Financial reporting is set to become more comprehensive with the adoption of the International Financial Reporting Standards next year, but the rules will also present new challenges for investors, an Ontario Securities Commission representative said on Tuesday.

Marion Kirsh, associate chief accountant of the OSC, outlined the impact of IFRS on investors and analysts in a presentation to the Toronto CFA society. She said the Canadian Securities Administrators supports the adoption of the new accounting standards.

“We do believe that high quality financial information for investors will be best served by moving to IFRS,” Kirsh said. She explained that the current accounting standards in Canada have failed to keep up with evolving standards in the United States and abroad, and are out of date.

“Canadian GAAP is broken; it can’t stand alone anymore,” she said. “IFRS is a high-quality set of globally accepted accounting standards.”

IFRS will require publicly listed companies to provide more disclosure, which Kirsh said is in the best interest of investors. Addressing the needs of investors has been a key priority for the OSC, she said: “It’s an absolutely crucial part of the OSC mandate.”

But switching to IFRS will also present new challenges for investors and analysts. The IFRS standards are more principles-based than the U.S. Generally Accepted Accounting Principles, Kirsh noted, which means Canadian companies will have more flexibility in their financial reporting. This could result in inconsistencies between companies, making it more difficult for investors to compare financial results.

“The reality is IFRS will likely result in less comparability,” said Kirsh. “There are more choices; there is more management judgment.”

She said investors and analysts would likely have to read through a greater volume of notes and other material in earnings reports to accurately assess and compare results.

Rossa O’Reilly, managing director of institutional equity research at CIBC World Markets, agreed that investors will likely be forced to conduct more research when the new standards come into effect.

“The disclosures, and the assumptions behind them, may well prove to be a little scant or confusing to investors,” he said, speaking at the Toronto event.

The use of IFRS is also expected to result in more volatility of companies’ reported financial results, as the new standards will enable companies to use more estimates and fair value reporting, Kirsh said.

As companies and investors adapt to the new standards over time, however, Kirsh expects the challenges to gradually subside. If disclosure is initially lacking, she said regulators and analysts would push for improvements.

“I expect that disclosure will improve over time,” she said.

The Canadian Securities Administrators is currently in the process of adjusting its regulations related to IFRS. After holding public consultations, the regulator is reviewing industry feedback, and plans to have new rules in place by the time the switch to IFRS takes place at the beginning of 2011.

The regulator is aiming to meet investors’ needs in terms of sufficient high-quality disclosure, while trying to avoid imposing requirements that are too costly and burdensome on issuers, Kirsh explained.

IE