A look at the preparedness of Canadian companies regarding the impending shift to International Financial Reporting Standards (IFRS) has revealed a serious lack of planning, according to experts at a Financial Executives International conference in Toronto on Friday.

January 1, 2011 is when the current generally accepted accounting principles (GAAP) will be replaced with IFRS in Canada, requiring any company with a fiscal year commencing after that date to report under the new system.

“I don’t think we are there yet,” said Peter Martin, a director at the Accounting Standards Board (AcSB). “The real question is whether we’re getting there on a timely basis. There probably are a few companies in this country that are prepared, but the vast majority are not.”

Friday’s presentation highlighted the results of FEI’s newly released IFRS Readiness in Canada report, which was co-developed by Ernst & Young Canada.

According to the report, half of the 510 companies surveyed said they have begun to evaluate the impact of IFRS on their business, but have yet to take concrete steps toward implementing the new system. “The vast majority (85%), do not have a detailed conversion plan in place at this point in time, nor have they built conversion timelines, or allocated resources to specific tasks,” said the report.

The report also revealed the poor understanding of the difference between IFRS and Canadian GAAP by many senior finance executives and their subsequent lack of briefing to their auditing committees. “The majority are nowhere near prepared for conversion at this point in time, haven’t calculated the conversion costs and don’t know if their systems can handle the job,” said the report. “In spite of this, the executives said they did not want the 2011 conversion deadline to be extended.”

Many corporate directors are concerned that they are not getting enough information on IFRS in order to be able to evaluate management’s conclusions, according to the report. “There is a fair amount of discomfort in knowing if there is objectivity being applied to the selection of accounting policies as it pertains to achieving a fair basis for management for management evaluation and compensation,” the report said.

Rafik Greiss, IFRS leader at Ernst & Young, said the issue is ensuring an appropriate level of comfort at the board level. “One challenge I’ve been hearing with respect to IFRS conversion is how we ensure that what we present to the board and to the audit committee is complete. I believe it’s really important for financial executives to show the impacts of the changing metrics on management’s evaluation and compensation. It is particularly important for boards to also understand the potential impacts that the various other IFRS alternatives could also have on these metrics.”

Greiss highlighted the importance for Canadian companies to begin their preparations for the IFRS conversion as soon as possible. “Readiness will not happen in one fell swoop,” he said. “Early planning will help companies better manage the pain and effort that will be involved in getting ready. The difference between success and failure will be a well-defined plan. An ad hoc approach won’t cut it.”

To comment on this story, email jody.white@rci.rogers.com.