BC-based registrants that are not members of self-regulatory organizations must file audited financial statements (AFS) with the BCSC's Examinations Branch. National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) requires a registrant to file AFS within 90 days of its financial year-end.
In this article, we present and discuss some issues found in our recent review of registrants' AFS. We remind registrants that the Canadian Accounting Standards Board adopted IFRS as Canadian GAAP applicable to publicly accountable enterprises for financial years beginning on or after January 1, 2011.
National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards requires that financial statements filed under NI 31-103, for financial years beginning before January 1, 2011, must be prepared in accordance with Canadian GAAP applicable to public enterprises (Canadian GAAP - Part V).
In 2010, some firms prepared AFS using differential reporting to account for income taxes payable and redeemable preferred shares. This is not acceptable, as Canadian GAAP - Part V does not permit the use of differential reporting for registrants.
Going forward, IFRS does not have an option to use differential reporting.
Some firms filed AFS for a fiscal year beginning in 2010 prepared in accordance with IFRS. These firms adopted IFRS ahead of the January 1, 2011 requirement. However, NI 52-107 does not allow for early adoption of IFRS by registrants. AFS for a financial year beginning before January 1, 2011 must be prepared in accordance with Canadian GAAP - Part V.
In addition, some firms' AFS disclosed the AFS were prepared in accordance with IFRS, when the AFS did not meet all the requirements of IFRS. For example, these AFS did not meet some of the presentation and disclosure requirements of IFRS 1 First Time Adoption of International Financial Reporting Standards, including:
- presentation of an opening IFRS statement of financial position at the date of transition to IFRS
- an explanation of how the transition from the firm's previous GAAP to IFRS affected its reported financial position, financial performance, and cash flows
Other firms did not recognize that they must adopt IFRS for fiscal years beginning on or after January 1, 2011. Instead, the notes to these firms' AFS disclosed that the firms would adopt Canadian GAAP for private enterprises in 2011. NI 52-107 requires registrants to adopt Canadian GAAP applicable to publicly accountable enterprises, which is IFRS, for fiscal years beginning on or after January 1, 2011.
Registrants and their auditors have an obligation to understand their regulatory requirements and pay attention to changes in securities legislation. The Canadian Securities Administrators (CSA) published several notices that gave registrants advanced warning of the transition to IFRS
The Canadian Auditing and Assurance Standards Board adopted 36 International Standards on Auditing as Canadian Auditing Standards (CASs) for audits of financial statements for periods ending on or after December 14, 2010. For audits of financial statements for periods ending on or after December 14, 2010, there is a new standard auditor's report. Not every auditor was aware of this change and some continued to issue audit opinions using the old standard auditor's report. Registrants and their auditors should be aware of the CASs.
We expect registrants to discuss and work with their auditors on transitioning to IFRS. Some auditors have indicated that they will not be able to audit AFS prepared in accordance with IFRS, which means that affected registrants must find new auditors.
If you change auditors, you must notify the BCSC in writing using Form 33-109F5 Change of Registration Information. You also have to send a letter of direction to the new auditor instructing the auditor to conduct any audit or review required by the regulator during its registration. Registrants can send a copy of the letter of direction and Form 33-105F5 to Toni Mavrogeorge, Senior Registration Administrator, within ten days of the change.
Only one firm filed its AFS late; however, the reason for the missed filing is disconcerting. The firm was not aware of the filing obligation and deadline to file within 90 days of the firm's financial year-end date. Being unaware of such a core regulatory requirement indicates an inadequate compliance system at the firm.
The BCSC may charge a late filing fee of $100 per day for every day that an AFS is late. Examinations staff cannot grant an extension to the AFS filing deadline. Registrants seeking an extension for any financial filing deadline (including interim financial reports) must apply for an exemption from the requirement via eServices.
Form 31-103F1 Calculation of Excess Working Capital (Form 31-103F1)
back to top
Under NI 31-103, a registrant must file a Form 31-103F1 with the AFS. The Form 31-103F1 includes a certificate section that the senior officers of the firm must sign. We also remind registrants that at least one director of the firm must sign the AFS' statement of financial position (balance sheet).
The Form 31-103F1 must reconcile to the statement of financial position and registrants should note the possible deductions as part of the calculation of excess working capital. For example, deductions for current assets not readily convertible to cash, such as prepaid expenses, and market risk for firms that have securities as a current asset.
- Confirm that the firm's auditor can audit AFS prepared in accordance with IFRS and are aware of the new standard auditor's report for audits of financial statements for periods ending on or after December 14, 2010
- File interim financial reports (interims) and AFS on time as per NI 31-103 - interims within 30 days of the quarter-end date and AFS within 90 days of the year-end date (note though that NI 31-103 allows the very first interims filed in accordance with IFRS, to be filed within 45 days of the first quarter-end date)
- Make sure at least one director signs the statement of financial position and that the senior officers sign the certificate to Form 31-103F1
- The BCSC considers related party loans as current liabilities unless firms file a subordination agreement with the BCSC
- Firms must notify the BCSC at least ten days before repaying any part of a subordinated loan or terminating the subordinated loan
- Firms must, as soon as possible, notify the BCSC in writing, of any change in, claim made under, or cancellation of any insurance policy required by NI 31-103 (the financial institution bond)
If your firm has questions about the AFS filing requirements, including Form 31-103F1, financial institution bond, and subordination agreements, please email the examination team email@example.com.