Annual Financial Reporting, Audit and Regulatory Update February - PowerPoint PPT Presentation

Annual Financial Reporting, Audit and Regulatory Update February 12, 2020

Presenters Murtaza Dean, CPA, CA, CPA (Colorado), ACA PARTNER, PUBLIC COMPANY QUALITY CONTROL GROUP, MNP Will Pullenayegum, CPA, CA PARTNER, ASSURANCE AND ACCOUNTING, MNP Cameron L. McInnis, FCPA, FCA, CPA (Illinois) CHIEF ACCOUNTANT, ONTARIO SECURITIES COMMISSION Alex Fisher, CPA, CA SENIOR ACCOUNTANT, ONTARIO SECURITIES COMMISSION Page 2 Slide Page #

Agenda Welcome & Introductions • 8:30 a.m PART ONE: MNP Presentations • 8:35 – 9:20 a.m. Cannabis – Valuation of Biological Assets – Maruf Raza & Michael Massoud • 9:25 – 9:45 a.m. IFRS 16 & 9, & 3 – Murtaza Dean • 9:45 – 10:00 a.m. Auditor Reporting – Will Pullenayegum PART TWO: Special Presentation from the Ontario Securities Commission • 10:00 – 10:45 a.m.OSC Presentation – Office of the Chief Accountant • 10:45 a.m. Q&A / Session Ends Page 3 Slide Page #

International Financial Reporting Standards Murtaza Dean, CPA, CA, CPA (Colorado), ACA PARTNER, PUBLIC COMPANY QUALITY CONTROL GROUP, MNP

IFRS 16: Leases • Overview • Interaction with other standards • Transition Page 5

Overview – New Leases Standard • IFRS 16 Leases published in January 2016 – Replaces IAS 17 and related interpretations – Changes lessee accounting substantially – Little change for lessors • Effective date January 1, 2019 – Early application permitted (only with application of IFRS 15 Revenue from Contracts with Customers ) Page 6

Overview - What Has Changed for Lessees? Changes to lessee accounting • Former operating leases capitalized • All leases accounted for similarly to today’s finance leases ➢ ROU asset and lease liability recognized ➢ Depreciation of all ROU assets ➢ Interest expense for all lease liabilities Balance Sheet Cash Flow Statement Income Statement Leased assets Operating Expense Operating Outflows Financial Liabilities Finance Cost Financing Outflows Equity Page 7

Overview – The New Standard “Listed companies are estimated “One of my great ambitions to have US$3.3 trillion of lease before I die is to fly in an aircraft commitments, over 85% of which that is on an airline’s balance do not appear on their balance sheet…” sheets…” Sir David Tweedie Hans Hoogervorst Former IASB Chairman Current IASB Chairman April 2008 January 2016 Page 8

Interaction With Other Standards • IFRS 16 vs IAS 36, Impairment of Assets • IFRS 16 vs IFRS 3, Business Combinations • IFRS 16 vs IAS 21, The Effects of Changes in Foreign Exchange Rates Page 9

Transition Approach In accordance with IAS 8: o 1) Fully retrospective Restate comparatives as if IFRS 16 always approach applied o Provide line by line comparison disclosure Data capture for Data capture for IAS 8; 28(f) IAS 8; 28(f) disclosure disclosure 2019 Annual report (comparatives): IFRS 16 IFRS 16 2018 Annual report: IAS 17 2019 Annual report disclosures: IAS 17 01/01/2018 12/31/2019 12/31/2018 01/01/2019 Page 10

Transition Approach Do not restate comparative information ▪ Adjust opening retained earnings on transition ▪ Provide additional transition date disclosure 2) Cumulative Optional practical expedients: ▪ Do not transition leases ending within 12 catch-up approach months ▪ Simplified right-of-use asset measurement ▪ Discount rate for portfolio application ▪ Use of hindsight ▪ Onerous lease provisions Page 11

IFRS 9 • Classification and Measurement Page 12

Classification and Measurement Page 13

Classification and Measurement IFRS 9 vs. IAS 39 Classification of financial liabilities: • Principles of IAS 39 carried forward • Amortized cost default model, with certain exceptions • Main changes relate to FL’s designated at FVTPL: – Changes in fair value relating to entity’s own credit risk is recognized in OCI – Remaining FV change recognized in profit or loss Page 14

Classification and Measurement IFRS 9 vs. IAS 39 Modification of financial liabilities: • IASB clarification that upon modification of a financial liability measured at amortized cost, a gain or loss should be recognized in profit or loss • Calculated as the difference between the original contractual cash flows and the modified cash flows discounted at the original effective interest rate • May need to recognize modification gains/losses Page 15

IFRS 3 • New Definition of Business (diagram) Page 16

IFRS 3: New Definition of Business Page 17

Auditor Reporting Key Audit Matters (KAMs) Critical Audit Matters (CAMs) Will Pullenayegum, CPA, CA PARTNER, ASSURANCE AND ACCOUNTING, MNP

Key Audit Matters (KAMs) Matters which, in the auditor’s professional judgment, were of most significance in the current audit KAMs are a subset of those matters otherwise communicated to the audit committee Matters communicated to the audit committee Matters which required significant auditor attention KAMs (most significant) Each KAM should include: ▪ reference to the related disclosures; ▪ why the matter was considered to be one of most significant in the audit; and ▪ how the matter was addressed in the audit. Page 19

Timelines Canada (Key Audit Matter / KAM) • TSX (other than investment funds) Dec 2020 year-ends • NEO, CSE, TSX-V (other than investment funds) Dec 2022 year-ends • Investments funds (81-106) Excluded US (Critical Audit Matter / CAM) • Large accelerated filers June 2019 year-ends • Other filers Dec 2020 year-ends • Emerging growth companies, broker dealers … Excluded Other regions: • UK June 2013 year-ends • EU Dec 2016 year-ends Page 20

Experience to Date – UK Page 21

Experience to Date – US US LARGE ACCELERATED FILERS JUNE 30, 2019 Income Taxes Acquisitions and 15% Related Liabilities 6% Revenue 19% Inventory 5% Other Liabilities 5% Contingencies 4% Goodwill and Intangibles Assets Other 35% 11% Page 22

Application Issues ❑ KAMs are not substitute for disclosures and should avoid including information about the entity that has not been disclosed, unless this is considered appropriate in the circumstances and is not precluded by law or regulation. Rather, management should consider disclosing the additional information instead. ❑ KAM wording should not imply discrete opinions on separate elements of the financial report and should not imply that a matter has not been appropriately resolved. ❑ It is expected to be extremely rare for an auditor of a listed entity not to have a matter which was of most significance. ❑ If a KAM is relevant to both the parent and the consolidated entity, the auditor should consider whether there are differences in how the KAM relates to each entity. ❑ KAMs do not replace going concern or emphasis of matter requirements in the opinion. Page 23

Financial Reporting and Regulatory Update Cameron McInnis, Chief Accountant Alex Fisher, Office of the Chief Accountant Ontario Securities Commission Office of the Chief Accountant

Disclaimer The views we are about to express are our own and are not necessarily representative of the Ontario Securities Commission or its staff. 25

Agenda Cannabis • Crypto-assets • Corporate Finance - Recent Areas of Attention • Reporting of Climate Change-related Risks • Problematic Promotional Activities • Non-GAAP Financial Measures Update • Regulatory Burden Reduction • 26

Cannabis Cannabis 27

Canadian Cannabis Sector Overview – Q3 2019 Decreased Decreased Lack of retail Lack of Lack of profit Market Trading footprint cashflow Capitalization Volume 28

Canadian Cannabis Sector Overview – Q3 2019 Issuers Market Capitalization 5 40 19 14 226 48 Billion 167 29 CSE TSX Other CSE TSX Other 29

Canadian Cannabis Sector Overview – Q3 2019 Market capitalization ($ billions) Trading volume ($ millions), daily average of the past 3 months Number of issuers Q/Q percent change Q/Q percent change Exchange 2019Q2 2019Q3 2019Q2 2019Q3 2019 Q2 2019 Q3 CSE 19.6 14.2 -27.6% 47.6 32.8 -31.1% 160 167 TSX 44.7 29.4 -34.2% 21.4 20.2 -5.6% 12 19 TSXV 6.9 3.2 -53.6% 22.3 11.9 -46.6% 39 36 NEO 2.2 1.3 -40.9% 1.1 1.1 0.0% 5 4 Grand Total 73.4 48.1 -34.5% 92.4 66.0 -28.6% 216 226 Sources: TMX Group; FP Infomart; and Refinitiv Eikon. 30

CSA Staff Notice 51-357 Canadian Securities Administrators (CSA) CSA Staff Notice 51-357 Staff Review of Reporting Issuers in the Cannabis Industry • Canadian Accounting Standards Board (AcSB): IFRS Discussion Group Reports IFRS 13 and IAS 41: Cannabis Accounting – Recognition and Determining Fair Value • IAS 41: Cannabis Accounting – Costs Incurred Related to Biological Transformation • IAS 2 and IAS 41: Cannabis Accounting – Presentation • Informative & entity-specific • Accounting Measurement basis • Policies Subsequent costs • Subtotals • Additional line items: • Presentation Fair value unrealized gains/losses on growing cannabis • Realized fair value included in cost of inventory sold • Fair value measurement • Disclosure Nature of expenses • Non-GAAP financial measures • 31