While January 1, 2011, might seem a long way off, for companies adopting the International Financial Reporting Standards, that date is approaching faster than most would like to admit.

According to a Financial Executives International Canada survey, 78% of 512 financial executives surveyed haven’t looked at the differences between IFRS — the reporting standard that will come into effect in less than three years — and the current reporting method, Canadian GAAP.

Nearly 60% of executives reported that IFRS conversion wasn’t a priority for their audit committee, while 50% haven’t even briefed their committees on how the new system will impact their company.

Ramona Dzinkowski, executive director of the Canadian Financial Executives Research Foundation, doesn’t blame companies for their failure to move towards IFRS standards. If anything, the implementation process is to blame.

“The accounting targets standards are a moving target in many industries,” she says. “So for those industries where there are no final standards, they’re just waiting to see because they don’t want to have to redo the work.”

A big reason for the lack of action is that the mandatory implementation date was just set in mid-February. Until then, businesses weren’t sure when they’d have to adopt IFRS, so many of them were waiting to start the process.

“Confirmation of the date has brought certainty for business leaders in their planning process, making now the right time to start work to get ready,” says Ron Salole, vice-president of standards with the Canadian Institute of Chartered Accountants.

CICA did their own study into IFRS adoption and found similar results to the FEI report. Out 550 senior executives surveyed, only 8% have either started or completed the conversion process. Nearly 75% of respondents said they haven’t started to assess the impact or are in the process of assessing the impact of IRFS.

These poor results are also due to a shortage of qualified people who can teach CFOs about IFRS. “There are not a lot of sources of training for IFRS in Canada,” explains Dzinkowski. “We’re importing a lot of talent from overseas. The hole is being plugged, but not completely yet.”

One part of the financial industry that’s farther behind is small- to medium-sized private companies. Right now, there are no reporting standards for these businesses, so it’s difficult to move toward IFRS if they have no benchmark to begin with. Add to that the fact that many smaller companies don’t have employees with the same financial depth as larger corporations and you have a recipe for sluggishness.

“Small- and mid-sized companies don’t have the talent in-house, and CFOs are wildly busy to begin with,” Dzinkowski explains.

Still, 42% of private companies have begun implementing IFRS. Without any standards, why are these businesses even moving towards adoption at all? Dzinkowski reveals that a lot of CFOs are motivated by personal reasons; if they ever want to work for a larger company, they’ll have to be familiar with the new standards.

“Turnover for CFOs is roughly 26 to 32 months,” she says. “So for people in this highly volatile career path, they can’t afford not to understand the differences between the IFRS and Canada GAAP.”

While the entire industry needs to move towards IFRS adoption, some sectors are closer to the finish line than others. The survey reports that 90% of executives in the utilities sector have started the process, while just over 40% of executives in manufacturing areas have looked at IFRS.

The utilities sector’s fast action is thanks to their lone shareholder — the government. One CFO Dzinkowski spoke to said his company has to make the switch sooner rather than later because they have to tell the government in advance about any policy changes that are made. As well, the provincial government needs to be able to explain any differences in the finances of crown corporations.

The manufacturing sector, however, has been slow to respond, mainly because they have so many other things to worry about right now. “In addition to everything the CFOs have to do, they also have this Canadian dollar thing going on,” says Dzinkowski. “Their margins in the last two years have eroded by 20%. Exports are down; they’re scrambling just to keep companies afloat.”

Just because the manufacturing sector is behind, doesn’t mean it won’t meet the 2011 target. In fact, Dzinkowski expects most companies to make significant progress in the coming months.

Still, expect the months leading up to the implementation date to be nothing short of stressful. “As we get closer to the date, the more frantic people will be to make sure to get the work done,” she says.

Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com

(04/25/08)