16 July 2013

IASB: FEI Canada's study of transition costs from Canadian GAAP to IFRS

FEI Canada published the findings of its research into the costs borne by Canadian companies in their transition from Canadian GAAP to IFRS. The research was jointly funded by the Canadian Accounting Standards Oversight Council and the IFRS Foundation.

The majority of respondents to an online survey on the costs of transition to IFRS in Canada said that overall, the costs were significant but manageable, and broadly in line with those planned for and expected.

76 per cent of all respondents said planning costs were about the same as budgeted for. Other costs ultimately turned out to be about the same or less than budgeted for in most categories, such as training, contract changes and having financial results audited. The survey was part of a study, entitled 'The cost of IFRS transition in Canada'. It was conducted by the Canadian Financial Executives Research Foundation (CFERF), the research arm of Financial Executives International Canada (FEI Canada).

The study shows that, for about half of respondents, the costs of preparing and auditing financial statements under IFRS are about the same as under Canadian GAAP. Others found some savings, while others found it more costly.

The study also found that:

• 62 per cent of companies’ transition budgets were under $500,000.
• For some, the key drivers of costs were identifying more issues than anticipated and resolving differing interpretations of IFRS.
• Some managed their costs by hiring employees who were well versed in IFRS, often from experience implementing IFRS abroad.
• Nearly all respondents said transition required little to no changes in their contracts, thus, minimal renegotiation costs.
• Three-quarters said they did not have to make significant changes to their IT infrastructure as systems were more flexible than had been thought.

One survey respondent, a medium-sized company in the transportation and warehousing sector, reported that the transition was not that onerous. “It presented very little impact to the company. Most changes made perfect sense”, the respondent noted.

Actual costs incurred by survey respondents to prepare their first set of financial statements varied according to their revenues:

• For smaller-sized companies, defined throughout this report as organizations with revenues of less than CDN$99 million, the average total cost was $154,800. Transition costs in the category ranged from $10,000, spent by a municipal organization with revenues of about $6 million to $506,000, spent by a private company with revenues of less than $49 million. Costs as a percentage of revenues were 0.17 per cent for the lowest spending company and no greater than 1 per cent of revenue for the highest spender in the category.
• For medium-sized companies, defined as organisations with revenues of CDN$100 million to $999 million, the average total cost was $512,800. The lowest cost was $75,000 spent by a municipally-operated not-for-profit organisation with revenues of about $148 million. The highest cost in the category was $2,611,300, spent by a public utility with revenue of about $990 million. Costs as a percentage of revenues were 0.05 per cent for the lowest spender and 0.26 per cent for the highest.
• For larger-sized companies, defined as organisations with revenues of CDN$1 billion or more, the average total cost was $4,041,177. The lowest spent by a large company was $80,000, by a financial services company with revenues of about $1.28 billion. The highest cost in the category was $25.5 million, reported as being spent primarily on internal resources supporting the transition to IFRS, by a financial services company with revenues of $30 billion. Costs as a percentage of revenues were 0.006 per cent for the lowest spender and 0.08 per cent for the highest spender in the category.
• Staff time was the largest transition expense item in all categories. Costs for larger-sized companies were mostly consumed by internal staff, an average of 60 per cent of actual costs. Larger companies had higher internal costs, since they had and were able to utilise more internal resources. Smaller-sized and medium-sized companies spent a higher proportion on external IFRS technical expertise than the largest companies.

IASB's press release

Survey of FEI Canada

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