Cannabis Knowledge & Insights

The IFRS Audit: What to Expect When Going Public in Canada

To enter the Canadian Stock Exchange, American cannabis operators must go through an audit in accordance with Canadian regulations. 

  • The audit requires that you prepare four key documents  as part of your IFRS financial statements.
  • You must also provide a summary of your accounting policies and notes.
  • Note that IFRS standards are slightly different than the US GAAP principles and you may need to reclassify some expenses.

Speak to one of our experts for help preparing for an IFRS audit. {{cta(‘e221e57c-bc98-40d6-b31d-286dd9a931c3’)}}

US-based cannabis companies are going public on the Canadian Stock Exchange (CSE) more than ever now that our neighbors to the north legalized recreational cannabis.

As of August, 2018, 76 of the 379 companies listed on the stock exchange sell cannabis. Taking your cannabis business public is a great way to raise funds and expand your footprint to new markets, both in the US and in Canada.

Before listing on the CSE, you are required to take your business through an audit in accordance with Canadian auditing standards and prepare financials in accordance with International Financial Reporting Standards (IFRS)  – cash on hand and inventory part of the audit must be done by December 31, 2018 if you wish to list in 2019.

Our experts are standing by to help guide you through the process, but here is what to expect from the audit process.

IFRS Audit Breakdown

There are four key documents which you need to prepare as part of your IFRS financial statements.  These documents must cover your three-year historical financial information and are first audited by an independent auditor and then reviewed by the Canadian Stock Exchange.

  • Statement of Financial Position: A balance sheet. This must include property and equipment.
  • Statement of Comprehensive Income: Usually one statement, but it can also be separated into a a profit and loss statement and a statement of other income.
  • Statement of Changes in Equity: This documents shows the company’s change in equity accounts for a given financial period.
  • Statement of Cash Flow: A summary of your company’s financial transactions over a given period. Separate cash flow into operations, investing, and financing.

The success of your listing application with Canadian Stock Exchange and going public  is dependent on accuracy of the documents, so you must make sure you are working with an auditor that can guide you through correctly preparing these financials.

In addition to these documents, you must also provide a summary of your accounting policies and notes. Note that if you operate a parent company with a subsidiary, you must consolidate all subsidiaries in accordance with IFRS 3 prepare separate reports for each of the subsidiary companies.

IFRS Standards vs GAAP Standards

The US uses something called Generally Accepted Accounting Principles (GAAP) to set standards and requirements for preparation of financial statements. If you’re familiar with GAAP, then you should know that IFRS standards are slightly different.

The main area of difference for cannabis companies is treatment of cannabis plants. Under IAS 41, cannabis plants are required to be separately presented on balance sheet as biological assets from the rest of the inventory. In addition, each reporting period, they are required to be measured and adjusted to the fair value.

Secondly, inventory is accounted for differently under IFRS and GAAP. Are you familiar with last in first out (LIFO) and first in first out (FIFO)? LIFO, the idea that the most recent inventory is the first sold, is prohibited under IFRS. GAAP allows companies to freely use both LIFO and FIFO.

IFRS also provides different requirements for expenses. A company that spends money on development or on future investment can capitalize that expense and does not need to list it.

This obviously has impact on your business operations as a cannabis operator, so be aware of the different rules while preparing for your audit.

Get Your IFRS Audit & Go Public in Canada

To ensure you’re compliant with all IFRS standards, get help from expert auditors like Green Growth CPAs who have audited and helped dozens of cannabis companies prepare their financial statements.

Getting started with the IFRS audit requires details of your cash and inventory as of December 31, 2018. There’s still time to complete the  audit: start by clicking below!