IFRS Amendments to Form 1

Maria Alano LasetSeptember 2010 – Session 3 of 6Webinar

This sessionSession 3 will cover Statement A - the balance sheet.

Changes to Statement F – equity5

Changes to Statement E – income statement4

Other 6

Changes to Statement A – balance sheet3

Opening IFRS balance sheetPrescribed IFRS departures and prescribed accounting treatments

2

Overview of the changes to Form 1Planning for the changeover

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CoverageSession #

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A word of cautionThe discussion on Statement A has general application to the dealer membership.

Quotes:– The devil is in the details.– While IFRSs do not change the economics of the business, they may

present the organization’s story in a different way…

This session is intended to highlight the changes affecting the balance sheet – from a regulatory accounting and reporting perspective.

Due to the potential complexity of the changeover to IFRS, you may want to consult with professional accounting advisors, starting with your external auditors.

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#1 - Changes to Statement AThe changes are primarily to conform with the IFRS presentation standard.

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#2 - Housekeeping changes to Statement AThere are non-IFRS-related changes. A few of these are housekeeping changes.

Housekeeping changes are as follows:

• In one of the past revisions to Form 1, Schedule 3 was deleted. In this revision, we deleted the corresponding asset and liability – Syndicate and joint trading accounts. These were the old lines 9 and 53 respectively.

• Canadian stock exchanges have undergone organizational structural changes. The old line 25 – stock exchange seats – has been deleted.

• The old line 27 – Investments in and advances to subsidiaries and affiliates –included both the investment in a subsidiary, as well as any non-trading receivable from a subsidiary, an affiliate or parent. We have created a new line item for non-trading intercompany receivables.

• In the past, we made a distinction between a subloan from a non-industry investor and from an industry investor on the old lines 69 and 70 respectively. We no longer make that distinction. There will only be one line item for subloans.

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#3 – Other balance sheet implicationsAlthough the economics have remained unchanged, the change in accounting standards may have operational and audit implications.

None

The challenge is for Dealer Members to obtain the ability to use the appropriate valuation technique for securities that are traded in an inactive market or where no secondary market exists.

Under the CSA proposal, the expectation is that a registrant must attempt to value positions by following the IFRS fair value hierarchy.

Valuation of securities, including inventory and client positions

Expectation: Not significant and not

material

Dealer Members and their panel auditors must assess whether non-compliance with IFRS in the valuation of receivables and payables will materially affect the financial statement as a whole.

Valuation of intercompany non-

trading balances

Expectation: Not significant and not

material

Dealer Members and their panel auditors must assess whether non-compliance with IFRS in the valuation of receivables and payables will materially affect the financial statement as a whole.

Valuation of client and broker trading

balances

Regulatory capital implicationOperational and audit implication

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#4 – Other balance sheet implicationsAlthough the economics have remained unchanged, the change in accounting standards may have regulatory implications.

When the grossing up of a balance sheet item increases non-allowable assets, such as intercompany non-trading receivables, there is an adverse RAC impact that is equal to the increased amount in non-allowable assets.

Change in accounting process to separately report receivables from and payables to the same related counterparty

Presentation of intercompany non-trading

balances

Dealer Members will likely account some of their leases as finance leases (as opposed to operating leases). To resolve the issue of potential adverse RAC implication, any lease-related asset will not be considered as a non-allowable asset and therefore will be capital neutral.

Dealer Members to maintain documentation for finance (formerly known as capitalized) lease accounting

Classification of finance leases

IIROC will no longer make a distinction between a subloan from a non-industry investor and from an industry investor (old Statement A lines 69 and 70 respectively). All subloans will be presented on one line. This is a presentation issue with no regulatory capital implication.

Presentation of subloans

Regulatory capital implicationOperational and audit implication

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#5 – Other balance sheet implicationsAlthough the economics have remained unchanged, the change in accounting standards may have regulatory implications.

None. In order to retain the regulatory capital treatment, a format change was made to Statement B.

Currently, subloans are classified as part of a Dealer Member’s financial capital. IIROC recognizes that is a prescribed CGAAP departure. To be in compliance with IFRS, there will be no prescribed departure. Subloans will be properly classified as liabilities.

Classification of subloans

None. In order to retain the regulatory capital treatment, a format change was made to Statement B.

Currently, the non-current liability for capitalized lease inducement is classified as part of a Dealer Member’s financial capital. IIROC recognizes that is a prescribed CGAAP departure. To be in compliance with IFRS, there will be no prescribed departure. This will be properly classified as a liability.

Classification of the non-current

liability for capitalized lease

inducementDealer Members to maintain documentation for finance (formerly known as capitalized) lease accounting

Regulatory capital implicationOperational and audit implication

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Changes to Statement AUnder IFRS, there are required format changes. In addition, there are housekeeping changes.

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Changes to Statement A - deferred tax assetUnder IFRS, deferred tax asset must be separately disclosed.

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Changes to Statement A - deferred tax liabilityUnder IFRS, deferred tax liability is classified as non-current.

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Other changes to Statement AUnder IFRS, intangible assets have to be separately disclosed. The term fixed assets has been replaced by plant, property & equipment.

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Other changes to Statement ANon-allowable assets – RAC implicationThere may be an adverse capital implication due to the gross-up requirement.

For example, the gross-up requirement for intercompany balances and principal-agent balances with the same counterparty may result in an adverse RAC implication equal to the increased amount in non-allowable assets.

Potential adverse RAC

implication for non-allowable

assets

For client and broker trading balances, IIROC will allow the netting of receivables and payables to the same counterparty on a trade date basis.

Prescribed IFRS departure from

the gross-up requirement

Trade date balances must be presented on a gross basis, unless the netting criteria are met or unless specifically allowed by an IFRS standard.

General rule

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Changes to Statement A – leasesAny lease-related asset will not attract regulatory capital.

Current operating leases may have to be reclassified as finance (capitalized) leases.

With the revision of Form 1, – IIROC will not treat the capitalized lease asset as a non-allowable asset.– Any lease-related asset will be capital neutral.

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Changes to Statement A – provisionsA liability item for specific identified legal and constructive obligations

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Changes to Statement A – Capital and reservesTo meet IFRS presentation requirements

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Next sessionSession 4 will be on Statement E - the income statement.

Changes to Statement F – equity5

Changes to Statement E – income statement4

Other 6

Changes to Statement A – balance sheet3

Opening IFRS balance sheetPrescribed IFRS departures and prescribed accounting treatments

2

Overview of the changes to Form 1Planning for the changeover

1

CoverageSession #

17