a transition process that is supposed to take about five years. We have been deliberately vague on the exact timing partly because we were not sure how long it was going to take to complete the necessary steps to get us there and we did not want to commit to too much too soon. The strategic plan calls for a decision around the year 2008, after we have had a chance to assess how people are doing in getting ready. At that time, we plan to have a progress review on how the whole strategy is unfolding and then we will try to set a definitive date. People do need a reasonable amount of advance warning as to exactly when this all will take place. We have already seen the changeover happening in the European Union and Australia. China is trying to move a lot faster than either Europe or Australia, planning a one-year transition period. We think it is going to take longer than a year, so we are not going to do it quite as fast as China.1 We are going to have to watch the change process fairly carefully and monitor how things are working out because it is going to be a complex process. It is going to take a lot of people’s attention and time to get us there. 1. Editor’s note: China subsequently backed off on its originally planned timing. AP Vol. 7 No. 1 — PC vol. 7, no 1 (2008)

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Can we get there from here? I think the answer is clearly yes. Some people worry that IFRS convergence is something extremely radical, but Canadian generally accepted accounting principles (GAAP) are not that different from IFRS. Of course, the devil is in the details, and if you were to ask any individual reporting enterprise to try to work their way through all of the current IFRS and compare them to what they are currently doing, they would probably find quite a lot of differences in detail. So the answer depends on your perspective. If your perspective is that of a preparer, then all the fine points represent a big difference, involving a lot of work. But in a big-picture sense, it is not such a big difference. However, while most of the differences are differences of detail, there are also a few standards where Canadian GAAP and IFRS have a fundamentally different principle behind them. Three examples are impairment, financial asset de-recognition, and investment properties. There are a few others, but not many. So, all in all, we think we can get there from here in about five years. We are currently working to finalize a convergence implementation plan. By the time this paper is in print, we expect to have it published.2 This plan will focus mostly on what the AcSB has to do rather than what other people have to do. It will contain information that will help preparers and others understand the transition to convergence, but there are many steps the AcSB itself has to take. One of the steps is to define precisely who is covered by this program. For example, we are going to have to double-check the definition of publicly accountable enterprise, so it is clear. We also plan to propose specific rules for how companies are to disclose in advance, probably for a year or two before the actual changeover, what is coming so that the market is prepared.3 We are working with the example of what was done in Australia. Our plan is to incorporate individual IFRS into Canadian GAAP, rather than to put into our current Handbook a simple direction to refer to IFRS. For technical, legal reasons we are going to have to physically incorporate the IFRS into the CICA Handbook. The reason for this is that corporations acts and other legislation make specific reference to the CICA Handbook or “GAAP as set out in the CICA Handbook” or similar expressions that represent the legal backing for Canadian GAAP today, and we are not sure that legislators are going to change that anytime soon. We are planning to expose the individual IFRS, but really the only question of substance that we think we will be posing will be whether there is any reason why the standards could not be applied in Canada. So far, the AcSB has not identified any reasons for any of them not to be. But we want to give people the opportunity to identify any compelling reasons that they can bring forth if they have them. A question that we have been thinking about for a while is whether to adopt the standards gradually or all at once, as reflected by expressions such as “big bang”, “one-time changeover”, and “gradual phase-in”. In fact, we are going to do something that is some-

2. Editor’s note: The plan has been published and is available at http://www.acsbcanada.org. 3. Editor’s note: It is now expected that the securities regulators will deal with this, as a result of ongoing consultations between them and the AcSB. AP Vol. 7 No. 1 — PC vol. 7, no 1 (2008)

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where in between. The AcSB expects to import IFRS arising from current projects in progress into Canadian GAAP as they become available — for example, business combinations and consolidations, revenue recognition, financial statement presentation, income taxes, and fair value measurement. Some of these are likely to be done in advance of our announced transition date of 2011. The business combinations standard was exposed globally last year and the IASB may wrap it up next year. While an effective date is still to be determined, it will be before the planned IFRS convergence date. Some of the other standards in progress may go beyond the changeover date. So the exact date when we will have converted to a single, finished, globally accepted standard is not completely clear. We have to be cautious about the “standards overload” issue, and we are careful about that in developing our strategies. We have some projects in process that we expect to finish off before 2011 that pick up bits and pieces of IFRS, or at the very least remove differences between current Canadian GAAP and IFRS — for example, financial instruments and capital disclosures, inventories, going concern, rate-regulated operations, and internally developed intangibles. The first of these, financial instruments and capital disclosures, has an exposure draft for comment outstanding right now. The material in it is pretty much a straight copy of the international standards and we are hoping to have that project wrapped up later this year. That is another example of our importing some of the international standards well before the changeover date. The last item, internally developed intangibles, was an exposure draft last year and the AcSB will have to decide whether it still wants to proceed, whether to modify the project, or perhaps let it lapse until we reach the changeover date.4 Obviously, we are going to have to adopt the remaining IFRS that we have not dealt with in one of these other ways at the target changeover date of 2011. One of the questions that has been raised is whether to permit early adoption of any or all of the international standards. We have not reached a definite decision on that yet, but I think we are leaning against it, in part, because it is probably impractical in the sense of adopting the entire body of IFRS early. I am not sure that very many people would be in the position to do it. As for cherry-picking individual standards that a company happens to like for early adoption, I do not think the AcSB would be happy with that kind of activity. It is noteworthy that IFRS include a special standard, IFRS 1, that is designed for those who are adopting international standards for the very first time and provides a number of special treatments that ease the transition burden. It seemed to work reasonably well in Europe and elsewhere, so we expect we will be working with that standard, too. One of the requirements in IFRS 1 is that comparative information must be provided for at least one year prior to the first year in which an entity reports using the new basis. So preparers will have to think in terms of developing information for the comparative period for the year before the official changeover. For Securities and Exchange Commission (SEC) registrants, the current requirement is to provide two years of comparative figures, but Europe and Australia managed to get an exemption from the second previous year 4. Editor’s note: The AcSB subsequently decided to modify the project to pick up portions of the corresponding IFRS. The new Handbook material will be released February 1, 2008. AP Vol. 7 No. 1 — PC vol. 7, no 1 (2008)

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when they made the changeover in 2005. We are going to request the same sort of concession from the SEC, but we do not have that nailed down yet. We are trying to anticipate potential problems. For example, what do we do if an existing Canadian standard has been previously harmonized with corresponding U.S. literature but the Financial Accounting Standards Board (FASB) is now in the process of changing its standard, such as the standard dealing with securitizations? The dilemma for the AcSB is that, having decided that we are not going to harmonize with U.S. GAAP anymore, do we undertake some work to revise the Canadian standard to keep it consistent with the U.S. standard? This does not seem consistent with the new direction. Do we just sit still and find ourselves consistent with neither IFRS nor U.S. GAAP? That is not a particularly appealing answer either. So there are going to be a few dilemmas of that sort that the AcSB is going to have to grapple with on a case-by-case basis as we come across them. There is another kind of problem that we are anticipating, the specifics of which it is too soon to forecast. Say we get to the changeover date, we look at what the IASB is working on at that date, and we see that they have a new standard on a particular topic that will be finished in about a year’s time. If we adopt IFRS with the old standard in, we are potentially forcing people to go from current Canadian GAAP to the old international standard and, a year later, change to the new international standard. If the topic of the standard would require a lot of systems changes or is otherwise a fairly big change in its own right, forcing people to make those changes does not seem appropriate. So we are contemplating the possibility that we might have to delay the changeover for one or two standards where we do not want to force that two-step change. In other words, we may not reach 100 percent IFRS compliance at the changeover date. Another question is what we are going to do with some of our current Canadian GAAP standards for which there is no corresponding international standard at the changeover date. Do we simply yank them out of the book and throw them away? Do we keep them? We have not decided what to do, but it is certainly something we will have to nail down relatively soon. If we think that Canadian standards with no international counterparts are important to people in Canada, we would want to go to the IASB and ask them to see if they can pick up our standard or at least something roughly equivalent. Another issue that we are having to face is that our standards apply not only to businesses but also to not-for-profit organizations, and our strategic plan calls for us to adopt standards that address the unique circumstances of not-for-profits. This means that we are probably going to have little add-ons to the international standards in certain instances that are unique to not-for-profits. In fact, we are already addressing that sort of thing with our standard on inventory. We are expecting to put out an exposure draft very soon that is a copy of the IFRS but that adds a few extra paragraphs that deal solely with not-for-profits. So that is a quick run-through of how the AcSB is planning the convergence exercise and some of the issues that might crop up.

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LINDA MEZON, Chief Accountant, RBC Financial Group and a member of the Accounting Standards Board As Chief Accountant at RBC Financial Group, I am responsible for applying accounting policy in accordance with Canadian and U.S. GAAP, overseeing the external reporting for the bank’s financial statements, and taking a view on our system of disclosure controls to make sure we do our disclosures as efficiently and effectively as possible. In speaking to you today, I thought it would be useful for you to understand that our industry as a whole is going through several governance or regulatory projects at the same time. Basel II is a project with global implications whose ultimate result will be the implementation of a similar approach to measuring and reporting capital levels for all financial institutions. Today, we have different regulatory environments in different parts of the world and we are trying to get the financial environment reporting under comparative standards so that the capital reporting is comparative around the world. That is a major change for financial institutions. Regulatory capital is something that we spend a lot of time tracking. We have big infrastructure systems that do it for us, so a conversion of those systems is a major activity for us. We are due to go parallel in test runs, November 1, 2006 and go live November 1, 2007, so that is a big infrastructure project that we are working on now. Additionally, for dual registrants like RBC or any of the big five banks in Canada that are listed in both Canada and the United States, 2006 is our first year of going live with the internal controls certification under Sarbanes-Oxley, so we are working on that too. IFRS is another major change that we have to grapple with. All of the current projects have increased the demand for qualified accountants and it is only going to get worse in terms of moving forward to IFRS conversion. We need people who can read the standards and understand them and also understand the business that they are trying to advise. We need people who can dialogue with nonfinancial business leaders to say, “This is what the change means to your business.” If you tell a leader of a business unit that you are changing the accounting results on which his business is evaluated, he cares about that. So we need people who can not only read accounting standards but who can speak to business heads. We need communication skills, and this is particularly important when an accountant is trying to deal with a nonaccountant in an organization as big as RBC. We need people who can articulate conclusions through effective writing. This is the single biggest issue that I face hiring people today, because in today’s environment, our audit firms want documentation for everything. That is the world that we live in from a governance perspective, and what I find right now is that I can find many people who are great from an accounting perspective, but who simply cannot articulate how they reached a conclusion concisely and effectively in writing. We need good writing skills. It is not just for drawing conclusions internally, but my department is responsible for writing the MD&A for the external reporting. We need people who can write and who can explain things to external stakeholders. We also need people who can find their peers in sister organizations and say, “This is how I am reading this standard, how are you reading this standard, and sharing that information?” so that as an industry we can move through this change effectively and efficiently. AP Vol. 7 No. 1 — PC vol. 7, no 1 (2008)

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We also need people who can understand the tax impacts, the regulatory impacts (as already mentioned, capital is a major issue for us), and the technology impacts of these big changes that we are going through. So those are the skill sets that we need. Today at RBC, when we are analyzing any particular issue, we are analyzing three GAAPs — Canadian GAAP, U.S. GAAP, and international GAAP — so we need people who are “trilingual”. As we go forward toward globally converged GAAP, we need people who can think through that minefield and say, “I really only want to make one change for this organization, so when I am going about this, I have to think about what I need to be compliant with Canadian GAAP today, but anticipate what international GAAP will require and try to minimize the level of disruption as we go through this change.” In other words, we need people with competencies that go beyond basic accounting. We need people with project management skills. In one of my previous roles in a different organization I had to do a big systems implementation, leading that as project manager, and I had to learn what good project management means. When you are going through a massive change in a large organization, you are essentially running a big project and you have to have a project plan and key milestones, identify interdependencies, and so on. People coming out of school who are going to be on the front line when we go through IFRS implementation are going to need some fundamental project management skills. There will always be a premium for people who have multiple skill sets; for example, people who are good in accounting but have some knowledge of systems, or people who are good in basic accounting and have some tax knowledge — things like that. That is something to counsel students on as they are going through school. Although the timeline is driven by the AcSB’s strategic plan, there will be a period, and I would suggest to you that this period is virtually now or very soon, when you will need to be teaching people in both the existing Canadian GAAP and also the related standards under international GAAP. There is also a distinct need to attract people into this profession. We have a shortage now. It is going to get worse by 2011. So anything you can do to attract young, bright people into the accounting profession will serve us well in terms of trying to move over to IFRS. TIM FORRISTAL, Vice-President, Education, CICA My responsibilities span both pre-qualification education and continuing education and include the CICA’s specialization program. We’re facing the issues arising from the planned changeover to IFRS right across the spectrum of our students and members, as are the other two accounting bodies. I want to talk a bit about the impact of IFRS on the prequalification program and then, more importantly, about its impact on our 68,000 members. Linda mentioned the need for project management skills. It’s very hard to manage a project when you’re dealing with such a dynamic transition plan. We are keenly interested in having firm dates and targets for the transition to focus everyone’s attention. Here are some statements that make it difficult for those of us responsible for leading the change efforts: “Specific changeover timing will be determined at the checkpoint date about two years from now”; “We need to start now”; “One size does not necessarily fit all”; “The AP Vol. 7 No. 1 — PC vol. 7, no 1 (2008)

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new standards are for publicly accountable entities”; “In many cases the accounting will be substantially unchanged from current practice”; “There will be some areas where there is significant change.” These conflicting views create uncertainty for our members. Also, many students and members are not involved with publicly accountable entities and therefore will need to understand the impact of the changeover, or lack thereof, on them. I heard it said by someone at this conference that since the conceptual frameworks underlying Canadian GAAP and IFRS are substantially the same and the three accounting bodies have moved to a competency-referenced curriculum, the move to IFRS does not really change expectations. In a sense, IFRS is already covered. I disagree. Expectations will change. Currently, our competency map and the other bodies’ competency maps speak to IFRS or more generally to international accounting standards. But they currently merely require awareness, a low-level recognition of the issues. Soon that will change to requiring ability to apply IFRS. Currently, the CA competency map simply requires an awareness of the impact of international financial reporting standards in Canada. For U.S. standards or IFRS standards, the entry-level CA needs to understand their impact in only a general way. During the transition, we’ll move from requiring simple awareness to requiring a more in-depth understanding, to requiring the application of those standards. And it is not just proficiency levels that will change; the circumstances in which they need to be demonstrated will also change. IFRS apply to publicly accountable entities. The CA competency map talks about normal circumstances. These are not always the same thing. What is expected of an entry-level CA in normal circumstances and what is left until after the candidate becomes a CA will be an issue. That will obviously affect the university delivery system. Fairness, transparency, and lead time are essential in a transition plan. Trust me. No one is out to surprise students as they prepare for the profession. The transition plan needs to be fair and transparent and it needs to include the necessary lead time to ensure that the students are prepared. There needs to be clarification by those offering the exam to make sure that the students understand the scope, about how a particular change is being addressed in a professional examination. We’ve done that this year with financial instruments. This standard is effective for fiscal year-ends of October 2006. In September, many students are asking, “Do I write under the old or the new standard?” So you clarify that. For competency-based examinations, the evaluation guides will have to be consistent with the competency map. We will need people to help translate what the new standards mean at entry level and how they would apply in our competency-based system. For knowledgebased exams, we will need to develop new core knowledge questions. In my view, more lead time is required for knowledge-based exams than for the competency-based exams. The move to IFRS provides a rich learning opportunity for students and it behooves all of us to use it as a learning opportunity to help students understand accounting models, identification of issues, analysis, decision making, and so on. This may be a chance to look at our approaches to learning and how we are training our students. It will require new textbooks. Cases comparing Canadian GAAP and IFRS will be needed. It is going to be important to have a lot of supportive material — there is a huge opportunity here for the CAAA. Many of our members try to avoid change. We are facing a huge change management issue. Once again, the financial instruments standard can be used as an example. It is AP Vol. 7 No. 1 — PC vol. 7, no 1 (2008)

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effective for fiscal year-ends of October 2006. Our members are really just focusing on this standard this year. Those who are in large organizations or in large accounting departments have focused on it for a number of years already. The general membership is just getting at it this year and yet it is effective as of October 2006. If members are thinking that IFRS and transition to IFRS are way out in the future, they’re not going to focus on them today, and yet they should be starting now in terms of making that transition. One size for training does not fit all members. Training needs to be designed to meet the specific needs of individual members. What is important to one member will not be important to another, so we cannot simply look at standard education and training models. We have to consider more customized training based on what individuals need, allowing people the flexibility to pick and choose where they want to go in terms of their own studying, help them obtain access through e-learning, and more nontraditional ways of getting the information across to them. Topics should include more than just financial reporting. This transition will affect management systems and internal controls and may have a significant impact on financial management. The training has to encompass all these aspects. We’re already being approached by providers to partner, to provide such learning. We want to make sure we have the right customized learning in place with the right providers. The impact of the transition to international standards should also be considered more broadly than just training. When somebody says that something is an education problem, it has to be looked at carefully — it could simply be an awareness problem, it may be a communications issue (a lack of understanding). It could be a training problem, but it could also be a knowledge-support issue — a request for more field support. Members could simply be looking for more material or decision-support systems to help them do their jobs. So we’ll have a look at each of these areas for solutions to help our members. Awareness should start now. We cannot wait for the AcSB to nail down all of the issues. We have to act. We have to understand what is available, what the experience of others is (for example, the Australian experience). There is a lot of experience out there. The major firms provide a significant amount of material based on experiences in other countries. We are not short of material; it is in applying that material to the Canadian situation that we need help, in making sure that the material that is available is useful in bridging from Canadian GAAP to IFRS. Programs will need to change. We have an in-depth GAAP training program that will start to be modified next year. Currently, it is primarily a Canadian and U.S. GAAP program but it will morph from Canadian/U.S. GAAP to Canadian/U.S./IFRS standards. I think one of the biggest implications for education for our members is finding different ways of delivering education in a way they want it at a time they want it. We’ll be looking to this community for their ideas on different ways to deliver education. We believe that there’ll be need for new decision-support systems, and we’re already looking into some of the opportunities in that area. An electronic Q&A system, and flowcharts to work through choices are the kinds of support that need to be considered. AP Vol. 7 No. 1 — PC vol. 7, no 1 (2008)

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We have started to collect this information and there are a number of websites that you can reference. You can get information from the Accounting Standards Board. It has done a significant piece of work comparing Canadian GAAP and IFRS that is available on its website. There is a summary 20-page document and a 120-page drill-down document. You can choose the depth you want to get into it. It is a significant piece of work and it is well done. The AcSB will continue to provide implementation guidance — guidance on how to implement the new standards. Our mandate at the CICA is to transfer that knowledge to the membership and general public, ensuring that new information is readily available. We are developing a one-stop website where the best information from around the world is available through a knowledge transfer website. In closing I will also quickly mention that Paul Roy has set up a blog, http://migratingtoifrs .blogspot, that is up and running. We’re looking for additional information and, again, it is another opportunity for the CAAA to look at doing something similar to that on its own site and getting the community to work together to provide materials. RÉAL LABELLE, Professor, HEC Montréal In preparation for this presentation on whether academics are ready for IFRS, I did a small survey of my colleagues, mostly in Quebec,5 and I found out some interesting things. On the one hand, there are those who take a “no rush” or “wait and see” attitude, arguing that IFRS are already quite similar to Canadian standards. Being based on substantially the same conceptual framework, style and form, they often reach the same or similar conclusions. Similarity is deemed to accelerate as the CICA continues working with both the IASB and the FASB (converging themselves). The convergence of Canadian GAAP with IFRS is being done over a transition period of five years or so. But the definitive changeover date will only be fixed in 2008. Furthermore, there will be no more Canadian GAAP at the end of this period. On the other hand, others feel some urgency that warrants a “wake-up call”, arguing that the devil is in the details between the two sets of GAAP. They also underline that we do not really have five years to prepare but only two or three at most, as we need comparative prior-period figures and opening balances. Those familiar with the recent European

5. This presentation mainly reflects my own thoughts and does not engage my colleagues who were kind enough to answer my call for help. I would like to aknowledge the useful answers of Jacques Fortin, Andrei Filip, Louise Martel, and Jackie DeVito, HEC Montréal; Dan Thornton, Queen’s Unviversity; Bernard Grand, Institut d’administration des entreprises (IAE), Aix-en-Provence; Nadi Chala, Antonello Callimaci, and Nadia Smaili, University of Quebec at Montreal (UQAM); Maurice Gosselin, Université Laval; André Labelle, University of Quebec at Outaouais (UQO); Hélène Bergeron and Benoit Lavigne, University of Quebec at Trois-Rivières (UQTR); Lucie Courteau, Free University of Bozen-Bolzano; Sylvie Berthelot, University of Moncton; Anne-Marie Robert, University of Sherbrooke; Colette Gauthier, University of Quebec at Chicoutimi (UQAC); and Diane Messier and Daniel McMahon of the Ordre des CA du Québec. AP Vol. 7 No. 1 — PC vol. 7, no 1 (2008)

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Union experience point to the need for a reasonable adaptation period, which may be tougher for us academics who will have to learn new standards and forget about previous ones, while students only have to worry about one set of standards. It is going to be more difficult to give field-based responses to students’ questions. It was also mentioned that the academic community needs to be reassured that convergence to IFRS is going to happen this time. In 1998, the CICA chose to accelerate its harmonization program with the FASB.6 Since then, however, several circumstances have changed which should increasingly favor the adoption of IFRS over FASB GAAP despite the overwhelming weight of the U.S. financial market. For example, the EU achieved convergence with IFRS in a relatively short time frame, with many countries coming from substantially different GAAP environments. The similarity between IFRS and Canadian GAAP should facilitate the switch to IFRS. Furthermore, the standard-setting environment and climate have changed as a result of recent financial reporting failures internationally. A key legal factor, very important to Canadian and other foreign companies, is that the SEC is on the verge of accepting filings in accordance with IFRS without reconciliation to U.S. GAAP. Finally, although Canadian public companies are now entitled to use U.S. GAAP, it is costly to do so and there may be a “U.S. rules overload syndrome” especially following the Sarbanes-Oxley Act of 2002 (SOX). Principlesbased IFRS standards should reduce concerns about the U.S. rules-based environment if companies are able to use IFRS without reconciling to U.S. GAAP. As far as teaching is concerned, at HEC Montréal, we have MBA students from all parts of the world, and particularly from European countries, so we have not waited for the standard-setters to bless international standards in order to include them in our teaching. We mostly use cases where financial statements are prepared according to international standards. In the case of the diploma in public accounting program, a lot depends on the content of the uniform final exam. There is not much IFRS in it for the time being. As most of the surveyed persons underlined, it is a key factor in Quebec. The universities take the students all the way to practice. There is no professional school like CASB in the West. We do all the work. So what we do depends on the requirements of the profession. Currently, there is some material being produced by the CICA for which we are grateful. The provincial Institute (Ordre) is also helping to integrate the new standards into our programs. There is going to be some impact on the curriculum. IFRS should not affect first-year courses very much and only slightly affect intermediate accounting, except for the fact that asset revaluation will now be allowed. However, it will most likely affect advanced accounting courses such as consolidation. Finally, financial instruments are being harmonized, at the international level anyway, as are many other standards. Maybe there should be a change in course sequence, with finance followed by accounting rather than accounting followed by finance.

6. Canadian Institute of Chartered Accountants, Final Report of the Task Force on Standard Setting (Toronto: CICA, 1998), 8. AP Vol. 7 No. 1 — PC vol. 7, no 1 (2008)

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In conclusion, there certainly also exist research opportunities for academics. It will be necessary for academics to observe professional practices through case analyses and other tools, to monitor developments in the EU and other countries, and increase participation in the exposure draft process. For example, how do practitioners determine fair value? The application of international standards has not been broadly tested yet. Results of the EU experience will be known only in 2007 – 8. There are major structural differences in accounting and governance between Europe and Canada. The importance of law and taxation in standard setting is very high in continental European countries, which tend to give way to form over substance. The role of the profession is relatively low in those countries as compared with Canada. Not only the whole literature on regulation may come into play, but there are also going to be crucial initial accounting choices made by preparers applying IFRS, which means that the whole literature on accounting choice is going to be useful again. How should we prepare? I say, start as soon as possible and mobilize the necessary resources. Identify someone responsible for coordinating the implementation. Reporting is a communication exercise, not just a compliance exercise. There is no need to wait for the new standards. We should teach our students to disclose whatever will help investors and others stakeholders to understand what happened. VAUGHAN S. RADCLIFFE, Professor, University of Western Ontario My answer to the question posed in today’s session, “Are we ready for IFRS?” is “no”. In fact, I’m shockingly unprepared for IFRS. I teach MBA students. It is useful to start off with a sense of what modern MBA students really get in terms of accounting standards. The honest answer is, not very much — just enough to be dangerous. In my course at the University of Western Ontario, we have one case, about 13 pages in length, out of about 16 cases on financial accounting and 14 on the management accounting side, that really looks at accounting standards and their treatment of certain issues. It takes the case of lease accounting and looks at U.S. GAAP and international standards and how the treatment of a given transaction would appear to be different under the two sets of rules. It is a nice way of showing the contingency of the accounting treatments. That is about it. We have several cases where choices have to be made about accounting treatments, but only one full-blown accounting standards case. What do MBA students need to know? Well, I think they need to know that there are really two games in town. There are two globally important standard-setters. They need to know that in the new world we’re going to have both IFRS and U.S. GAAP being used in North America for some time. The other thing we need to equip students to understand is that the choice could have gone the other way. That in itself is a useful learning exercise in terms of understanding the nature and the social construction of accounting standards. Up till the announcement that we were going with IFRS, in doing the case on lease accounting, I would talk about how it was impossible to tell five years from now who the accounting standard-setter from Canada would be because this ball is up in the air. The argument would go along the lines of, “Well, it could be U.S. GAAP because of the weight of the trading relationship, or it could be international standards because the IASB is a

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multilateral body and Canada would have a voice at the table and it would be more consistent with the direction of Canada wanting to work with multilateral bodies as well.” There is certainly room for some comparisons of accounting standards — for example, the way that stock options have been looked at by each board. It is useful to look at the way that the IASB deliberately went after these kinds of hot topics in order to demonstrate its earnestness after its reorganization/reconfiguration in 2001. An appreciation of principles versus rule-based approaches is another useful topic. We cannot give students a compendium of knowledge. But we can expose them to some of the big debates and take things from there. MBA students do not need to have a detailed review of current accounting standards, and it cannot be done in the time that is available in most MBA courses. They cannot have a full technical appreciation of standards, partly because that is not their purpose. MBA students are looking for applied knowledge that does not have the kind of full technical appreciation that we would expect of an accounting major or someone preparing to be an accountant. As part of preparing for this panel, I did a little research and learned that the International Accounting Standards Committee (IASC) created a nonprofit body called the International Accounting Standards Committee Foundation. This is a body that has 22 trustees, and its constitution states that 6 of the 22 shall be from North America. North America is a pretty big place. There are a lot of folks to the south of us, so there is no guarantee of Canadian representation there. It also requires an appropriate balance of professional backgrounds among the trustees. If you go to the committee’s website, there is remarkably little disclosure about the players involved in the International Accounting Standards Board (IASB). For example, there is not a codified listing of trustees, of members of the IASB or of Committee members, that shows their background and nationality. You cannot find that in the published materials. There is an archive of news releases from the modern IASB. Note that the board is a creation of the International Accounting Standards Committee Foundation, and that non-profit kicked into gear in January 2001. When that took place, they issued a listing of trustees, but unfortunately that is a broken link on the website right now. So there are some interesting lacunae here. What I can tell you is that the IASB has 14 members and the notion is that you’d have best technical skills and relevant international background as the criteria for membership on the board. The Standards Advisory Council and the International Financial Reporting Interpretations Committee (IFRIC) could be seen as a bit like the Emerging Issues Task Force (EITF) in the United States. The Standards Advisory Council has input on agenda and timetable and looks at project implementation and things of that nature, and then the IFRIC reviews accounting issues like divergence or unacceptable treatment in the absence of authoritative guidance. That sounds a lot like EITF to me. But I found that this was quite a useful learning experience in that one of the big arguments I’ve been making to my students was that we had a guaranteed voice at the table and a multilateral body — but it turns out that the world is a pretty big place and we may not get the kind of representation for Canada that we might hope for.

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To summarize, we’re not going to be providing MBA students with a compendium of all accounting treatments. Instead, the idea has to be to give them a few key examples from which they could see the benefits of having accounting standards — how accounting standards regularize practice and bring people on the same page and help users in their interpretations. We try to equip MBA students to be intelligent users of financial standards — to be in the room where there is an expert, an accountant who is going to work through the standard and present the choices — but then to be able to be intelligent users, to be able to ask the right questions and to understand and balance the weight of arguments as they are presented. An overall aim, then, from a pedagogical point of view of what should an MBA student be able to do at the end of the day in terms of accounting standards is to be able to participate intelligently in discussions on the implication of accounting standards, to be able to ask the right questions on these things, to have an appreciation of the source and history of accounting standards. I think now more than ever that is important to understand, for example, the somewhat contingent nature of the choice that took place; the fact that going with international standards is actually a choice. Knowing the history of the International Accounting Standards Committee and its subsequent replacement is a useful thing. Knowing how international bodies are really locking together — for example, the fact that IFRS is going to be read into the CICA Handbook because of its interaction with Canadian law — that is the kind of thing that is useful for an MBA to know and to have an appreciation of. Finally, to understand the significance of accounting standards in driving practice. For a case-based curriculum, I’m talking about one or two cases where students would have a chance to see the application of accounting standards to appreciate how that comes to drive the judgements and the representations that are made, and to take things from there. JAMES C. GAA, Professor, University of Alberta I have been a teacher of intermediate financial accounting and currently teach accounting theory. I have also been a Canadian member of the International Accounting Standards Committee (IASC) and the Canadian Advisory Group on International Accounting Standards, and served as the chair of the National Education Committee of the CGA Association. I want to start by just saying a few words about where CGA Canada is on the question of how ready we are for this change. I would say that the CGA Association is in the same spot as the rest of the associations. It is not ready because there is so much to do, but it is in a good position. It knows what needs to be done and is partway along doing that. One thing I think worth pointing out is that the CGA Association has been a long-time supporter of the adoption of IFRS in Canada and so it looks forward to these changes, as difficult as they will be to actually implement. I agree with Tim’s point that the transition will be much more difficult for people who are already practicing members of our various professional associations than it will be for students and professors. As has been mentioned a couple of times, all the associations have competency maps. The CGA Association has had one for quite a while. It is based on a practice analysis AP Vol. 7 No. 1 — PC vol. 7, no 1 (2008)

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based on going out and talking to accountants and employers about what sorts of competencies are needed in order to do the job of an accountant, both at the point of certification and after. This competency map is redone every few years and an update is scheduled to begin this fall. I am sure the transition to IFRS will be part of the updating and determining the level of proficiency that is needed at the point of certification and after as well. So that is moving along — a lot to do, but there is a roadmap for doing it. I would also like to mention that the CGA Association has what is called the International Syllabus. It has a set of course materials that are internationalized, using business situations and applying IFRS that are used in other countries besides Canada. These are up to date in terms of IFRS. There is thus a base to work from, and the next stage is to use this International Syllabus to update the general program. Now I would like to turn to the kind of education process that I think faces all of us, both accounting professors and the professional associations. The case I want to make here is that we are in a period of rapid change in Canada in relation to financial reporting and a lot of these changes are coming from external sources, from outside Canada. The Sarbanes-Oxley Act is an obvious example of that. The shift to IFRS is another obvious example. Basically, we are in a period of transition and there are a lot of problems as well as opportunities. My answer to the question whether we professors are ready for IFRS is that of course we are ready; the reason for this is that many of us teach our courses by what is in the textbook. So as textbooks change, we will be ready. I think that is an unfortunate truth. That puts a burden on the textbook writers to make sure that we are ready. I would like to see us treat this change as an opportunity to inject some change into the way we teach financial accounting and reporting. What I have in mind here are three main dimensions. One is the cultural and value aspects of accounting. I think accounting is usually taught as a technical discipline, and the cultural values and cultural differences do not really enter into the practice of accounting. This is not true, but that is the way many students are taught. So, if the world is changing around us and we are changing in response to that, why not take this as a time when we can actually start to talk about this? For example, consider Islamic banking. Why not discuss that? Recognize that there are different places in the world that see economics and accounting differently than we do. We should understand that and we should expose our students to that. Another dimension is the major shift toward fair value accounting. My skeptical view about accounting textbooks is that as the new standard is adopted, the new textbook will say, “Here is section 3855”, etc. There will be an explanation of the standard and a bunch of problems at the end of the text, end of story. In fact, however, there is a major change in thought taking place that really needs to be introduced at the level of intermediate accounting. In my accounting theory course I spend a lot of time on this, but it is too late for many students, who have already been indoctrinated into other, more conventional ideas. The third important dimension involves the dramatic changes taking place in standard setting and regulation. I think it is more and more important to understand how accounting is regulated, why it is regulated, and the international influences on that as well. We have an Accounting Standards Board in Canada. Will Canadian standards be written because of legal aspects? AP Vol. 7 No. 1 — PC vol. 7, no 1 (2008)

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I see the transition to IFRS as an opportunity to improve what we do. We should not wait for the textbooks to change. That cycle is too slow and, again, I challenge the authors of textbooks to really think some of these issues through. Canada is a country that is trying to reach out to the rest of the world. Why should not our textbooks and our courses show that?

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