With just over a half a year to go before converting to International Financial Reporting Standards (IFRS), many Canadian companies are making good progress, but others continue to lag behind, in a race to meet the Jan. 1, 2011 deadline, according to a survey by the Canadian Financial Executives Research Foundations (CFERF), the research institute of FEI Canada, sponsored by PricewaterhouseCoopers (PwC).

The conversion to IFRS could 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.

Canadian firms that are closer to completion include larger public companies and those in rate regulated sectors. Of executives responding from public companies, over half (53%) said their status of completion was 60% or higher. (This compares to last June where 80% of public companies remained short of the halfway mark in their overall conversion process.) Out of the top four industries responding to the survey who say they are more than 60% complete, utilities is the furthest ahead, with 73%, followed by the insurance sector (63%), mining and oil extraction companies (50%) and manufacturing (46%).

According to Diane Kazarian, PwC Canada’s National IFRS leader, “The size of the company usually plays a big role in terms of expertise and available resources. Chief financial officers in smaller companies often have fewer personnel who are specifically dedicated to the conversion.”

Additionally, the survey indicates that nearly 30% of companies with revenues of less than $49 million said they did not have the resources required to implement the conversion.

The survey also 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,” adds Kazarian.

As IFRS is a new language of financial reporting, the adoption will directly impact the look and content of the financial statements.

Overall, 51% of respondents say the new reporting will show a change in their company’s asset values — either a decrease or an increase. “Under IFRS, greater volatility in financial statements is expected,” according to Kazarian.

When asked what external stakeholders had been contacted to discuss the potential impacts of the IFRS conversion, only 23% of respondents said they had spoken to analysts. (A PwC survey of chartered financial analysts in 2009 also found that 74% of respondents to that survey had a poor to fair knowledge of IFRS.) “Clearly, this will have to be a communications priority in the coming months for CFOs and investor relations executives,” adds Kazarian.

The study is a third in a series covering 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.

IE