Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – decision exempting the Filer from the requirement in s. 3.1 of National Instrument 52-107 Acceptable Accounting Principles, Auditing Standards and Reporting Currency that financial statements be prepared in accordance with Canadian GAAP for so long as the Filer prepares its financial statements in accordance with IFRS-IASB - Filer has assessed the readiness of its staff, board, audit committee, auditors and investors – Filer must provide specified disclosure regarding early adoption of IFRS-IASB in a news release to be disseminated within seven days of the decision – if the Filer files interim financial statements prepared in accordance with Canadian GAAP in the year it adopts IFRS-IASB, those interim statements must be restated using IFRS-IASB
Applicable Legislative Provisions
National Instrument 52-107 Acceptable Accounting Principles, Auditing Standards and Reporting Currency, s. 3.1, s. 9.1
October 2, 2009
In the Matter of
the Securities Legislation of
Ontario (the Jurisdiction)
and
In the Matter of
the Process for Exemptive Relief Applications in Multiple Jurisdictions
and
In the Matter of
Brookfield Properties Corporation (the Filer)
Decision
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) exempting the Filer from the requirement in section 3.1 of National Instrument 52-107 — Acceptable Accounting Principles, Auditing Standards and Reporting Currency (NI 52-107) that financial statements be prepared in accordance with Canadian GAAP for financial periods beginning on or after January 1, 2010 (the Exemption Sought), for so long as the Filer prepares its financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS-IASB).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application, and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 ― Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador (the Passport Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 ― Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
The Filer is a corporation incorporated under the Canada Business Corporations Act pursuant to articles of incorporation dated September 5, 2002. The head office of the Filer is located at Brookfield Place, 181 Bay Street, Suite 330, P.O. Box 762, Toronto, Ontario M5J 2T3.
The Filer is a reporting issuer or equivalent in the Jurisdiction and each of the Passport Jurisdictions. The Filer is not, to its knowledge, in default of its reporting issuer obligations under the Legislation or the securities legislation of the Passport Jurisdictions. The Filer’s securities are listed on the Toronto Stock Exchange and the New York Stock Exchange. The Filer is also a registrant with the United States Securities and Exchange Commission (SEC) and a foreign private issuer in the United States.
The Filer owns, develops and manages premier office properties. Its current portfolio is comprised of interests in 108 properties totaling 75 million square feet in the downtown cores of New York, Boston, Washington, D.C., Los Angeles, Houston, Toronto, Calgary and Ottawa, making it one of the largest owners of commercial real estate in North America. Landmark assets include the World Financial Center in Manhattan, Brookfield Place in Toronto, Bank of America Plaza in Los Angeles and Bankers Hall in Calgary.
As of September 1, 2009, the Filer’s parent company, Brookfield Asset Management Inc. (BAM), directly and indirectly, owned 249,362,561 common shares and 13,796,870 Class A Redeemable Voting preferred shares of the Filer, representing approximately 50% and 97%, respectively, of the outstanding shares of each such class. BAM is a reporting issuer or equivalent in the Jurisdiction and each of the Passport Jurisdictions. BAM’s securities are listed on the Toronto Stock Exchange, the New York Stock Exchange and the Euronext Amsterdam Exchange. BAM is also a registrant with the SEC and a foreign private issuer in the United States.
BAM has received an exemption from the requirement in section 3.1 of NI 52-107 that financial statements be prepared in accordance with Canadian GAAP for financial periods beginning on or after January 1, 2009, for so long as BAM prepares its financial statements in accordance with IFRS-IASB. BAM intends to begin preparing its financial statements in accordance with IFRS-IASB for periods beginning on or after January 1, 2010.
The Canadian Accounting Standards Board has confirmed that publicly accountable enterprises will be required to prepare their financial statements in accordance with IFRS-IASB for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011.
NI 52-107 sets out acceptable accounting principles for financial reporting under the Legislation by domestic issuers, foreign issuers, registrants and other market participants. Under NI 52-107, a domestic issuer must use Canadian GAAP with the exception that an SEC registrant may use US GAAP. Under NI 52-107, only foreign issuers may use IFRS-IASB.
The Filer has not previously prepared financial statements that contain an explicit and unreserved statement of compliance with IFRS-IASB.
In CSA Staff Notice 52-321 ― Early Adoption of International Financial Reporting Standards, Use of US GAAP and Reference to IFRS-IASB, staff of the Canadian Securities Administrators recognized that some issuers may wish to prepare their financial statements in accordance with IFRS-IASB for periods beginning prior to January 1, 2011 and indicated that staff were prepared to recommend exemptive relief on a case by case basis to permit a domestic issuer to do so, despite section 3.1 of NI 52-107.
Subject to obtaining the Exemption Sought, the Filer intends to adopt IFRS-IASB effective January 1, 2010 for its financial statements for periods beginning on and after January 1, 2010.
The Filer believes that the adoption of IFRS-IASB for financial periods beginning on or after January 1, 2010 would be in its best interests and the best interests of users of its financial information for a number of reasons, including the following:
(a) it will align the basis of accounting under which the Filer prepares its financial statements with the basis of accounting under which BAM intends to prepare its financial statements for financial periods beginning on or after January 1, 2010;
(b) it will result in financial information that will more accurately represent the Filer’s results of operations and financial position in particular because IFRS-IASB’s greater use of fair value in conjunction with the Filer being an owner, operator and manager of long-lived assets that predominately appreciate over time rather than depreciate systematically will result in the carrying value of the Filer’s assets and its tax balances more closely aligning to their economic values; and
(c) it will reduce the administrative burden and risk involved in preparing its consolidated financial statements and reporting to BAM if both entities’ financial statements are prepared in accordance with IFRS-IASB.
The Filer is implementing a comprehensive IFRS-IASB conversion plan.
The Filer has carefully assessed the readiness of its staff, board of directors, audit committee, auditor, investors and other market participants to address the Filer’s adoption of IFRS-IASB for financial periods beginning on January 1, 2010 and has concluded that they will be adequately prepared to address the Filer’s adoption of IFRS-IASB for periods beginning on or after January 1, 2010.
The Filer has considered the implications of adopting IFRS-IASB for financial periods beginning before January 1, 2011 on its obligations under securities legislation, including, but not limited to, those relating to CEO and CFO certifications, business acquisition reports, offering documents and previously released material forward-looking information.
The Filer will disseminate a news release not more than seven days after the date of this decision document disclosing relevant information about its conversion to IFRS-IASB as contemplated by CSA Staff Notice 52-320 ― Disclosure of Expected Changes in Accounting Policies Relating to Changeover to International Financial Reporting Standards, including:
(a) the key elements and timing of its conversion plan to adopt IFRS-IASB;
(b) the exemptions available under IFRS 1 First-time Adoption of International Financial Reporting Standards that the Filer expects to apply in preparing financial statements in accordance with IFRS-IASB;
(c) the major identified differences between the Filer’s current accounting policies and those the Filer is required or expects to apply in preparing financial statements in accordance with IFRS-IASB; and
(d) the impact of adopting IFRS-IASB on the key line items in the Filer’s interim financial statements for the period ended June 30, 2009.
- The Filer will update the information set out in the news release in its subsequent management’s discussion and analysis, including, to the extent the Filer has quantified such information, quantitative information regarding the impact of adopting IFRS-IASB on the key line items in the Filer’s financial statements.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted, subject to all of the following conditions:
(a) for so long as the Filer prepares its financial statements for financial periods beginning on or after January 1, 2010 in accordance with IFRS-IASB;
(b) provided that the Filer provides all of the communication as described and in the manner set out in paragraphs 15 and 16;
(c) provided that if the Filer files interim financial statements prepared in accordance with Canadian GAAP for one or more interim periods in the year that the Filer adopts IFRS-IASB, the Filer will restate and refile those interim financial statements originally prepared in accordance with Canadian GAAP in accordance with IFRS-IASB, together with the related restated interim management’s discussion and analysis as well as the certificates required by National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings; and
(d) provided that if the Filer files its first IFRS-IASB financial statements in an interim period, those interim financial statements will present all financial statements with equal prominence, including the opening statement of financial position at the date of transition to IFRS-IASB.
“Lisa Enright”
Manager, Corporate Finance
Ontario Securities Commission