IFRS in brief

Financial reportingin focusFor public companiesMontréalOctober 13, 2015

www.pwc.com/ca

PwC

Financial reporting in focusOur experts

MarioLongpréPartner

MartinBoucherPartner

MichelCharbonneauPartner

Financial reporting in focus

PwC

Financial reporting in focusCommunicating with investors

43

“The two words ‘information’ and ‘communication’ are often usedinterchangeably, but they signify quite different things. Information isgiving out; communication is getting through.”

Sydney J. Harris

Financial reporting in focusPwC

October 13, 2015

PwC 4October 13, 2015

TheDisclosureProblem

What should yoube doing about itnow?

Taking action.

Financialreporting infocus


PwC 5

Leasesin depth

How will thechanges affectyour balance sheetand P&L?

Big changes are coming.


Financial reporting in focus October 13, 2015

PwC 6

Revenuein transition

Changes arecoming. When willIFRS 15 apply?How are youaffected?

One year later, it has notbeen smooth sailing.



PwC


Our other topics

IFRS in brief

Audit advisory

Regulatory report

MD&A in review

7

4

3

2

1

1

2

3

4

For more information on our topics today orother financial reporting topics, visit ourwebsite at www.pwc.com/ca/frrupdate


PwC

What do youdrink while readingfinancial statements?

8October 13, 2015Financial reporting in focus

1. 2. 3. 4.Nothing –financialreportingis exciting!

Beer, wineor alcohol.

Coffee orRed Bull.

Mix of 2and 3.

PwC

Developing new standards

Maintaining and clarifying existingstandards

Reviewing implementation ofstandards

Researching issues

“We can never afford to go into a serious period of calm, ifonly because the economy keeps changing all the time andyou need to update your standards. ... We know looking atour standards a lot of standards still have problems or areoutdated, so we will have to work continuously.”

Hans Hoogervorst, Chair of IASB

IFRS in brief

9October 13, 2015

PwC

IFRS developments


PwC

IFRS in briefNew standards completed

Financial reporting in focus10

2016 2017 2018

IFRS 9: Financial instruments ●IFRS 14: Regulatory deferralaccount ●IFRS 15: Revenue fromcontracts with customers ●

Standards were issued in 2014 and 2015.

Effective date of new standards

October 13, 2015

PwCFinancial reporting in focus

11October 13, 2015

IFRS in briefIFRS 9 – measuring financial assets

Classification &measurement

Equity @ FVPL

• FVOCI option available,but no recycling to P&L.

Amortized cost Fair value – OCI Fair value – P&L

• Hold to collect+

• Solely payments ofprincipal andinterest

• Hold to collect & sell+

• Solely payments ofprincipal andinterest

• Residual category

{Option to eliminateaccounting mismatch}

Three categories for debt


12

IFRS in briefIFRS 9 – credit losses

Measurement

12-month expectedcredit losses

Lifetime expectedcredit losses

Lo

ss

all

ow

an

ce

Stage 1

Performing

Lifetime expectedcredit losses

Stage 3

Non-performingStage 2

Under-performing

Change in credit quality

From incurred creditlosses to expectedcredit losses

• Trade receivables Lifetime expected credit losses• Financing & lease receivables Lifetime expected credit losses or general model

October 13, 2015


13

IFRS in briefIFRS 9 – hedging simplified

Hedging

Riskmanagement

strategies

• Hedge effectivenesstesting

• Hedged items

• Hedging instruments

Hedge

accounting

Improved disclosures focusing on hedging strategies.

October 13, 2015

PwC

IFRS in briefIFRS 14: Regulatory deferralaccounts


Research in progress

Strong support for principles-based, specific accountingrequirements.

More study of interaction withIFRS 15.

PwC

Temporary standard for rate regulatedactivities

• Keep your existing accounting.

• Regulatory balances isolated fromother assets and liabilities onbalance sheet.

• Movements in regulatory balancesisolated in P&L after all other items.

• Disclosures to provide transparencyon activities.

PwC

IFRS in briefMaintaining existing standards

15

Addressing unanticipated issues, divergentpractices, cases of doubt, and concerns overdisclosure.

All changes effective January 1, 2016except IAS 28 amendment

7narrow scopeamendments

5improvements


PwC

IFRS in briefAcquisition of a joint operations

16

If a business, account for as if a businesscombination.

Recognize assets and liabilities using principles ofIFRS 3: Business combinations.

• Goodwill

• Deferred income taxes

Acquisition-related costs expensed.

Previous interests held not remeasured.

IFRS 11:JointArrangements

Prospectiveapplication


PwC

IFRS in briefAccounting for trees and vines


Trees and vines that bear produce are PP&E.

CIP until plant matures; then amortize and impair.

Fruit and grapes are agricultural produce.

Trees for lumber and annual plants that bearproduce are not PP&E.

IAS 16:Property, plant& equipment

IAS 41:Agriculture

Full retrospectiveor retrospective toearliest period withfair value asdeemed cost.

October 13, 2015

PwC

IFRS in briefNew standards in development

Upcoming standardsInsurance contractsLeases

Published exposure draftsConceptual framework

Upcoming exposure draftsChanges in accounting policies and estimatesMateriality Practice Statement

Published discussion papersMacro hedgingRate-regulated activities

Upcoming discussion papersPrinciples of disclosure


October 13, 2015

PwC

IFRS in briefPolicy change vs. estimate change

19

Change in accounting policy

• Change in measurement basis allowed in an IFRS.

• Change in methods used to determine cost.

Change in accounting estimate

• Change in inputs, assumptions and methods used.

IAS 8:Accountingpolicies,changes inaccountingestimates anderrors

Disclosureinitiative project

Status: Analysis

Next step: PublishED after Q2 2016

Disclosure reminders from securities regulators

• Financial statements: nature of changes in estimates +why a policy change is reliable and more relevant.

• MD&A: reasons for changes in estimates + why policychoice was made and its impact on the business.


PwC

IFRS in briefInsurance contracts


Liability = PV of net cash flows to fulfill thecontract.

Discount rate based on rate appropriate to the cashflows.

Insurance premiums recognized over life ofcoverage.

Unrealized profit recognized over life of coverage.

Replacement ofIFRS 4:Insurancecontracts

Status: Analysis

Next step: IssueIFRS after Q22016

For moreinformation, go toPwC Canada’sInsurance Industrypage atwww.pwc.com/ca

October 13, 2015

PwC

IFRS in briefConceptual framework


Fill in the gaps, updates & clarifications

Management stewardship is an objective.

Prudence is back in vogue.

Reporting entity is defined.

Mixed measurement model retained.

Primary source about performance is the P&L.

“This is notexactly a thriller,but it is quite aremarkable pieceof literature!”

Michael PradaChair of IASB

Foundation Trustees

Status: Publicconsultation

Next step: Decideproject directionafter Q2 2016

October 13, 2015

PwC

IFRS in briefImplementation & maintenance in progress

22

Agendadecision items

9Interpretations

2


Annualimprovements

2Narrow scopeamendments

10

October 13, 2015

PwC

IFRS in briefClassification of liabilities


When can a loan to be rolled-over orrefinanced be classified as non-current?

Base on rights existing at the end of the reportingperiod.

IAS 1:Financialstatementpresentation


Narrow scopeamendment

Status: Publicconsultation

Next step: Decideproject directionbe end of 2015

October 13, 2015

PwC

IFRS in briefDebt reconciliations


How to provide information for net debtdeterminations?

Reconciliation of movements in debt segregated bycash and non-cash movements.

Disclosure of restrictions on cash, including costs torepatriate, if necessary.

IAS 7:Statement ofcash flows



Status: Analysis

Next step: Decideproject directionby end of 2015

October 13, 2015

PwC

IFRS in briefUncertain tax positions


When should an asset or a liability berecognized for uncertain tax positions?

When it is probable the entity will pay or recovertax amounts.

Measure at expected value or most likely amount.

IAS 12:Income tax

Interpretation

Status: Draftinginterpretation

Next step: PublishDI by end of 2015

October 13, 2015

PwC

IFRS in briefTransfers of investment properties


When can assets be transferred into or outof investment properties?

If, and only if, a change in use has occurred.

Need to support with appropriate evidence.

IAS 40:Investmentproperties


Status: DraftingED

Next step: PublishED by end of 2015

October 13, 2015

PwC

IFRS in briefImproving quality of segment information


Be consistent with MD&A and other presentationsto investors.

CODM is an individual or group making operatingdecisions.

Similar economic characteristics for aggregationshould be a range of measures in common.

Provide additional information useful to investors.

Explain reconciling items clearly.

Provide restated figures for a change in segments infirst interim after change.

IFRS 8:Operatingsegments


Status: Drafting ED

Next step: PublishED by end of 2015

Reminders fromsecurities regulators

• Use CODM’ssegments.

• Follow criteria foraggregation.

• Clearly describereconciling items.

• Make entity widedisclosures.

October 13, 2015

PwC

IFRS in briefUnit of account for fair value measurement


What is the fair value of an investment in asubsidiary, associate or joint venture that ispublicly traded?

Measure investment as a whole.

No adjustments allowed.

IFRS 13:Fair valuemeasurement


Status: Analysis

Next step: IssueIFRS after Q22016

P X QPrice X Quantity

Comments

Support for unit ofaccount; butdisagreement onuse of quotedprice with noadjustment

October 13, 2015

PwC

IFRS in briefCosts of testing for PP&E


When is “testing” completed?

Base on whether the item is functioning properly

• Technical and physical performance.

• Not financial performance.

IAS 16:

Property, plant

& equipment

Interpretation

Status: Drafting

interpretation

Next step: Not

indicated

October 13, 2015

PwC

IFRS in briefSecurities regulatory hot buttons

IAS 36: Impairment of assets

Cash flows used to calculate value in use were not reasonable orsupportable or determined as prescribed by standard.

Disclosures of basis of recoverable amount and judgments mademissing.

30Financial reporting in focus October 13, 2015

PwC


IFRS 3: Business combinations

Intangible assets not properly identified and valued.

Acquisition date not appropriately identified.

Judgments applied to identify nature of acquisition and the acquirermissing.


PwC


Judgments applied not adequately disclosed

IFRS 7 judgments associated with credit risk.

IFRS 12 judgments applied to assess control, joint control or significantinfluence missing.

IFRS 13 valuation techniques and inputs for Level 2 and 3measurements missing.

IFRS 13 fair value hierarchy disclosures not complete.


PwC

IFRS in briefProjects on the horizon

Assessment phase

Definition of a business

Goodwill and impairment

Income taxes

Development phase Discount rates

Combinations under common control Primary financial statements

Principles of Disclosure + review Pollutant pricing mechanisms

Equity method accounting Post-employment benefits

FI with the characteristics of equity Provisions and contingencies

Macro hedging Share-based payment

33Financial reporting in focus

Addressing perceivedproblems or deficienciesin IFRS requirements

October 13, 2015

PwC

IFRS in brief


PwC

“Change is constant,

change is inevitable”Benjamin Disraeli

1867

PwC

What do youdrink while readingfinancial statements?


1. 2. 3. 4.Nothing –financialreportingis exciting!

Beer, wineor alcohol.

Coffee orRed Bull.

Mix of 2and 3.

PwC 36

Drink while reading financial statements?Our survey says


41%

29%

23%

7%

Coffee or Red Bull

Mix of coffee & alcohol

Nothing

Beer, wine or alcohol

October 13, 2015

PwC

The issues

The solutions

Ask our experts

Points of view

The Disclosure Problem

37October 13, 2015

IASB Disclosure Initiative


PwC 38

The Disclosure ProblemBallooning disclosures

Number of pages in financial statements

increase in size offinancial statementsfrom 2004 to 2014


TSX TSXV

October 13, 2015

PwC

The Disclosure ProblemStandard Setters are concerned

39

“Not all disclosures provideuseful information to investors…. This is an issue thatPreparers, Auditors, Regulatorsand Standard Setters will haveto tackle together.”

Hans Hoogervorst

Chair of IASB


PwC

The Disclosure ProblemRegulators are concerned

40

“When disclosure gets to be ‘too much’ or

strays from its core purpose, it could lead

to what some have called ‘information

overload’ … ever-increasing amounts of

disclosure make it difficult for an

investor to wade through the volume of

information [to determine what] is most

relevant.”Mary Jo White

Chair of SEC


PwC

The Disclosure ProblemPreparers and users are concerned


Preparers wantless & simpler

Users wantmore & clear +concise

October 13, 2015

PwC

The Disclosure ProblemWhy is there a problem?


“Addressing the rootproblems of why preparerserr on the side of cautionand ‘kitchen sink’ theirdisclosures.”

IASB, May 2013

Fear

Copy cat

Inexperience

Cost

Look at what to includeand what to exclude.

Causes of disclosure overload

PwC

The Disclosure ProblemImmaterial disclosures


Users observingobviously immaterialdisclosures

%Chartered Financial Analysts Survey

October 13, 2015

PwC

The Disclosure ProblemThe response

44

• Materiality

• Principles of Disclosure

• Primary financialstatements

• Aggregation andsubtotals

• Accounting changes

• Net debt

• Standards leveldisclosures review

• Board decision process

• Entity decision process

• Standards leveldisclosures review

• Presentation in theincome statement

IASB DisclosureInitiative

FASB DisclosureFramework

Improvingdisclosures inthe notes tothe financialstatements



45

The Disclosure ProblemQuick fixes

IAS 1:Presentation offinancialstatements

Effective now or byJanuary 1, 2016.

Exclude immaterial items.

Include necessary additional information.

Aggregate and disaggregate when relevant.

Subtle amendments with big impact.

October 13, 2015

PwC

The Disclosure ProblemMore materiality guidance

Materiality Practice Statement

• Reflects international guidance.

• Qualitative assessment.

• Contextual assessment.

Additional guidance for IAS 1

• Key characteristics

Financial reporting in focus46PwC

“Changing the waymateriality is appliedrequires a behaviorchange… Education is

required.”Accounting Standards Advisory Board

Status: Drafting ED

Next step: Publish ED byend of 2015

October 13, 2015


Exercise judgment andconsider Magnitude

Importance

Cause

The Disclosure ProblemApplying materiality


Nature

Ask yourself what ismaterial to yourinvestors?

PwC

The Disclosure ProblemThe materiality decision process

48Financial reporting in focus

Financialstatementsas a whole

Notes

Primaryfinancial

statements

Look at the big picture - do you

need to scale back or add more?

If material to financial statements,

what information is material

about the item?

Is the item material to line items,

subtotal or totals?

On face or in the notes?

Put it incontext.

October 13, 2015

PwC

The Disclosure ProblemPrinciples of Disclosure


Notes

Explain information in theprimary financialstatements.

Provide supplementalinformation.

Primary financialstatements

Structured and comparativesummary of financialinformation.

Components offinancialstatements

Poor communication is part of the‘disclosure problem.’

IASB

Replacement for:

IAS 1

IAS 8

Status: Analysis

Next step: PublishDP by Q2 2016

October 13, 2015

PwC

The Disclosure ProblemDeclutter 101


Focus on youaudience.

Zoom in onyourcompany.

Exercisejudgment.

Format andorganize.

October 13, 2015

PwC

The Disclosure ProblemPerformance measures


October 13, 2015

Greaterdiscipline fornon-mandatorymeasures.

PwC

Relevant and meaningful subtotals.

Is the measure fairly presented?

PwC

The Disclosure Problem

Financial reporting in focus52PwC

October 13, 2015

PwC

The DisclosureProblem

53

Courage

Taking actionnow!

• Think aboutmateriality.

• Be clear.

• Be concise.

• Focus onquality.


PwC



Enjoy arefreshment andchat with us.

We will reconvenein 20 minutes.

PwCOctober 13, 2015

PwC

US $880 million in new leases in2013.

Balance sheets and P&L of lesseeswill look different.

No major changes for lessors.

Disclosures updated.

“The new rules … could ultimately bring roughly$2 trillion of off-balance sheet leases onto corporatebooks.” Vipal Monga

CFO Journal of The Wall Street JournalMarch 16, 2015

Leases in depth


PwC

New upcoming IFRS: Leases

PwC

Leases in depthLessees impacted most


PwC

%average

increase inliabilities

Industry

Retail & consumer 213%

Business services 158%

Hospitality 101%

Transportation & logistics 95%

Construction 68%

Manufacturing 50%

Financial services 27%

PwC

Leaseliability


Leases in depthWhat’s on the balance sheet?

All leases are on the balance sheet.

Except for

• Short-term leases.

• Small ticket leases.Right of

use asset

Lessee accounting

October 13, 2015

PwC

Leases in depthHow are assets & liabilities measured?

58

Right ofuse asset

Leaseliability

Initial recognition

PV of lease payments

+ Advance lease payments

+ Initial direct costs

− Lease incentives


Subsequent measurement

− Amortization

− Impairment

+/− Changes in lease term

+/− Changes in indexed payments

Initial recognition

PV of lease payments

Subsequent measurement

+ Interest accretion

− Payments

+/− Changes in lease term

+/− Changes in indexed payments

Lessee accounting

October 13, 2015

PwC

Leases in depthWhat’s in the income statement?


Key US GAAPdifference

Income statement

Dual approach used

1. Finance leases (A)with amortization andinterest expense.

2. Operating leases (B)with single leaseexpense.

Lessee accounting

Amortization 1,234

Impairment charges 567

Income before interest & taxes 9,878

Interest expense 456

Income before taxes 9,422

Exception: Single line expense permitted for short-term and small ticket leases.

Cash flow statement

Principal component in financing activities

Interest component in operating or financing activities

October 13, 2015

PwC

Leases in depthHow do the changes affect you?

60

Total assets

Total liabilities

Equity


Component Impact

Lessee accounting

Operating costs

Amortization

EBITDA

Operating profit

Interest expense

Profit before tax

Component Impact

Asset turnover

Debt to assets

Debt to EBITDA

Interest coverage

Return on assets

Return on equity

Return on capitalemployed

Component Impact

Balance sheet Income statement Key financial ratios

Increased / Improved

Neutral

Decreased / Deteriorated

October 13, 2015

PwC

Leases in depthNo major changes for lessors


Type A leases = finance leases.

Type B leases = operating leases.

Accounting for leases same as IAS 17: Leases.

Key US GAAP difference

Profit is only recognized on Type A lease if control of the asset is transferred to the lessee.

New classifications in name only.

Lessor accounting

October 13, 2015

PwC

Leases in depthHow is a lease defined?

62

Definition

A contract that conveys tothe customer the right touse an asset for a period oftime in exchange forconsideration.

Services off-balancesheet

Service components areaccounted for separately.

For simplicity, can electnot to separate andaccount for entirearrangement as a lease.


Does the contract allow the useof a physical asset?

1.

4.

2.

3.

Can the asset be substituted?

Can you decide how to use theasset (how and for what purpose)?

Do you have the right toobtain substantially all of theeconomic benefits from theasset?

What to consider?

Pictograms created by Wilson Joseph, jon trillana, Juan Pablo Bravo,and Simon Child for the Noun Project.

October 13, 2015

PwC

Leases in depthObjective based disclosures


ObjectiveEnable users to assessamount, timing, anduncertainty of cashflows.

How achieved

Quantitative essentials

plus

Qualitativeinformation tocomplement.

Entity-specificdisclosures.

Exercisejudgment anddiscretion inpreparing newdisclosures.

October 13, 2015

PwC

Leases in depthOther key changes


Lease of intangibles optional.

Lease contracts may be combined ifconditions met.

Multiple assets within lease to beseparated when applicable.

Portfolio approach permitted toaccount for multiple leases.

Fair value of underlying assetharmonized with IFRS 13.

Lessors classification guidancechanged for inter-related assets andrequires inclusion of all residual valueguarantees.

Sale-leaseback accounting revamped.

PwC

Leases in depthTransition to new IFRS

65

• Identification of a lease

• No reclassification oflessor’s leases.

• Lessor continues itsprevious accounting forfinance and operatingleases.

• Lessee continues itsprevious accounting forfinance leases.

• Leases previouslyaccounting for by a lesseeas an operating lease –either full or modifiedmethod.

No change required Retrospective change

Key US GAAP difference

Full retrospective method not permitted.

Practical transitionguidance to makethe change easier.


PwC

Lease in depthYour next steps

66

Get every function inyour company onboard.

Break into the filingcabinets &understand yourleases.

Manage thetransition.

Reassess your lease-buy strategies.

Assess the potentialimpact.


PwC

Leases in depth

67October 13, 2015

A lot has not changed.

However, significant changefor leases previously classifiedas operating leases by lessees.

More disclosure, but it needsto be entity-specific.

Financial reporting in focusPwC

PwC

5-step approach to recognizingrevenue.

Implementation struggles.

Amendments on the way.

Keeping momentum in yourimplementation.

“it represents a neat middle ground, adopting IFRS’sprinciple of one size to fit all industries, but with [US]GAAP-style clarity.” The Economist

Revenue in transition

68October 13, 2015

IFRS 15: Revenues withcontracts from customers


PwC

Revenue in transitionIFRS 15: a recap


Recognize revenue when youtransfer goods or service to yourcustomer at the amount you areentitled to under the contract.

1

2

3

4

5

Pictograms created by Gerald Wildmoser, TukTuk Design,Luis Prado and Wilson Joseph for the Noun Project

Identifythe contract

Separateperformance

obligations

Determinetransactionprice

Allocatetransactionprice

Recognizerevenue

PwC

Revenue in transitionHow are we doing?


Significant effort required for areas with judgment andfor new disclosures

Review of contracts critical.

Considerable system changes.

Some changes to internal controls, but not to businessmodels.

No consensus on transition method or timeline.

Financial Executives ResearchFoundation & PwC SurveyNovember 2014

54%

familiar withthe standard

October 13, 2015

PwC

Revenue in transitionCompanies need more time


New effective date

January 1,

Early adoption permitted.

October 13, 2015

PwC

Revenue in transitionAccounting issues need resolution


110implementationquestions so far

“Completing IFRS 15 tookmore than a decade of hardwork, three rounds of publicconsultation, thousands ofhours of meetings andcountless outreach meetings.The perfect accountingstandard does not exist. Anendless round of rethinkingwill certainly not bring uscloser to perfection.”

Hans HoogervorstChair of IASB

• Separating performanceobligations (25)

• Recognizing revenue(25)

• Determining transactionprice (23)

• Accounting for contractcosts (10)

• Presentation (7)

• Other (20)

October 13, 2015


73

IFRS 15.27

A good or service that ispromised to a customer isdistinct if both of thefollowing criteria are met:

(a)….

(b)the entity’s promise totransfer the good orservice to the customer isseparately identifiablefrom other promises inthe contract (i.e. the goodor service is distinctwithin the context of thecontract).”

Revenue in transitionIdentifying performance obligations

Issue: “Separately identifiable” goodsor services

Resolution:

Principle demonstrated by adding illustrativeexamples dealing with integration,customization and installation services, andconsumables.

FASB clarifications only:

• Working in perfunctory or inconsequentialitems.

• Covering shipping and handling activities.

October 13, 2015


74

Replaces general guidancein on rights of access andrights of use in IFRS 15.B57

Revenue in transitionThe nature of licenses

Issue: What attributes determine themethod of accounting?

Resolution:

General guidance replaced with 2 types oflicenses aligned with recognition method.

FASB clarificationsonly:

• New guidance alsoapplies to a bundle ofgoods and serviceincluding a license.

• Contractualrestrictions not anidentifying factor.Recognize

atpoint in time

Recognizeovertime

Functional Symbolic

October 13, 2015


75

IFRS 15.B63

… an entity shall recognizerevenue for a sales-based orusage-based royalty promisedin exchange for a license ofintellectual property only when(or as) the later of the followingevents occurs:

(a) the subsequent sale orusage occurs; and

(b) the performance obligationto which some or all of the… royalty has beenallocated has been satisfied(or partially satisfied).

Revenue in transitionSales- and usage-based royalties

Issue: What is the scope of the royaltyconstraint?

Resolution:

Do not split the royalty.

Applies to a sole license or a bundle when thelicense is predominant

October 13, 2015

PwC 76

IFRS 15.B35

An entity is a principal if theentity controls a promisedgood or service before theentity transfers the good orservice to a customer.

Revenue in transitionPrincipal versus agent considerations

Issue: How is the “control” principleapplied?

Resolution:

• Considered for each specified item.

• Who directs the service?

• Focus on “control” principle, not theindicators.

• Indicators and examples clarified fromperspective of the principal.


PwC

Revenue in transitionOther issues

77

Status: ED issued in

August 2015 - publicconsultation ongoing.

Next step: Decideproject direction by endof Q2, 2016


Practical expedients for transition

Modified contracts.

Completed contracts [IASB only].

FASB clarifications only:

• Sales taxes.

• Non-cash consideration.

• Collectability

October 13, 2015

PwC

Revenue in transitionTop 5 impacts


%

expect materialimpact

Variable consideration

Separating performance obligations

Collectability

Disclosures

Contract modifications

Estimating standalone selling price

Timing of recognition

Allocation of transaction price

October 13, 2015

PwC

Revenue in transitionWhat should you being doing now?

79

Educate stakeholders.

Evaluate impact.

Perform diagnostic.

Complete gap analysis.

Scope out disclosures.

Select transition method.

Review business strategies.

Do not under-estimate the effort.


PwC

Revenue in transition

80

• Some rewrites.

• Maintain your momentum.

The clock is ticking!


PwC

New auditor reporting package.

Maintaining high quality audits.

“Enhancing the relevance and reliability of the audit”International Auditing and Assurance Standards Board

Audit advisory


PwC

CAASB, IAASB and PCAOB

PwC

Audit advisoryNew auditor reporting package


Enhances communications withinvestors.

Increases management attentiononto critical disclosures.

Focuses auditor on critical matters.

International package issued in 2015.

Canadian package out for comment onhow to implement given Canada’ssecurities markets.

US PCAOB package being redrafted andexpected to be published for comment byend of 2015.

October 13, 2015

PwC

Audit advisoryWhat’s changed in the IAASBauditor’s report?

83

• New section on KeyAudit Matters.

• Name of engagementpartner to be listed.

Listed entities All entities

Significantlyexpanded reportwith Key AuditMatters.


• Enhanced goingconcern reporting.

• Opinion appears firstin report.

• Independence andethics confirmationincluded in.

• More disclosure aboutan audit.

• Reports on otherinformation.

October 13, 2015

PwC

Audit advisoryWhat are Key Audit Matters?

84

Higher risk matters

Most significant risks

Significant auditorjudgments

Additional information about matters,

that in the auditor’s professional

judgment, were of most

significance in the audit of the

financial statements for the current

period.


Communicatedto auditcommittee

Requiredsignificant auditattention

Matters mostsignificant in theaudit

KAMs

October 13, 2015

PwC

Audit advisoryHow are Key Audit Matters disclosed?

85

Inventory valuation

Judgment is required to assess the appropriate level ofprovisioning for items which may ultimately be sold below cost.

The Group manufactures and sells luxury goods and is subject tochanging consumer demands and fashion trends, increasing thelevel of judgment involved in estimating provisions (refer to note16 of the accounts).

For both finished goods and raw materials, we tested themethodology for calculating the provisions, challenged theappropriateness and the consistency of judgements andassumptions, and considered the nature and suitably of historicdata used in estimating the provisions. In doing so we understoodthe ageing profile of inventory, the process for identifying specificproblem inventory and historic loss rates.

Excerpt from Independent Auditor’s Reportof PwC London (UK)

to Members of Burberry Group plc.May 20, 2014

Howaddressed.


Why mostsignificant.

Reference tocompany’sdisclosure.

October 13, 2015


86

Audit advisoryQuality audits in Canada

CPAB reports audits have improved.

CSA shortens timeline for reportinga change in auditor.

Lots of audit tools made available byvarious organizations.

October 13, 2015

PwC

Reducing regulatory burden.

Facilitating capital raising forsmaller companies.

Increasing gender diversity.

Enhancing enforcement tools..

“We all recognize that disclosure is the cornerstone ofsecurities law… Disclosure has to be comprehensive, butalso comprehensible .” Howard Wetston, Chair of Ontario Securities Commission

Regulatory report


PwC

CSA, BCSC, ASC,OSC, AMF & SEC

PwC

Regulatory reportEasing venture issuer’s regulatory burden

88

Quarterly highlights replaces interim MD&A.

Significant acquisition’s threshold increasedto 100%.

Executive compensation disclosures reduced.

Audit committee independence requirementsenhanced.

Information in prospectus reduced to 2 years.

“alleviates the disclosureburden imposed onventure issuers withoutcompromising investorprotection”

Louis MorissetCSA Chair &

President & CEO of Authoritédes marches financiers


PwC

Regulatory reportTargeted improvements to SEC disclosure rules


Are we really advocating less disclosure?

Minimize duplication.

Eliminate disclosures no longer useful.

You can make your disclosures more effective now.

“Obviously you look to making it moreefficient too, but the primary objective isto make it more useful for investors. Howdo you do that? Easier said than done …”

Mary Jo White, Chair of SEC

October 13, 2015

PwC

Regulatory reportFacilitating capital raising

90

Canada

Family, Friends and Business Associates exemption.

Existing security holders’ exemption.

Early start-up crowdfunding exemption.

United States

SEC Regulation A streamlined.


PwC

Regulatory reportFostering gender diversity

91

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Comply orexplain

Encouraging behaviours bydisclosure


What’s required?

• Policies and statistics about womenon the board.

• Policies on women in the executivesuite.

• Board limits.

Initial round of disclosures promising,but is it enough?

October 13, 2015

PwC

Regulatory reportClawback of incentive pay

92

Pay clawback increases accountability and puts

greater focus on quality of financial reporting

When: If an accounting restatement occurs.

What: Any incentive compensation tied toaccounting-related metrics, share price, or totalshareholders’ return.


How: Company policy for recovery to bedisclosed.

Status: SEC proposal expected to be finalizedby end of 2015.

Disclosures of compensation gap between CEOs and their employeeseffective for 2017.

MJDS, FPIs, smaller reporting companies and emerging growth companies exempt.

October 13, 2015


93

Regulatory reportRewards for whistleblowing proposed for Canada

SEC program is “working verywell and beyond expectations. …Enormously successful.”

Mary Jo White, Chair of SEC

“Needs to be put intoaction for the benefit of… investors”

“An importantenforcement tool.”

When: On resolution of anenforcement matter withsanctions greater than $1million.

What: 15% of monetary sanctionsup to a maximum of $1.5million.

How: Provide high quality andoriginal informationvoluntarily to the OSC.

Quotes in header by Howard Wetston, Chair of the OSC

October 13, 2015


94

Regulatory report • Disclosure burden being eased.

• Shaping action through disclosure.

• Putting teeth into enforcement.

October 13, 2015

PwC

Replace boilerplate and be entity-specific.

Avoid repetition.

Provide analysis and explain.

“… a core element of the communication package forexternal reporting purposes.” CPA Canada MD&A Guidance

MD&A in review


Management’s discussion andanalysis.

PwC


MD&A in reviewRegulatory reviews of disclosures

8%

21%

30%

9%

32%

Outcome of CSA reviews

Data from CSA Staff Notice 51-344: Continuous Disclosure Review ProgramActivities for the fiscal year ended March 31, 2015


Mining & O&G

Miningpresentations

Medical marijuanaCertifications

IFRS specific

Other

Scope of CSA issue-oriented reviews

Enforcement or othersanctions

Refiling

Prospective changes

Education & awareness

No action required

PwC

MD&A in reviewKey concerns

97

Explain variations.

Supplement with keydrivers.

Discuss KPIs.

Provide trend analysis.

Provide breakdowns.

Do not repeat cash flowstatement.

Focus on ability to generateliquidity.

Zero in on commitments.

Don’t overlook impact ofacquisitions.

Expand discussion ifdistributions exceedoperating cash flows.

Results of operations Liquidity & capitalresources

Replace boilerplateand repetition withnarrativeexplanations of howyou are doing.



98

Disclosure observations

Disclose entity-specific risks and uncertainties.

Take related party disclosures beyond IFRS.

Inform users about forward looking informationand non-GAAP measures.

Make clear and up-to-date disclosures aboutmaterial weaknesses.

Cross check your certificates to the relateddisclosures in the MD&A.

CSA Staff Notice 51-344

CSA Staff Notice 51-342

ASC: Oil and Gas ReviewReport

ASC: Corporate FinanceDisclosure Report

OSC Staff Notice 51-725



MD&A in reviewImproving your MD&A

October 13, 2015


99

MD&A in review Revisit information carriedforward from prior years.

Avoid using boilerplate.

Present a clear, completeand authentic story aboutyour company.

October 13, 2015

PwC

Navigating your 2015 year-endTips and reminders


1. Impairment of assets.

2. Going concern.

3. Business restructuring.

4. Revenue recognition.

5. Operating segments.

Consider the “usual suspects”

Have courage: takeaction on yourdisclosures now.

October 13, 2015

Thank you.

This content is for general information purposes only, and should not be used as a substitutefor consultation with professional advisers.

© 2015 PricewaterhouseCoopers LLP, an Ontario limited liability partnership. All rightsreserved.

PwC refers to the Canadian firm, and may sometimes refer to the PwC network. Each memberfirm is a separate legal entity. Please see www.pwc.com/structure for further details.

Documents

IFRS in brief