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CCCA_V4No2_Closing-FIN.qxd:CCCA_V1No2_BackPg-V1.qxd 4/29/10 3:42 PM Page 50 Closing The Deal No time to waste Canada is about to move to International Financial Reporting Standards. Is your company ready? s of Jan. 1, 2011, the current Canadian This all begins with your legal team attention. In some cases, if both parties AGAAP standards will be replaced with sitting down with your finance team, get- agree, these contracts may need to be the International Financial Reporting ting educated about IFRS, and mapping amended so that the accounting treatment Standards (IFRS). out the proper due diligence that needs to that your organization needs to achieve The decision by the Accounting be done on current contracts and in plan- can be realized. Standards Board to transition Canada to ning for forthcoming transactions. Many of your organization’s long-term IFRS means that we will now adopt the Being mindful of these new complex contracts will include long established same accounting standards used in the rules will force us to re-examine our financial covenants with lenders, based, European Union and many other coun- existing documents in terms of the new for example, on debt-to-equity ratio or tries around the world. accounting guidelines. How do these working capital ratio. These ratios are Moving to IFRS is an historic change documents measure up in light of our driven by the financial definitions of that will have a wide-ranging effect on organization’s business strategies, our equity, debt, liability and so on established Corporate Canada. Publicly traded com- ongoing operations, our plans for the under GAAP. But these definitions will panies or private companies with publicly future? How do these new guidelines change under IFRS. traded debt must adopt IFRS. For these position your organization in the eyes of So in scrutinizing these arrangements, a companies, virtually any business function your external stakeholders? covenant of X toY that made sense in the that relies on financial information will For example, when companies factor past may look very different under IFRS. be affected. their accounts, under the old GAAP In fact,you may think you are good today, As in-house counsel, we have an inte- accounting system everyone understood but under IFRS you may be breaching your gral role in assisting our organizations that factoring represented a true sale of ratios, not because your business has with the challenges in preparing for, and assets, that it was not borrowing based on changed, but the way to account for your implementing IFRS. your accounts receivables.Will this be the business has changed.You could be forced to Every company must now be on the same accounting treatment under IFRS? go back to your lenders and renegotiate road to IFRS conversion, but now it’s This same logic relates to every transaction. your financial covenants because the current time to speed up the process since Jan. 1 Does the way that your company accounts financial covenants do not fit the new IFRS. is quickly approaching. Here is some food for certain kinds of transactions under You may have to set new parameters. for thought in terms of in-house counsel’s Canadian GATT still apply under IFRS? This is an exercise that has to be done valuable role in the process. What changes might you need to make now. You can’t wait to wake up months to ensure that certain transactions get the from now to find that the old ways don’t Get educated same treatments? Do you need to shift work anymore. The challenge is to ensure that your corpo- certain risks now that certain items can- The message for in-house counsel is this: ration is compliant with both IFRS and with not be accounted for in the same way? If you don’t understand it,you can’t write it. your organization’s contractual obligations. What additional clauses are required? Is There is a big change coming.We need Whether it’s a debt situation, loan nego- there a need for a change of wording? to get moving quickly to educate ourselves tiation, finance covenant discussion,factor- from a legal perspective as to what the ing — in fact,any type of financial transac- Revisit existing contracts incoming, new IFRS reality will truly tion, in-house counsel needs to under- It is also important for in-house counsel, mean for our organizations. stand, from a legal perspective,what condi- together with their financial team, to go tions need to be present so that the back and review current contracts. Daniel Desjardins is senior vice-president PIERRE CHARBONEAU accounting treatment you want to achieve Ongoing contracts that will still be alive and general counsel at Bombardier Inc. can be met. when IFSF is implemented will merit (danield@bombardier.com) 50 CCCA Canadian Corporate Counsel Association SUMMER 2010