new demands on everyone and the amount of required footnote
disclosures in financial statements have increased significantly.
First, you will find that IFRS standards have many nuances,
which need a good deal of management judgment over the
selection of accounting policies and financial statement
presentation and footnote disclosures. For example, many
dealers and other financial services companies report their
balance sheets in order of financial liquidity, not on the typical
current / non current asset and liability treatment. Adopting the
order of liquidity balance sheet presentation will depend on
management’s assessment of the nature of an EMDs business.
For example, a straightforward EMD advisory firm may
decide to retain the traditional current / non–current asset/liability
balance sheet presentation. On the other hand, dealers with active
client trading and settlement and/or proprietary trading may need
to take a serious look at presenting their balance sheet in order
of liquidity. If so, then they will also need to look at the regulatory
reporting under Form 31-103F1, which presumes that a current/
non- current asset balance sheet presentation is the norm. The
Form 31-103F1 regulatory filing of Excess Working Capital,
adjusts “working capital” for “assets not readily convertible into
cash” such as prepaid expenses and “longer term” receivables-another one of those areas needing management judgment.
Should an EMD have long-term related-party debt, they may
have a surprise to deal with and will need to consider the IFRS
implications. Under IFRS, related party term debt is required to
be fair valued based upon a reasonable “current market” discount
rate to present value the expected cash flows. However, many
EMDs have structured their subordinated debt to be non-interest
bearing term debt, thus discounting the debt to present fair value
result in a lower value than has been reported. The offsetting
adjustment on transition to IFRS would go to opening retained
earnings at the date of transition, so no net capital impact.
Interest expense would be accreted annually to through the
What are the alternatives for related-party debt? Under
IFRS, related party debt, including subordinated loans, which
is repayable on demand doesn’t have to be fair valued. This
treatment has been accepted by other industry regulators
including IIROC so it may work for some EMDs as well. You
should take a closer look at your debt documents and see if it is
possible to restructure your term debt by either exchanging it for
a demand loan, converting it to share capital, or repaying the debt
should you have excess capital in the business.
Another key issue to note: IFRS now requires footnote
disclosure of compensation paid to the “key management
personnel” of the company. This disclosure falls under the
requirements for many private companies, so disclosing this
may come as a surprise for many. You will need to define who
in the company is subject to this disclosure and then pull the
information together to disclose - and don’t forget to also compile
the comparative amounts for footnote disclosure purposes.
Compensation includes all salary, bonuses and benefits.
Termination benefits, if any, would be separately disclosed.
In future articles, I will discuss other emerging developments
of interest to EMDs and their accounting obligations. Stay tuned
and good luck to those preparing their first year-end audited
For more information contact:
Parker simone LLP is a founding sponsor of the EMDA and is focused on
serving the audit and tax need of dealers, managers and advisers along
with entrepreneurs and junior public companies. Stephen Warden is a
member of IIROC’s Panel Auditor Committee and is a lead instructor at
the CICA In Depth Broker Dealer training program.
ACCOUNTING & FINANCE
You will find that IFRS standards have many nuances, which need a
good deal of management judgment over the selection of accounting
policies and financial statement presentation and footnote disclosures.