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Armand Capisciolto: Okay. I assume this meeting’s being recorded. I assume this meeting’s being recorded means we’re live.
Welcome, everyone! To those of you who are here in person as well as the many people we have online joining us virtually today, my name is Armand Capisciolto. I’m the Chair of the Accounting Standards Board. And with that role, I get the opportunity to chat and tell a story, and I’ll get dirty looks from staff, or I’m going on too long. But I do have a story to tell today.
So I was— As part of my job, I get to travel a little bit and talk about accounting and was recently in Italy at a panel event like this. And after the panel event, a number of people wanted to talk to me. And why do they want to talk to me? I didn’t say anything that insightful. Why do all these people want to talk to me? And then I realized: It’s because my last name is a very Italian last name, and they assumed that I could speak Italian. Which I cannot. And as I see the disappointment in their eyes, not disappointment with me, disappointment for my— with my parents: What type of Italian parents wouldn’t teach this beautiful Italian boy how to speak Italian? And then I would have to explain to them, even if I did speak Italian, I would be speaking a Calabrian dialect from 1950. It has since evolved into something that is only understandable in the west end of Sault Ste. Marie. [chuckling]
And so all of you are wondering: What the heck does this have to do with IFRS 18? What it has to do with IFRS 18 is IFRS is our common financial reporting language. However, there are some dialects in IFRS. There’s some regional dialects. There’s some industry dialects. And the place where those dialects really show up is the statement of comprehensive income. And I think IFRS 18 is going to reduce the use of some of those dialects, which is a good thing for financial reporting, because it brings us to that common financial reporting language. And that’s what our panel is going to talk about today. It’s going to talk about IFRS 18 and how this new standard is going to impact how regulators, how preparers, how users, and how standard-setters are bringing us closer together with financial reporting.
We have this panel discussion. We’re going to go for about forty-five minutes with the panel. Then, we’re going to open it up to you for a bit of Q&A.
Our moderator today is Andrew White. Andrew’s an Associate Director with the Accounting Standards Board. We then have Hagit Keren, who is an IASB Board Member; Howard Leung, a Financial Analyst with Fiera Capital and also a member of the Canadian Accounting Standards Board. We have Gary Hum, who is the VP of Financial Reporting at Fairfax Financial, also an Accounting Standards Board Member. And Brian Banderk, who is the Chief Accountant at the Alberta Securities Commission.
So with that, I’m going to turn it over to Andrew.
Andrew White: Thanks, Armand. I did give him a time limit. He didn’t follow it, but that’s all well and good.
So we’re going to kick things off with Hagit. And so I’m going to ask her to set the scene for everyone and tell us a little bit more about what problem IFRS 18 was designed to address. So particularly in terms of how performance is reported and compared across companies. So, Hagit.
Hagit Keren: My pleasure. Hello, everyone. I’m very happy to be here with you today. So, IFRS 18 is coming to solve a few problems that we’ve heard from investors for many years. Let’s speak about three of them, the main issues that IFRS 18 is coming to solve. The first one is about the structure of the P&L. Investors have been telling us for a very long time that they look at the P&L and they see operating profit. And they see operating profit from many companies, but it doesn’t mean the same thing for all those companies. So this is one of the first things that we were aiming to solve with IFRS 18 to give a clear structure to the P&L. And we know that structure means that not everyone will get exactly what they want, but we know that investor will get a consistent starting point. So, operating profit means operating profit for everyone—the same thing. And, of course, we have all the categories as well in the structure. So this is a very fundamental part of IFRS 18, and I think this is where we deliver the most effect.
The second part of IFRS 18 that we were trying to solve is the area of aggregation and disaggregation—level of information. Here, we also heard from investors different things. So some investors said, “Well, the information sometimes is so aggregated, it has a label that’s called ‘Other.’ We don’t know what’s going on.” And sometimes they say, “You know, sometimes the information is too disaggregated. We lose sight of the important things.” So we needed to provide some clarity on how you go about aggregation and disaggregation on information. You look at the characteristics of what you’re trying to work around. You need to provide more meaningful labels. It doesn’t mean that “Other” will disappear completely, but we expect companies to make an extra effort to say what is in there. So that’s the second pillar.
And the third pillar of what IFRS 18 tries to deliver is about those, what we call MPMs, the KPIs. So we know, and investors have been telling us, “We really like that information that comes many times outside financial statements—all those KPIs, management performance measures. They are really interesting; they tell us a story. We don’t want to lose this story. But our problem is that we hear that story and the story sometimes change from one ear to the other. We don’t know exactly what are the rules of the game. Are they doing the same thing? So similar companies not using the same KPIs? Do I have any clue to know the difference?” And I think what we try to do here is to say: You know, if a company is using those KPIs outside financial statements, let’s help investors to understand what’s going on. Let’s connect this information to what is in the financial statements and explain to investors what they are seeing. And if they can see how their KPIs attach to information in the financial statement, they can make their own adjustment, they can assess consistency over time, so they have better information. This is not about having more or less KPIs. It’s about: If you think as a company this is useful, and you want to provide them, here are the rules of the game to help your investors to really have the most benefit of your KPIs.
So, I think I answered your question.
Andrew White: Excellent! And apologies to everybody online. I know that you were only seeing the title screen for a second. I understand, based on the comments, that we are now— you are now seeing the speakers as well. So that’s great news.
So you mentioned investors there, and one of the objectives was to improve information for investors. So, Howard, I’m going to turn to you: With IFRS 18 on the horizon, what are you looking forward to in receiving as an investor?
Howard Leung: Yes. So there’s a lot of great changes coming on with IFRS 18. And Hagit mentioned them. And as maybe like an accounting nerd, I’ll kind of zoom into a few of them that I’m particularly excited for.
So, the aggregations, this endless aggregation of expenses: One of those things is classifying expenses by nature, by function, or both. And oftentimes, when I’m going through income statements, I can’t even see how much in compensation expense the company pays its employees. And now that’ll be mandatory, even if you’re disclosing expenses by function.
So I think that is actually a great change because some of the things we look for—for example, revenue per employee—those are really important for certain companies we cover, and now we’ll be able to see that.
And then some of those other expenses broken out as well, like DNA. And you no longer have to go through the cash flow statement to find it, and sometimes it’s lumped with other items. So just more standardization, I think, is a really great thing to look for.
And, of course, separating the categories with operating, investing, and financing. I definitely think there is having operating profit consistent within, especially within, companies in the same industry. And I know in the beginning, there’ll probably be some— it’ll take time to settle that out. But especially in Canada, where there’s a lot of good, robust industry participation and with investor feedback, I think we’ll get there where industries report operating profit pretty consistently. So those are a few of the changes. And I know we’ll talk about some of the non-GAAP and MPM measures after, but in Canada, we’re— we have a good framework for that, and I think this will only kind of enhance it.
Andrew White: Awesome! Thanks, Howard.
Just looking back at Marta. I think some people are still having trouble seeing the presenter, so I’ll leave that with you. Otherwise, you can enjoy our conversation for the moment while we get that fixed up.
So I’m going to switch over to Gary. And we’re going to get a bit of a preparer’s perspective here.
So we’ve heard from Hagit—what they were trying to achieve. And we’ve heard from Howard—what they’d like to see. I’m interested from your perspective, Gary, are those expectations achievable? And what are some of the challenges that as a preparer you’re facing right now with the adoption of IFRS 18?
Gary Hum: Well, first, I think the goals are achievable—the consistency, the comparability—but it’s not going to be an easy goal to get to. I think our experience, or, the broader companies in Canada, your experience with the more recent standards 15, 16, 17 is that it takes time, and it takes all the stakeholders to be involved. From our experience, you need to have discussions. You want to engage in discussions early with all of these stakeholders because that’s how you drive the consistency in the application.
We found that working with industry groups, talking to accounting firms, getting different views, and just and talking to standard-setters, regulators, that’s how you can really get there.
And I don’t— I think that we will get there, but it will take time. And the challenges— There are several that I really want to highlight. The most important and our overarching one is the amount of time that it takes to implement a new standard. I think that this one in particular, because it has multiple elements. You’re looking at, first of all, changing the format of your income statement. And when you do that, there are knock-on effects because then your chart of accounts and your processes behind your income statement will have to change. Added to that, the disaggregation and aggregation rules have now changed a little bit as well, and they must follow the new format of your income statement. So whereas previously you might have already had pretty good disclosure in your notes, it may not line up perfectly with what’s in the new format. So then you’ll have to go back and rejig all of that. And again, that also involves having to change your underlying processes and systems and ensuring you have the right data for it.
The second element, or second challenge I see, are the MPMs. Not so much the fact that we have to necessarily do them, because we have a great robust system for non-GAAP measures in Canada, as Howard mentioned, but I think it’s more because there’s so much judgment in trying to apply the guidance right now. There seems to be a lot of discussion around how do you define the MPMs, what’s in, what’s out. And it’s important to follow the discussions that the IFRIC has been having on these topics as well as the guidance being put out by the accounting firms, to see where you land.
And the third one is the systems and data issue that I alluded to earlier. Because when you want to put in place all of these changes, it takes a lot of time to make these changes to your GLs, to your different systems. And on top of that, while you may have had systems in place to do reconciliations for your non-GAAP measures, it could have been very high level. It could have been estimates. There was no specific guidance on how you had to do that. And now it has to be at a level where you can produce it regularly, and it has to be auditable. So those could present some challenges or additional work for companies that might have taken a lighter touch to the way they prepared those reconciliations.
And finally, tied to that is that your disclosure controls and procedures, as well as your internal controls over financial reporting when you start changing your financial statement notes, your systems and processes for populating those notes, and those will be your controls will be affected as well, and you’ll have to take a look at updating your documentation, changing the, perhaps, the controls that you have in place, tweaking some of them, and you’ll need a control over the implementation of IFRS 18 itself, as well as ensuring that your ongoing controls will properly cover the MPM note as well as any other changes that you have made.
So those are, I think, three important things for preparers to consider.
Andrew White: That’s great! Thanks, Gary. A lot of moving pieces. So I think a lot of— could be a lot of work ahead, depending on the nature of your entity, your size and complexity.
And so whenever I hear about a lot of work, I start to think about the hurdles that we are going to have to cross to get there.
Hagit, circling back to you. When developing IFRS 18, were these hurdles anticipated? Are there early lessons that have been learned where there maybe are some surprises? I’m aware that there’s been a lot of issues submitted to the IFRIC in terms of understanding how to apply 18, but just interested from your perspective as to is this kind of in line with what you expected in the development of a principle-based standard like IFRS 18?
Hagit Keren: Yes, so thank you. I think we never thought about the standard as just presentation, just disclosure, quick fix and that’s it. I think we always took very seriously the impact on the companies. And I think, as Gary explained here, we knew from the beginning that it will go down for some companies, maybe many of them, down to the chart of accounts. This is a no-go area for many companies, and you need to take extra care, and this is the— this is why the first thing that we’ve done in considering how we go about 18 and transition, we allow for an extended transition period. Usually, we provide between 12 or 18 months. Here, we had more than two years, two years and a half, I think. So that was only the first step to make sure that people have enough time.
And when we issued the standard, we knew that it might be misunderstanding. It takes time to read the words, it takes time to digest the words, so we accompany this with a lot of webcasts, with a lot of roadshows to make sure people understand. And on top of it, as you mentioned, we made our Interpretations Committee available to deal with practical issues. So, usually, our Interpretations Committee is dealing with issues that are practical when we have diversity in practice. But for IFRS 18, you cannot really show diversity in practice. No one has implemented this yet. So we kind of shortcut the process to an extent, and we said, “Well, look, if you have a question, if there’s a chance of diversity, bring it on. We’ll do a quicker process and bring it to the IC, to the Interpretations Committee, to have a discussion to see whether the words have an answer for you.” And we’ve discussed many of those issues at the moment, and we have a meeting in June as well, and we will have more IFRS 18 questions. So I think— So I think we were prepared for this. We are prepared for this, and we are standing ready to respond if there are additional needs from practice. But we appreciate it takes the time. And wherever we have a chance like today, we say that if you have not started, you need to start like yesterday. This is not a naive standard at all. It doesn’t mean it’s super complex. I know more complex standards for sure, but it means that you need to— don’t assume that it is very simple, just because it’s presentation and disclosure.
Andrew White: Awesome!
So that’s a great segue to Brian, our regulator in the room. As we look forward to 2027, what are you seeing, or what are you hearing in the marketplace? Are you concerned in terms of the level of readiness? And does the level of adoption or readiness change, based on the size of the entity from your perspective?
Brian Banderk: Yes, good question. Thanks for that. I’m actually quite impressed and proud of the level of thought leadership we have here in Canada in the accounting space. And when I say “thought leadership in accounting,” I mean like the preparers, the standard-setters, the regulators, the auditors—like everyone is really rolling up their sleeves to dive into some of the challenging issues around this standard.
For just a little sample of that, if anyone has not had a chance— If anyone hasn’t had a chance to listen in on the IFRS discussion group talks, I would encourage you to do so. But I would say we’re— probably not a surprise to everyone in this room, that our capital markets are made up of a lot of smaller issuers as well as the larger ones. And I think they’re— past practices have been consistent with this time around where I think we are seeing or hearing that the larger issuers are diving into this. The smaller issuers are kind of waiting a little bit to see, or many of them are waiting to see, how the dust will settle. It’s an understandable strategy, given the level of discussions going on, but it is time to roll up your sleeves and dive into this one.
Andrew White: Thanks, Brian.
As you can see, the technology is not limited to our camera. Our microphones are slowly dying. [chuckles] We’re down to two. We started at four. We’re keeping our fingers crossed that we have won by the end. If not, we’re going to find an interesting way to communicate with you.
All right, so let’s dive a little deeper into something that has been near and dear to Canadians and been discussed at the IFRS Discussion Group a couple of times. There’s been some IFRIC submissions, and I know Brian is very interested to talk about this topic, so let’s dig a little deeper into MPMs, which will be an important part of our communication and one of the objectives of the improvements of IFRS 18. So let’s turn to that and focus on that a little bit.
So, Brian, MPMs attracted a lot of attention, particularly given the move of that information into audited financial statements. As a Canadian regulator, expecting that to come out in first interims, what are you looking at, and what are you looking forward to?
Is that microphone dead too? Perfect.
Brian Banderk: I have the microphone graveyard over here beside me.
Okay, so MPMs. Yes, so first of all, I think that, again, I feel like I’m being so boastful of Canada, but I’m going to do it again. I think that something to be proud of is the IASB did really look to our framework that we have in National Instrument 52112, and a lot of the requirements are very similar or almost the same, and I think that’s a big compliment to us. It was not an easy instrument to write, but it seems to be working in its fundamentals. So I think that’s great.
As far as our expectations go, I would say that our expectations as the Canadian Securities Administrators haven’t changed. We still consider MPMs to be part of non-GAAP measures. And so all the things that we wanted you to do before on non-GAAP measures still apply to MPMs. So if we look at the way that we’ve actually drafted our amendments to our National Instrument 52112, it’s actually to capture that. Basically, we’re essentially clarifying in our definition that despite MPMs being in the financial statements, there’s still non-GAAP measures, and we want you to do the things that you were doing before. So hopefully all those good habits and practices that we’ve developed will continue and are going to flow into that.
I think that one of the pieces that we didn’t want to do is require duplicative disclosure. So we kind of are going down a route of allowing some cross-referencing so you don’t have to repeat things as an option. So we’re on track with these amendments. Many of you probably saw that we had them published for comment. We’ve analyzed those comment letters. We are on track as a CSA to continue forward, and we should hopefully have those out sometime in the fall, and they’ll be effective before effective date of the standard.
One other area that is, I guess, a little bit from a regulatory perspective that we’re monitoring is the expectations gap. And when I talk about expectations gap, it’s the expectation that this number, because it’s in the financial statements— How are users going to take it? Because it’s audited. Is it an audited number? So we’re kind of wading into an interesting area with this. Because if you think about it, it’s difficult for auditors, and probably not required under the standards, to say it’s a good measure. They’re looking at whether there is aspects in the framework that’s being set out in IFRS 18 that say: Is it misleading? They can audit based on that framework, but they can’t say it’s a good measure.
So us as regulators, we continue to have discussions with the auditors to figure out what exactly the procedures are going to do on the MPMs in the financial statements. And we want to just be able to keep checking in with users to make sure they’re not putting undue reliance on the fact that it’s in the audited statement.
Andrew White: So that’s a great segue from Brian, because we do have a user sitting right here with us. So Howard, with that kind of lead-up from Brian, what are your thoughts? Do these measures shift into the financial statements, does that change the level of reliance or the level of importance that you assigned to them, and does that change how you assess and use them from the perspective of an investor?
Howard Leung: Good question. And, of course, I expect the auditors to be 100%. No, I’m just kidding. I know there’s different thoughts about this, and I know it’s an evolving conversation between the auditors and repairers and users eventually. But I think that as a user myself, it’s ultimately the investor who decides whether an adjustment is reasonable. And if the measure is now in the statements, what I personally expect auditors to do is just to make sure if the company is backing out restructuring charges, that’s the actual number for restructuring charges. Whether or not the company should be backing restructuring charges, that’s really up to kind of my judgment in saying, “Look, if this is part of adjusted EBITDA, does this make sense? Is this recurring? And then I can go back in time and see how many times the company has been restructuring charges. And that’s kind of work that the judgment layer, I guess, to accounting that I think that users should be really responsible for. And that is really why we have that framework of providing a reconciliation for investors, because then I can see all the adjustments and decide if they are necessary or not.
So I think, even though there is going to be a gap, and we’ve seen this in other proposed standards, like with BCDGI, right, the expectations gap, and I completely understand why there’s kind of a concern from an investor who, again, I am speaking more from the accounting nerd on the spectrum of that as an investor, but I think, ultimately, it’s up to us to decide if these adjustments are appropriate and it’s more the auditor’s role to make sure that the actual numbers in each line item are what they represent.
Andrew White: So, yes or no in terms of you have placed more reliance on the number in the financial statements or not? [chuckling]
Howard Leung: It’s a good question. [chuckling] I think if I was in a— And this is not again to— I think we’re all in the theme of trumpeting Canada today. But I think it’s not— it’s because our framework is so robust. And I am coming from a— I look at large-cap Canadian equities, so again, there’s also that sophistication gap, maybe between large and smaller companies. But from my perspective, because we have such a great framework already where if I open a press release, I know there’s going to be already a reconciliation from a gap metric, and every metric is going to be clearly defined. So in my mind, it’s nice that those measures are being audited now. And I know maybe the actual amounts are representative based on the auditor’s work, but I actually think that— I don’t think it’s going to make it two times more reliable than it used to be, because it’s, in my mind, it’s already been pretty reliable.
Andrew White: Awesome! I now have four mics in my hand because they have new batteries. [chuckling] Just going to hold on to those. That’s great, Howard, and apologies for putting you on the hotspot there for a second.
So Hagit, building on that investor perspective, IASB sets global standards. And so obviously it needs to be applicable in multiple jurisdictions, not just Canada, who has a robust securities framework. So what behavioral changes was the Board aiming to change as a result of the introduction of MPMs into the audited financial statements?
Hagit Keren: So yes, I think, as you said, we are global standard-setters. Not everyone has the same kind of framework. And I think it is evident. For example, so when we were presenting the standard, after it was issued, to some other countries, and we did a roadshow to explain, I got to a country that are never using KPIs at all outside financial statement. And the first question they ask me is what should my MPMs be? What should I include? What should I introduce? And I think this is answering your question. We did not intend for companies to have more MPMs or KPIs than they are using today or less. We do not want to encourage or discourage. We want to enable those companies that find KPIs outside financial statement as a good tool to explain their story, to explain it fully in a way that enable investors to understand what’s going on. So I think the behavioural change, if any, it’s not about the use of this communication tool as using new KPIs less or more. It’s about if you use them, provide them within a good structure and a good set of requirements that investors would know what to do about them. So the example you gave just now is about the different adjustment that companies are doing. So sometimes investors do not believe that all the adjustments are appropriate; they want to flip it over. And this is why we require that for each adjustment to provide the NCI impact and the tax impact, so they can really flip it over. This is something that was not there for many countries, and this is something that we’ve added to allow this accessibility of information.
Andrew White: Awesome! And you referred to NCI and tax effect of those adjustments. So I know as a preparer, Gary, that can be part of the challenging aspects of it. But maybe there are some others. So as many know, not all non-GAAP measures are MPMs. Some are just non-GAAP measures and would not show up into the financial statements. So from your perspective, Gary, are there some challenges in terms of how MPMs will interact and their inclusion in the financial statements? And is it changing how you communicate more broadly? Are you going to change the way you communicate externally because you don’t necessarily want these measures to show up in the audited financial statements? So I’ll turn it over to you.
Gary Hum: I think the MPMs are helpful for other jurisdictions. I think for us in Canada, again, it’s— I don’t think we were the intended audience. And so, in short, I don’t think it changes at all how we as a company, for example, would go out and communicate with the market. If anything, it raises a concern. And that is that alluding to Brian’s point about the expectations gap, an investor picking up our statements might say, “Well, there are MPMs in your financial statements that are audited, and then you have a whole slew of other non-GAAP measures out there in the back of your MD&A. Should I focus more on the MPMs?” But I think it’s important to educate all your stakeholders that the MPMs are a subset of all your non-GAAP measures, and for certain industries or certain companies, the MPMs may not even be the most important non-GAAP measures that you use for evaluating your performance or communicating your performance.
So, I think the investor education part here is really important because you don’t want your investors to misunderstand the purpose of the MPMs and why there’s only a limited number of them sitting within your financial statements. And then you have many other non-GAAP measures that you continue to provide reconciliations for in the MD&A.
That said, a few other things that I think would be helpful for preparers to think about when they go through and look at the whole mechanics of preparing MPMs and putting them into their statements is: It’s a good opportunity to take stock of all of your non-GAAP measures and think about what processes you have in place to do these reconciliations, because again, if you don’t have robust data and systems supporting them, it becomes a much harder discussion with your auditors as to how much they’re going to charge you and how much work they’re going to do in order to get comfortable with your reconciliations. And you don’t want that to be something that keeps recurring, because you also have Board or other governance bodies that will be scrutinizing your MPMs. And if you’re going to do the MPMs correctly, you might as well do all of your non-GAAP disclosures correctly and have a consistent framework that you apply to them.
And more specifically, this is a little warning to preparers as they go through and work on the reconciliations: You might have non-GAAP measures that are on a pre-tax and pre-NCI basis that you reconcile to a pre-tax measure in your income statement. But the way the requirements work, you still have to give a tax and a non-controlling interest effect. So again, this can really confuse the users of the financial statements, because even we internally have debated what exactly does that mean sometimes for certain items that are in your reconciliation.
So, I think, again, fulsome disclosure in the year of adoption and being able to explain the purpose of all of this is crucial. And so I think with that, then you just want to make sure that your users understand that MPMs are not something that’s completely new to evaluating the performance of the company. It is just something that’s new in an accounting standard, but you continue to value your company the same way.
Andrew White: Thanks, Gary. For those of you that are submitting questions in the Q&A, I am monitoring them. I do see them. If anybody else has questions in the Q&A, we will get into those shortly. So please continue to submit them. I did get one about the auditability of MPMs. We are the Accounting Standards Board. We will leave that for the auditors, but I would encourage you to stay tuned in terms of those discussions. I am aware that there are discussions being had within Canada in terms of the audit implications of MPMs. So I would encourage you to stay tuned to our sister Board, the AASB. I expect that there may be some guidance that comes out of that group to help you with that question. So, just answering that before we move on from MPMs. There’s more MPM questions. We’ll save that for the Q&A part of it.
So, shifting away from MPMs, at least for a short period of time before the Q&A. Brian, it’s more than just MPMs. As a regulator, what do you expect of the new presentation and disclosure requirements, and how do you assess the readiness of Canadians as we move towards this new standard?
Brian Banderk: Yes. So setting aside the MPM stuff as far as what we would probably be focused on as securities regulators. If we think of the goal of the standard is to increase consistency, comparability, I think if you end up being an extreme outlier in your population of issuers, that would probably be something that we would take a closer look at. So maybe I’ll just kind of leave with that thought. Specific to Alberta, I’m an Alberta guy, so extractive industries is a big part of what we deal with out there. We already have quite a bit of comparability and consistency in presentation. The extractive group, the preparers, they do a good job of coordinating with each other. So I don’t think we’re going to see a lot of— We’re going to see things different, but we’re not going to see a big uptick in comparability in that industry.
Andrew White: Fantastic! All right, we’re moving right ahead. We’re actually ahead of schedule here a little bit, which leaves a little bit more time for some Q&A. And I have received several questions, which is always great. And I receive— Some people were nice enough to email them to me in advance, which is the first time for that, which is great! In the room, if you have questions, throw your hand up. Jamie will bring you a microphone, and you can ask your question.
And while you’re thinking of your question, or thinking about putting up your hand, I’ll start with one of the questions that I just got. And I think I’m going to go with Hagit on it. We’ll see how this goes. And that question was around private entities and what is the expectation for private companies in terms of MPMs in terms of their requirement to disclose those within the financial statements?
Hagit Keren: So let’s start with IFRS requirements apply to every company that applies IFRS requirements, right? As a standard-setter, we set the requirements, but it is for each jurisdiction to decide whether it applies to private or only public companies. But let’s assume that we have private companies that apply our requirements. I think the MPM point is the one that is interesting. Is this working? It’s the one that is interesting because there is one pillar of the MPM requirements that means that you’ve shared this information publicly. So if you are a private company, sometimes you do not share that information publicly. So you may not meet the requirements to provide full disclosure. And actually, I think here I would say stay tuned because we have a submission to the IC that is asking a question about what does it mean we made information publicly available. I think it was about if we’re using the information for investor presentations. If we just use it for a small population of investors, maybe wider, does it mean publicly available information? And I think here we need to stay tuned to the IC discussions.
Audience Member: Thanks, Jamie. A couple of comments have been on around the importance of starting early on the implementation and how we’re progressing through to 27. Now, IAS 8 requires disclosure of future accounting standards and the effect that’s going to be on when they’re adopted, and the MD&A requirements have something similar also around the expectations. So I’m interested in hearing from Gary specifically. You mentioned a lot of education around your investors. So if you have any thoughts on the timing of how you start communicating the impact of IFRS 18 within your financial statements and your MD&A. I’m also interested in Brian having a commentary on what the regulator’s expectation is around how we move towards the adoption date in 27. And then I’ll add one for Howard to go: Well, what do you expect to see, and what is useful for you to see coming up to 27? Or if everyone’s just like Q1 27, here you go, is that going to serve you well?
Gary Hum: Yes, that’s an excellent question. I think, absolutely it’s important in your 2026 financial statement, let’s say your 2026 year-end or even earlier, to start explaining and educating your investors, your readers that there’s this new standard coming and how it’s going to change your financial statements and what that looks like because it’s easy to say that it’s just presentation and disclosure. So generally, readers are not too concerned about that, but I think the MPM aspect is important. I think we’re— There’s a bit of pause is that in within each industry, and especially more specialized ones—I’m using insurance as an example, because I work in an insurance company.
Our industry has been having discussions about what constitutes an MPM within our industry, and I think there’s a bit of hesitation among the participants, too, to just start listing what they think the MPMs will be until there’s further clarity as to how to interpret some of the guidance on MPMs as well as how the accounting firms are looking at it. So, I think there’s a bit of a wait-and-see on that one. But we are thinking about explaining to our users that MPMs will be coming, it will be a subset of our current non-GAAP measures, and that they will be audited. But we don’t expect it’s going to create new measures necessarily. Like sometimes, within the standard it does require new categorizations. And I’m looking at the one where equity account and earnings of associates and joint ventures have to be moved into the investing category, whereas a number of financial institutions and investment companies might argue that’s part of their operating business. So for something like that, you might have to bring in a new MPM or a new non-GAAP measure. But generally speaking, you shouldn’t expect to have a lot of new ones because of adopting IFRS 18. So there’s a lot of education you can do in your 2026 financial statements, and certainly we fully intend to get that message out there.
Brian Banderk: Okay, I think I’m next on that multi-part question. Always great questions from Lucy. So, yes, as far as disclosure leading up to the adoption, I don’t think we’ve seen a ton of it to date. It’s always— So it’s a bit challenging, I’ll be honest, from a regulator perspective because as you get closer to the date, the story that’s still under assessment becomes less and less believable. But we also want to give issuers the chance to really dive in, do the analysis they need to do. But our expectations will increase as we get closer to the date. So, that’s probably what I can say on that one for now.
Howard Leung: And just to add to that, actually, and during Q1, I was checking excitedly in the future Accounting Pronouncements Note. And all the entities would just say that IFRS 18 is coming, but they are still assessing the impacts on company. So that left me wanting a bit, but I’ll check again for Q2. [chuckling] But I will say, just adding to a lot of the points raised here, is that I think communicating the investor expectations will be very important. I do think that because now you have some organization in the income statement that mimics the cash flow statement, I think there will be, I think it will shift some of the investors’ mindsets of how they think about the income statement, because, I think, we kind of thought that the cash flow statement was, had these special categories: operating, investing, financing, when in reality, it should really line up with the income statement. And I think that is actually a really big shift in terms of how investors perceive income changes in each of those categories. One of those small signs, and these little details that I appreciate in the new standard, is starting with operating profit and the reconciliation to operating cash flows, because then you really get that alignment. And I do understand, from Gary’s point, of course, that there will be some ambiguity with certain investments, right? Are they really operating, or are they really investing? And even for companies outside of financials, I know of some technology companies that have 25% stakes in certain companies. And is that really an investment, or is that part of their operation? So, there will be some ambiguity, but I do think this kind of streamlining does help align what investors think about these three activities, which really pervade an entire entity, right? It’s not just the cash flow statement; it’s also the income statement. So, depending on the industry and depending on the sector, it will take time, kind of as said before, but I think this is to me is like the biggest kind of seismic shift in terms of how, not only how investors perceive things but how companies potentially communicate information to investors.
Andrew White: We’ll take one more virtual question before we go to an in-room question. So this question is about MPMs. Again, kind of more in general and the idea that MPMs are subtotals of income and expenses. And this question is coming from the perspective of what happens when you have a subtotal that has income and cash flow–type items flowing through it. Does that also meet the definition of an MPM? I’m not going to throw this at my user because I think that would be cruel. So Hagit, I’ll start with you, and if anybody else wants to weigh in.
Hagit Keren: Yes, so I think here, there is also another stay tuned because we have a submission that relates to it. I think the question is: What are income and expenses? Can they be or must they be recognized income and expenses when we do the subtotal, or could they be hypothetical ones? Could they be cash flow–based ones? So I think that touches the question, and the Interpretations Committee will discuss this. But I think something else to bear in mind is that we are doing our cash flow statement project at the moment, and we got many requests to extend the MPM disclosure to cash flow measures as well. So I think it might be that we will have a gap in the middle, but I think at least at the end of the road cash flow measures would be captured as well by this disclosure. I know it raises some practical issues because the NCI and tax really relevant for P&L items and not relevant for cashes. These are things that we are going through at the moment. But I think here you need to stay tuned. And I do suspect that the next IC meeting will provide some useful information about what do we mean when we say income and expenses and whether they are only the recognized one or maybe wider than this.
Andrew White: So we’re going to go for a question from the room.
Audience Member: It’s actually just following up on you said, and maybe just to clarify the standards on the P&L for the operating investing and finance, and then on the cash flow. Are they actually consistent? No, okay. So and you kind of mentioned, I guess, stay tuned. All right.
Hagit Keren: So, I think the names are similar. So yes, operating, investing, financing, but they are not aligned completely because there are different objectives for cash flow statement than the P&L. So in the investing category for cash flows, you see that you bought the P&E, but the depreciation of that in the income statement will be probably part of your operating. And actually, when we started our cash flow project, we asked some of our stakeholders, “Do you want us to go any closer to what we’ve just done with the P&L?” And investors were telling us no. We understand there are different purposes for each report, so they are not completely aligned, and we are good with that. So I hope I answered your question.
Audience Member: Yes, I think the challenge that I run into is that when you have corporate finance people talking to the accountants to try to translate that, a consistency of saying “Oh, well, this is operating, investing, financing, and then like, well, why is it here in this side on the cash flow?” just it adds a little bit more complexity. And I think at the end of the day, I’ve always had this thought process where the non-GAAP, non-IFRS figure should actually be defined. So we’re not there yet with the MPM. So maybe operating profit will erase EBITDA, but some of these, if you were to do a heat map of the non-IFRS measures that are used, I would say there’s maybe less than half a dozen that we could really just define and put this all away and just tell the corporate finance people there’s a reconciliation, this is how it’s done. And I think it would just bring us closer as opposed to further apart. And I tend to hope that the standards are doing that. And sometimes I feel like they’re taking us in the other directions. So anyways, it was just more of a personal thing. Thanks.
Andrew White: I think it’s always challenging to define a measure because even if you think you are defining it the same as anybody else—we tried to define EBITDA, the actual adjustments are in the name, and we couldn’t do it. So I think sometimes we think it’s easy to get those agreed-upon terms and those agreed-upon subtotals. What I have learned over the past twenty-five years, it’s not as easy as it looks on the first go, because too many technical accountants get involved, and then we cause problems.
So I’m going to go back to the user perspective for a second, so we can give Hagit a bit of a break from the technical questions. And maybe also, Brian, you from a regulatory perspective. IFRS 18, as Hagit mentioned, it will be a global standard, and it will be adopted globally. What role do you see regulators playing, Brian, from the perspective of ensuring a good application of IFRS 18? And Howard, how does this help you from the perspective of making useful investment decisions globally when you have more comparability and consistency?
Brian Banderk: Yes, okay. So our role in this is— I think maybe, if I can, I’m actually going to modify your question a little bit. [chuckles] And I’m going to talk a little bit about some of the things that worry me about it. And maybe that feeds into what our role is, because if I’m worrying about it, I’ll think about it, and then maybe I can help with it. So, what worries me right now is that Canadian businesses are under a lot of stress or a lot of things operationally right now. So I worry that the implementation is not going to go as smoothly as we’d like because a lot of Canadian businesses maybe don’t have the time to spend on this as much as they would like to. So hopefully, I’m wrong on that. Hopefully, it’ll play out exactly how it always does in Canada, where everybody steps up, does a good job, and we continue to build on that good base with incremental improvements. I think, and I’m only speaking from my own perspective here on how—not for the rest of the CSA—on how we can help. But I think we won’t diminish our standards of what we expect as securities regulators, but I think we need to have some understanding that this is a standard that is evolving, everyone’s getting used to it, and hopefully there’ll be kind of room for improvement. And really from a ASC perspective, that is very much how we approach. A lot of our continuous disclosure reviews is from an education perspective. So we’ll see things; we’ll say, “Going forward, can you improve this?” Of course, we’ll go after the things that are really egregious, but we want to work with you as reporting issuers, not punish you in difficult processes.
Howard Leung: And yes, from the question about the kind of global perspective, it is important, like the Canadian landscape, even for a lot of large caps is, you generally have maybe one or maybe two Canadian champions in certain sectors. And then the peers are, a lot of them are in the US, but also you see them in Europe or in Asia. It's really helpful actually to have more comparability between these kinds of Canadian companies that compete globally, and you’re able to, as an investor, to look and actually benchmark them and say, “How strong are they?” And I think, having these kinds of sections and having some standardization, like, as I mentioned earlier, having compensation expense disclosed, you can actually do a lot of analysis that way that you couldn’t do before. So, I think it would definitely be more comparable globally, and I think, with the kind of MD&A and the press release and the non-GAAP framework around it, the management, I think, can still tell their story while also having a little more comparability globally, which you get best of both worlds, hopefully.
Andrew White: Fantastic! So we’re coming up towards the hour. So I’m going to ask one final question of each panelist. For those of you that submitted questions through the Q&A function, I did not ignore you. I would also encourage you to continue to follow the IDG conversations because some of your questions have been previously answered as part of our IDG discussions. So if you are having trouble navigating that, I think my contact information is all over the website. So send me an email, and I will help you to find that link. But definitely encourage you to stay tuned on that piece of it.
So, one final question for each of you. I’m going to start with my user and preparers first.
And so, from your perspectives and viewpoints, does IFRS 18 strike the right balance? Is it getting it right between comparability and an entity’s ability to tell its story in a meaningful way?
So I— We’ll let you guys decide who goes first. I think Howard or Gary, it’s up to you. Howard has the mic, so he gets to go first.
Howard Leung: Sure. Yes. So I mentioned, I think it does. Are there things that I think could be enhanced further, like cash flows? Or I think a common gripe I have is with IFRS 16—now depreciation and financing has moved further apart now because they’re in two different categories. But those are minor things in the grand scheme of things. And I think I’m looking forward to 2027 for that.
Gary Hum: Yes. I appreciate that standard setting is not easy and that this standard was written to try to help the most number of companies as possible. So in that regard, I think that having a— requiring companies to look at their main business activities, having a useful structured summary and so forth, it will drive comparability and consistency. It does cause some heartache for certain industries with more specialized reporting. But overall, I think there’s enough flexibility within the standard that you can still get your message across. And it, I said before, it certainly doesn’t change the way we communicate with the market, so I’m happy with it.
Andrew White: Fantastic! And finally, we’re going to look at our regulator and our standard-setter. That’s Brian, we’ll go with you first. And then Hagit.
Looking ahead to implementation, what do you see as the biggest risk towards a successful implementation of IFRS 18?
Brian Banderk: Yes, I guess one thing that I’ve learned throughout the year that kind of surprises me is really talking to everyone, like the people that are in this room, is just the amount of judgment that’s involved in applying the standard. And they’ve been really good discussions. And one of the things what often ends up being the answer is by this judgment, you disclose this judgment. And as a securities regulator, we all love disclosure, but I do worry that we’re going to get to a point where if there’s so much disclosure of all these various judgments, it’s going to start to obscure the really important things in the financial statements. And so for me, success would be applying the standard, using a common sense approach, using the words and not just defaulting to robust disclosure on all the individual judgments that don’t need to be there. I think we just have to strike a right balance with the amount of disclosure and the end results.
Hagit Keren: So, of course, as those that set the standards, we always worry that there might be something that we’re missing, but I think so far we’re good. We keep monitoring things. But I think if I think of risk or what could go wrong is I think that if we’ll have rushed implementation, people will have a lot of oversights. These standards have many corners. And, for example, useful structure summary applies to all the statements. It’s not just for the P&L. Aggregation and disaggregation for all the notes. There is a role for the notes that apply to everything. I think that we focus a lot on the P&L. But there’s a lot of things that apply more widely, and I think my concern is that when you’re rushing through your implementation, you might not pick up those dark corners that you might be able to do something good on the way. So I think a lot of attention to those specific requirements, making sure that you are not just captured in your own thinking as you approach it. Because I know that, for example, aggregation and disaggregation, if you have good processes and you know materiality, you’re probably fine and it’s maybe a safe assumption, but I hope that companies will just have one more look at what we mean when we say aggregate or disaggregate information to make sure that they thought about it again, and they’re not in the habit that they’ve used maybe ten years ago. Maybe it’s working, but just one more look before we pack up IFRS 18. So it’s those dark corners that could be meaningful and useful for companies as well.
Andrew White: Thank you, everyone. I think what I took away from the session today is the devil’s always in the detail. Sometimes the words can seem simple, but they can be very, very difficult to apply. There can be a lot of judgment. I think that the IASB did set out with a very robust mandate in terms of improving financial reporting overall. I think that they’ve probably got it right. If everybody’s a little bit upset, you probably did your job. If you didn't give users everything they want, and preparers are a little bit upset, you probably got the right mix at that point. So thank you very much for that.
So I’d like to thank everybody for attending today, especially everybody in the room that thankfully came in to visit with us. And everybody online—fantastic! And I’d also really like to thank the panelists. When I reached out to them, they all got back to me very quickly and were more than willing to be involved in today. So thank you very much to our panelists for being here to speak with us today.
And again, I encourage you to get started. IFRS 18 is not as easy as it looks. So it’d be very important for you to start those processes early so you can start to generate the information you need.
Stay informed. Make sure you are watching what the IFRIC is talking about. The June meeting is likely to have somewhere in the neighborhood of maybe six IFRS 18 topics on the agenda, and they previously had five other ones. So it’s not like it hasn’t had a fair number of questions going to the IFRIC. So please stay aware on that front. And if you have questions, always talk to your friendly neighborhood accountant, and they can maybe help you out. So thank you again, and good luck with IFRS 18. Thanks, everybody.