Small and medium-sized companies are not as far along in converting to International Financial Reporting Standards (IFRS) as large companies, according to a recent report.

That’s one of the many findings from a research study titled IFRS Readiness in Canada: 2010 conducted by the Canadian Financial Executives Research Foundation (CFERF), the research institute of Financial Executives International Canada (FEI Canada), and sponsored by PricewaterhouseCoopers (PwC).

One worrisome finding was that nearly one in three companies with revenues of less than $49 million said they did not have the resources required to implement the conversion. As of the spring of 2010, only half of public companies were 60% of the way along the conversion project.

“The CFERF research report shows that smaller companies are facing more resource constraints and they’ll be the ones that may be more challenged to meet the impending January 2011 deadline unless they find more internal help or reach outside their organizations,” says Diane Kazarian, PwC Canada’s national IFRS leader. The IFRS survey also indicates that some industries — for example insurance and utilities — are much further ahead than others.

The conversion to IFRS could also result in some significant changes. For example, 28% of Canadian companies anticipate a decrease in reported net income, 22% expect earnings per share to fall and 28% expect an increase in pension liabilities in the first year of adoption. CFOs’ communication with management, shareholders, analysts and other stakeholders will need to be robust during the next four months to explain these changes to financial reporting and the transition process.

“As we move into the latter stages of the conversion, companies will need to spend more time communicating the key changes,” says Michael Conway, CEO and national president, FEI Canada. “The numbers, formats and notes that analysts and shareholders will see on financial statements will change and CFOs will have to make communication their priority,” he says, referring to one of the study’s findings showing that only 23% of respondents had spoken to analysts about the potential impact of IFRS on their company’s financial results.

Canadian firms that are closer to completion include larger public companies and those in rate regulated sectors. The survey shows that all respondents with annual revenues of more than $20 billion were more than 60% complete, compared to 41% in the $50-$249 million range who were more than 60% complete. One-third of private companies that will adopt IFRS had completed 60% or more of the transition. “Given that there is not a lot of time left, a number of companies may be challenged to meet the conversion date,” points out PwC’s Kazarian.

The CFERF study is the third in its series covering IFRS conversion activities in Canada. The results are based on responses from 146 senior financial executives across Canada who completed the survey in March and April of this year.