When Stonegate Agricom Ltd. released its annual financial statement at the start of the year, it was the culmination of hundreds of hours of planning, meeting and analysis that started almost three years ago.
Like most public Canadian companies, Toronto-based Stonegate Agricom recently switched over to the International Financial Reporting Standards – a set of accounting principles, used by public companies today in about 120 countries, that is becoming the global standard for financial reporting. Canada required companies to convert to IFRS by last year.
"We spent maybe a week each month getting ready," says Germaine Coombs, vice-president and chief financial officer at Stonegate Agricom, a mining company currently exploring phosphate projects in the United States and Peru. "In total, it added up to several months' worth of work."
It's a safe bet that any company that had to make the switch to IFRS will describe the conversion as a major undertaking, involving not only the finance department but also other parts of the business, such as IT, human resources and investor relations. For Canada's 1,000-plus mining companies, however, IFRS presented certain challenges unique to their industry.
"There are certain requirements under IFRS that affect the dollar amounts mining companies need to report and that make record keeping more extensive," says Kin Lo, an associate professor of accounting at the University of British Columbia's Sauder School of Business, in Vancouver.
For example, mining firms that used the "full cost" or aggregated method to account for exploration and development costs in multiple reserves now have to break down these numbers by individual reserve, based on the "successful efforts" method under IFRS. For many companies, this likely meant having to comb through past records to match costs with projects, Dr. Lo says.
The global scope of mining and complex structures within the industry also made the conversion to IFRS more complicated for many companies, says Lee Hodgkinson, a Toronto-based chartered accountant and national industry leader, mining, at KPMG LLP.
"Probably the biggest IFRS challenge you would have in mining was one around remote locations and multiple locations and the fact it's such a global industry," he says. "You're dealing with subsidiaries or companies around the world, with some of those subsidiaries having already adopted IFRS."
Unlike the previous Canadian accounting standards, which had volumes of rules to address various accounting issues, IFRS is based on a comparatively shorter set of principles. And experts say there's thin guidance within IFRS for the mining industry.
"[The old]Canadian accounting rules and standards were fairly well known by the industry and the ways of accounting for transactions were relatively consistent," says Ronald Gagel, a chartered accountant who is a director at the Prospectors and Developers Association of Canada, which represents mining companies in the exploratory and development phase. "With IFRS there are certain areas with different possible interpretations, so the industry is looking towards standardizing practices across IFRS once we understand and work out all the wrinkles."
So how have mining companies risen to the IFRS challenge?
At Stonegate Agricom, Ms. Coombs and her team came up with a detailed plan of action that included identifying areas that would be affected by IFRS, measuring the impact on the business and its results, and working with external auditors to ensure the company was on the right track.
"It was a pragmatic approach," says Ms. Coombs. "We worked to ensure the auditors were in agreement with our decisions so that everybody was on the same page."
Many of the industry's big players joined working groups to debate IFRS issues and come to a consensus on how to interpret the standards.
"It's a very collaborative industry," says Mr. Hodgkinson, who led a working group that included about 15 of the top mining companies in the country. "Our group would get together every two to three months and people would share what they're doing with respect to IFRS and how they're interpreting it."
Mining companies weren't the only ones that collaborated on IFRS; the country's Big Six accounting firms – KPMG, Deloitte & Touche, PricewaterhouseCoopers, Ernst & Young LLP, Grant Thornton and BDO Canada – also got together with the Prospectors and Developers Association of Canada to set up an IFRS task force, chaired by Mr. Gagel and backed by the Canadian Institute of Chartered Accountants.
The task force has published six documents, each focusing on a particular IFRS issue and how it might apply to the mining industry.
"This task force was about sharing our learning and expertise with the junior mining companies who might not have had the benefit of a team to research IFRS issues," says Mr. Hodgkinson.
While Canada's mining industry is now largely converted to IFRS, the transition isn't over, says Deena Lu, a chartered accountant and IFRS analyst at CCH Canadian Limited, a Toronto-based provider of tax and accounting research and software.
"It's an ongoing education process," she says. "Accounting standards are always changing, and there are a number of changes coming through for 2013 that all companies should be aware of and that would particularly impact mining companies."
One of these expected changes will address how joint ventures are structured – something a mining company planning to acquire a reserve should start looking into now, says Ms. Lu.
"The change could have an impact on how they decide to structure each individual party's role in the venture," she says.
Regardless of their industry, it's a good idea for those who have switched to IFRS to take a look at other company's IFRS-based financial reports, says Ms. Lu.
"Keep an eye on how other companies in your industry are interpreting the standards," she says. "This will help you ensure you're reporting your results in a way that's comparable to other companies."
Special to The Globe and Mail