Impact of IFRS on Credit Agreements

In our last issue, in anticipation of the adoption of International Financial Reporting Standards (IFRS) on January 1, 2011, we provided practical tips for publicly listed enterprises. In this issue, we discuss how the adoption of IFRS might have an impact on contracts that require a party to comply with Canadian generally accepted accounting principles (GAAP) or, more significantly, that require a party to meet financial tests that depend on financial information prepared in accordance with GAAP. These circumstances often arise in credit agreements.

It is important to note that GAAP will continue to exist after January 1, 2011 and that it will still be appropriate to refer to GAAP in agreements. What will happen on that date is that the Canadian Accounting Standards Board will adopt IFRS, but in that modified form it will still be GAAP. As a result, if the only requirement in an agreement is that a party maintain financial statements in accordance with GAAP, the