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ONTARIO SECURITIES COMMISSION,
INVESTMENT FUNDS AND STRUCTURED PRODUCTS BRANCH – IFRS RELEASE NO. 1



Many investment funds have filed their first International Financial Reporting Standards (IFRS) interim financial reports for the period ended June 30, 2014. In order to alert investment fund issuers and their advisers in a timely manner about certain deficiencies in these filings, staff of the Investment Funds and Structured Products Branch of the Ontario Securities Commission (OSC) is issuing this communication based on our preliminary review of the filings to date.

In early September 2014, we sent letters to all investment fund managers having investment funds with calendar year-ends to notify them that we would be reviewing the first IFRS interim financial reports and interim management reports of fund performance (MRFPs) for one or more of their investment funds. While our reviews are on-going, this release outlines the types of deficiencies we have identified to date and will be addressing in our comment letters to most investment fund managers. We will continue to assess and determine the outcome of each review based on the facts and circumstances on a case by case basis.

For those investment funds that have yet to file their first IFRS interim financial reports and related MRFPs, we encourage the fund, its manager and advisers to review this release to inform their first IFRS filings.

Summary of Filing Deficiencies

We have identified the following recurring deficiencies made in IFRS filings to date:

Missing IFRS 1 reconciliations -- Some investment funds did not include all of the reconciliation disclosures, as required by paragraph 32 of IFRS 1 First-time Adoption of International Financial Reporting Standards (IFRS 1). These reconciliations are important for investors to understand the effect and implications of the transition from Part V of the CPA Canada Handbook (pre-changeover Canadian GAAP) to IFRS. For a calendar year-end investment fund, the five required reconciliations for the interim period are as follows:

Reconciliations for:

Equity:

Total comprehensive income:

January 1, 2013 (or the fund's start date in 2013);

The year ended December 31, 2013; and

December 31, 2013; and

The interim period ended June 30, 2013.

June 30, 2013.

 

 

Missing opening IFRS statement of financial position -- Some investment funds that started in 2013 failed to include on the face of the financial statements an opening statement of financial position as at the date of transition to IFRS, as required by IFRS 1. This requirement is now mandated in securities law under subsection 18.5.1(1) of National Instrument 81-106 Investment Fund Continuous Disclosure. The opening IFRS statement of financial position is the starting point for an investment fund's accounting under IFRS and investors need this information to understand how the transition from pre-changeover Canadian GAAP to IFRS affects the investment fund's reported financial position, even if to show that it has had no effect.

Missing MRFP disclosure -- Some investment funds did not include a footnote to the Financial Highlights table in the interim MRFP disclosing the accounting principles applicable to each period in the table, as required by Part B, paragraph 3.1(7.1)(d) of Form 81-106F1 Contents of Annual and Interim Management Report of Fund Performance. This disclosure is important for investors to understand that the table may present information derived from both IFRS and pre-changeover Canadian GAAP. We expect this information to appear as a footnote to the table and not as a discussion in the management discussion of fund performance section of the interim MRFP, since the discussion may not be carried forward in subsequent years.

Regulatory Consequences and Remedies

It is the responsibility of every investment fund issuer to meet its continuous disclosure reporting obligations. We remind investment fund managers that an investment fund that has filed financial statements or MRFPs that do not comply with securities legislation or IFRS, could be placed on the list of defaulting reporting issuers maintained on the OSC website until the default is remedied. A content deficiency in any such documents could also lead to the reporting issuer being placed on the default list. For more information, please refer to OSC Policy 51-601 Reporting Issuer Defaults and OSC Staff Notice 51-711 List of Refilings and Corrections of Errors as a Result of Regulatory Reviews.

Conclusion

Converting from pre-changeover Canadian GAAP to IFRS represents a change to reporting standards that investment funds issuers will continue to experience as they adopt IFRS on varied timelines throughout 2014 and 2015. We will issue further releases with additional observations as our reviews continue, in order to assist investment fund issuers and their advisers with their IFRS filings.

Questions

Questions may be referred to the following staff members of the Investment Funds and Structured Products Branch:

Stacey Barker
Ritu Kalra
Senior Accountant
Senior Accountant
416-593-2391
416-593-8063
sbarker@osc.gov.on.ca
rkalra@osc.gov.on.ca
 
Sovener Yu
Accountant
416-593-2395
syu@osc.gov.on.ca

September 30, 2014